posted on Dec, 30 2011 @ 07:55 PM
reply to post by kinnerarity
That's not how the value of a currency is determined. The exchange rate (the difference between currencies) is a balanced act of keeping currencies
relative to the value of their exports to specific trade partners. For Europe they require a slightly stronger currency (optimal exchange is
1.35/1.50) in order to balance the economy. This offsets the effect of higher costs from imports somewhat, relatively Europeans still pay more per
items as a percentage of their total income.
What it doesn't mean? It doesn't mean a Euro is "worth more" unless you move Euro's into America. And even then, it's only relative to what
region of the US and how much you actually make.
The 'value' of a currency is demand. As long as there is demand, the currency has value. An example, China's Yuan has no "value" .. it's an
artificial currency made by command from the Chinese central bank. Whereas the USA, Japan, UK, EU and many others are all exchangeable, meaning the
'value' can be made as a representative to swings based on demand. The Yuan cannot.
That means so long as America is a Reserve currency the currency cannot collapse. Demand is to high. Europe's balance comes from it's inability to
Monetize, which artificially lowers the value of the currency .. they rely on economic output to place their value (demand). If the ECB has to
monetize, which they've begun to, it will decrease the value of the Euro and raise the relative value of every other exchangeable currency.