What Gives Currencies their Strength?

When a dollar is added to the pool of dollars in circulation, it’s highly likely to affect interest, inflation, and more importantly the exchange rate with other currencies. That’s naturally something you keep in mind when dealing with forex, any new casino 2020 in a foreign country, or with international trade.

In the current globalized economy, it is hard to know which currencies will be in demand and which not. Multiple factors affect the strength of one monetary type versus another. In this article we will go through a few of these factors.

Resources

The resources we rely on to produce goods for local markets are increasingly scarce, while the money needed to pay workers is likely to be plentiful. Local currencies can be affected by these current trends and create a situation where local currencies are losing strength rather than gaining strength.

If money and resources are not used for exports, the local currencies cannot gain strength. When it is easier to create money and resources than to find the correct markets and resources to produce goods, it is less likely that local currencies will gain strength.

News & Events

When the Brexit vote passed in favor of the UK leaving the EU in 2016, the value of the British Pound (GBP) fell by 10% and is continuing to recover from that loss. It would take several years before the UK finally left, but this is but one example of how events that affect the international business community can affect the strength of a currency. When the wide community perceives potential weakness in a currency it can affect its strength against other currencies significantly.

For non-tangible currencies like Bitcoin or Etherium this is especially true. The value of these currencies changes constantly as more financial institutes like Independent Reserve begin trading it or countries like China reduce the ways it can be traded. Those in the business of trading Forex monitor news and the status quo constantly in order to predict changes like these in the market that would affect the strength of the currency.

Interest Rates

Investors make their money from producing resources. A normal situation is that the money we produce is not given to workers to pay them for producing the resources, but to investors to pay for loans for producing more resources. This causes a scenario where interest rates for loans are usually higher than for loans for producing goods. This is not the ideal situation. It is better if interest rates are lower and loans are given to workers to pay their wages. This is the situation that is normal today in most economies. Interest rates for loans are usually higher for loans that are needed for creating goods than for loans that are needed to create materials, energy, or labor. If interest rates were lower, it would be easier to pay wages for labor in a local economy.

When interest rates are low, it is easier to pay wages for labor. When we pay wages, we always need to make sure we have sufficient money in the local currency to pay the wages. If we have enough currency, wages should be paid to workers and this should help local currencies gain strength. The same is true of interest rates. It is easier to pay interest when interest rates are low. In the current situation, it is easier to produce money for lending than to produce goods to sell and to make loans. If interest rates are low, this is an ideal situation for local currencies to gain strength. This is one of the reasons why interest rates are very important for currencies. This is also the reason why interest rates are very important for banks. If they make loans with their money, this makes it easier to lend local currencies.

Banks also make their money by lending local currencies. When interest rates are higher than banks can generate local currency with loans, interest rates are low. However, if interest rates are low, the supply of money is too low for local currencies to gain strength.

The Connection

There is a connection between local currencies and interest rates. As interest rates are very low, local currencies are losing strength. Local currencies should not be expected to gain strength when interest rates are too low. The system should be designed so that local currencies gain strength when interest rates are high, and lose strength when interest rates are low.