Ok I just asked a question about the strength of the US dollar?

Question

and got lots of replies saying that its actually quite a weak currency and the UK poind is probably the strongest currency around. Here's another question then..

How is it that the USA is supposed the be the most powerful nation on earth yet has a weak currency [which pre-dates 9/11]??

Answer 1

it has a weak currency becuase of its debts not its influence

Answer 2

Currency value is directly linked to the supply of the currency on the global market, as well as interest rates.

The central bank in the EU has recently been raising rates, which has caused their currency to appreciate against the dollar.

The other major factor has been the fact that oil has been so expensive the past few years, which has caused the US's current account to get worse; this affects the value because, as mentioned above, there are more US dollars on the international currency market.

There is no "strongest' or "weakest' currency assuming that PPP holds true, which it generally does.

1 GBP might get you 2 dollars, but generally speaking an item that may cost 1 GBP in the UK would cost you 2 dollars in the US. This isn't a perfect match due to a variety of factors, but it averages out.

Answer 3

I'm sorry to tell you that nearly all the responses above to your question are rubbish. Most people have zero understanding of currency issues, but sadly that does not stop them from coming here and responding to questions.

Panacea is the exception -- he has given you a very good answer, and seems to be the only one with a clue. I'll add that it is simply incorrect to view recent currency fluctuations as an indication of a country's economic (or military) strength. A million obscure things affect supply and demand among foreigners for the US dollar at any time, and THAT is what determines currency movements. A country's currency is not like a company's stock, it does not represent "ownership" in the US if you have a dollar bill in your hand -- so it is not sensible to expect a currency to behave like a stock or try to draw those conclusions.

Answer 4

A different question would be what determines the value of a country's currency and what is currency really?

Prior to the Nixon administration, we were on the gold standard, so theoretically you could trade in a dollar for a smaller amount of gold. Now, the dollar is backed just by the "full faith and credit of the United States."

The answer is actually quite complex and deals with the supply and demand for dollars. In general though, weak economies tend to have weaker currencies and stronger economies have stronger currencies.

Try a google search to Professor Roubini's website at New York University.

Answer 5

The USA loses strength daily because our president is an idiot. We have been set back decades by the Bush administration's utter lack of diplomacy.

The Chinese own the US financially at this point

You believe the dollar is doing well because Bush and his cronies are constantly tell the people things are going great: but it is a lie.

The dollar is weak because our country is weakend by wars we had not business in conducting.

Actually, the Euro is the strongest currency now but the British Pound is up there too.

In the Year 2001 the Euro was worth about 85 cents to a US Dollar

Today the Euro is worth $1.33 in US dollars. What does that tell you?

Answer 6

A fact that hasn't been mentioned yet is that the weakening dollar has a side benefit of deflating our deficit. Think about it. If we owe China 10 million dollars (no its not the actual amount), but those dollars become worth less, then our debt by default becomes less. Of course the downside of a weaker dollar is that imports are more expensive. We're in good standing right now, because investment in US assets is still high. So for example, we borrow from India, and India in turn uses the interest from the loan (its actually bonds I think), to invest in the US. So in this way our debt is largely self financing if you know what I mean. Countries are making money off of the US, which in turn borrows money from them. As long as the money is reinvested here, are economy will be strong. When countries start investing elsewhere in masse, then we'll be in trouble.

Answer 7

USA is a country of imports, and the only thing it exports is its labor force. Comibine this with a growing national debt and poorer common man and you have a weak econamy.

As for comparatively, the GBP is the best ranking in at around $1.91 per GBP, better then $1.31 for a euro.

Answer 8

Like the stock market, the value of currencies changes daily.

Answer 9

The US is the most powerful nation on Earth in terms of political voice because it has placed itself in favourable circumstances globally (eg virtually controls the IMF and world bank etc). Economically, the US is fairly stagnant and other economies are swiftly catching up.

Answer 10

Strength of economy, wealth and strength of the dollar are not related closely. The reason that the US dollar is weaker than the euro is that the US has a hell of alot more people who want to buy goods from europe relative to the amount of goods they have for sale, than vice versa. If only one person from europe sells something and there are ten buyers in the united states who want it, it tends to go to the highest bidder. If the entire trade situation between countries looks like that, the relative buying power of the US dollar is depressed relative to the goods it buys. Few goods plus lots of money = money not being worth much.

However, the US economy is many times stronger than europes. The difference is that we consume most of the fruits of our economy internally, rather than export it. The average US citizens has much more real wealth (owning land, owning vehicles and the gas to drive them, luxury goods, disposable income etc.) than anywhere else in the world.

The buying power of our dollar might be lower due to this situation but the buying power of our citizens is much higher. It can be a vicious cycle resulting in uneven trade.

Answer 11

The strength of a currency has little to do with a country's military strength.