Why is the american dollar value so low ?

Question

Will it ever go back up ? Are we headed for the euro , what gives ?

Answer 1

The answer is largely wrapped up in real interest rates.

U.S. interest rates are low compared with Europe and England - the more interest you receive for your money, the more value it has.

The value of the dollar has very little to do with debt except to the extent that the national debt has a small and insignificant influence on interest rates.

Think of it this way: If U.S. interest rates were to jump from 5.5% to 16% overnight, the dollar and Euro would reverse and the dollar would be the currency in demand and currency traders would be buying the dollar and selling the Euro all around the globe.
It's not correct to say that a currency is stronger. Currencies have value based on purchasing power and intrinsic value. For instance: It would not matter much if the Japanese Yen were "stronger" than the dollar but it still took the Yen an equivilant of $5 U.S. dollars to buy a cup of coffee or $20 to buy a gallon of gas. That is purchasing power. The intrinsic element of currency is how much it is worth to hold. For instance: If Europe has interest rates of 7.25% and Canada has interest rates of 6.85%, both nations being stable, it would make more sense, if you had a great deal of money you would be wise to convert it to Euros and keep your money in a European bank where it would earn higher interest. Such activity drives up demand for Euros and drives up the value of the Euro against the dollar and all other currencies.

However, it is not true that the nation with the highest interest rates will necessarily have the strongest or most desirable currency. There are many economic factors that come into play - but when thinking of the major world currencies; the Yen, Euro, Dollar, and Pound, the most decisive factor of value is interest rates.

Answer 2

John Maynard Keynes, the father of the ecconomic school of thought that, among other things, possits that governments should use monetary policy to increase aggregate demand as a way of reducing or eliminating economic downturns. This practice leads to inflation - sometimes very serious inflation, as in the 70s - which errodes the value of the fiat currency involved, relative to other currencies experiencing lower levels of inflation. The US has been following basically Keynesian economic policies for most of the last 70 years. Today, we actually have inflation, it's just not showing up as strongly as it might in the consumer price index, because of our extensive reliance on imports from countries - most notably China - who have kept thier curencies depressed in lockstep with our own.

Answer 3

The American dollar was first printed to take the place of heavy gold coins, so the government exchanged the paper money, for the same value as the gold coins. The government got the idea that they could "borrow' the gold to help win the war effort, and the U.S debt began. April 5, 1933
President Roosevelt, acting under the sweeping authority passed to him by Congress on March 9, signed Presidential Executive Order 6102 which invoked his authority to make it unlawful to own or hold gold coins, gold bullion, or gold certificates. The export of Gold for purposes of payment was also outlawed, except under license from the Treasury
The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold. Under the gold standard, currency issuers guarantee to redeem notes, upon demand, in that amount of gold. Governments that employ such a fixed unit of account, which will redeem their notes to other governments in gold, share a fixed-currency relationship. The gold standard is not currently used by any government or central bank, having been replaced completely by fiat currency. However, private currency, backed by gold, is in use.

Answer 4

Too much national debt. This means less people in the world want to hold dollars, so it goes down.

Answer 5

This is just the beginning.In the months and years to come,you can expect dollar to go down more and more.Economics apart,What goes up fast comes down even faster.Nobody can continue to call himself Rich when he is actually in debt up to his neck.America is now headed down hill.

Answer 6

Because "low unemployment with price stability" is impotant to the clowns who vote for the beltway parties.

Answer 7

Because Bush is an idiot and spent too much money on war. The US has more debt than any other country in the world.