The monetary system doesnt seem to make sense?

Question

Why have different currencies when its not one for one. One dollar for one peso etc etc. In the poorer countries they just pay them more to bring the workers up to the same level.
5000 pesos an hour etc etc. So whats the point of one money being worth more???

Answer 1

If it were a 1:1 exchange across the board, then they wouldn't be different currencies. Also, exchange rates change because more forgein investors want to invest more heavily in certain countries than others. Which would you rather invest your money in, the United States or Somalia? Enough said.

Answer 2

if a country floats its currency then its value depends on supply and demand for that currency itself.

if it wants to maintain a 1 to 1 ratio with another country, then it's pretty much a fixed currency.

some countries cannot afford to do so because not only it will make the economy somewhat unbalance (because you would have to change the fiscal and monetary policy just so you can keep the ratio 1 to 1)

besides, if a country wants to balance a 1 to 1 ratio, and the demand for its currency is lower, then it would have to buy its own currency to increase the demand back to 1.

vice versa if its currency has a higher demand.

holding everything else at constant, there are other factors as well such as wage rates differ from country to country since some countries are more labour intensive and others are more capital intensive.

hope that helps

Answer 3

Exchange rates constantly change. Inflation effects various countries at various rates. And different countries each want to do their own thing. A dollar in 1807 would buy you more than a whole meal. Now it won't buy a Starbucks coffee. Things change and will continue to change, and no one government has the power to stop it.