Why USD is cheaper than GBP

[Pawelk198604]

I know science forum for typical hard science but economic science is also sciencie "Mathematical" science:-)

I Always wonder why British Currency is more expansive than american one, the days of "RULE BRITANNIA" are over now USA is dominating power.

I also wonder why my national currency is Polish Zloty Russian is more expensive than Ruble even though Russia is dozens of times larger territory than Poland, nuclear warheads, and most importantly its own space program (the first in the world)

[stupid_chris]

Because the value of a currency isn't defined by the political, technological, or millitary power of the said country.

[Redjoker]

The problem is that you are assuming that because one USD equals more than one GBP means that the economy is stronger. This becomes a larger problem when you compare USD to the Yen. You tell how strong a currency is by looking at it's past history compared to other currencies. As for why, currencies change value for various reasons, among them: each country having different levels of inflation, countries increasing the amount of currency available, and how the country is doing economically among other things.

[TrooperCooper]

Foreign exchange rates are driven by many.... many many factors. Political / military power are just two amongst them. Other drivers are things like productivity, inflation rate, interest rates and other central bank interventions, foreign trade ballances, and... not to forget... *gasp* speculation.

Under ideal circumstances, the foreign exchange rate between currencies would ensure that you in Poland would have to work just as many hours to buy a theoretical polish product as you would have to work in Poland as well to buy a theoretical identical foreign product (simplified speaking). Thus, trade ballances would even out.

But thats just textbook economic theory. Reality contradicts the assumption of free financial markets ballancing trade flows.

[Seret]

To find the actual value of a currency you need to look past the up front numbers and compare things like Purchasing Power Parity and wages. The actual standard of living doesn't vary much between the US and UK, for example.

[crazyewok]

are over now USA is dominating power.

Only military.

Its economy is based on $17 trillion debt and its growths spurned by quantitative easing and deficit spending. Its basically a economic time bomb waiting to go off.

USD is only worth what bankers say it is and only 1 bad day in the stock markets stand between it being worth something to being worth the value of my belly button fluff.

Edited August 10, 2014 by crazyewok

[cantab]

The absolute exchange rate is pretty meaningless, since the size of the unit is arbitrary and can be (and in several countries has been) changed at any time. It's the trends that matter.

[ZetaX]

I know science forum for typical hard science but economic science is also sciencie "Mathematical" science:-)

Economics is about as much mathematics as throwing bricks at people is physics.

But this thread doesn't even have to do with economics, but is simply about the arbitrarity of units. It is essentially the same as asking "I always wonder why metric system's meter is longer than imperial's foot".

[bsalis]

As others have pointed out, there are many factors that define the exchange rates for a currency.

Note that having a highly valued currency is not necessarily a great thing, since it encourages purchase of imported goods over domestic. Exports also suffer since they cost more to foreign buyers. Currently (and for some time now), most developed nations have been debasing their currency to encourage growth.

A highly valued currency is also an aspect of Dutch Disease.

http://en.wikipedia.org/wiki/Dutch_disease

[Mr Shifty]

Only military.

Its economy is based on $17 trillion debt and its growths spurned by quantitative easing and deficit spending. Its basically a economic time bomb waiting to go off.

USD is only worth what bankers say it is and only 1 bad day in the stock markets stand between it being worth something to being worth the value of my belly button fluff.

You can't grow an economy by increasing the money supply, but you can stave off demand-driven recessions or try to boost inflation. $17 trillion in debt has nothing to do with growth either; almost all of it is internal accounting (money owed by the government to itself -- about $7.5 trillion now -- or money owed by US citizens to other US citizens -- about $5 trillion) and the part that is not (foreign owned debt) is actually a net good for the US. It represents an exchange of IOUs denominated in USD for real, durable goods. What the debt really represents is nothing more than the increase in the total money supply through deficit spending over some arbitrary time period. (For the U.S., that time period is approximately since 1840, which is the last time the U.S. had a $0 debt balance.) Debt is an incomplete and arbitrary economic measure and thus virtually useless for saying anything about the strength of an economy, particularly since most people don't really understand its significance.