Currency value is the abbreviation of "unit currency value".
Under the conditions of metal currency circulation, it refers to the amount of value contained in a unit currency. When full-value currency and nominal currency circulate in parallel, currency value can be divided into nominal value and real value. The former refers to the face value of the currency, and the latter refers to the value of the metal actually contained in the currency. The two values ??of full-value money are equal, while the two values ??of nominal money are divergent.
Under the conditions of banknote circulation, the banknote itself has no value. Therefore, the currency value of the banknote refers to the purchasing power of the banknote or the value represented by the unit banknote. Since banknotes circulate instead of metal currency, the value of banknotes reflects the amount of metal currency required for circulation on the one hand, and depends on the issuance of banknotes themselves on the other.
The value of currency is determined by many factors. In the modern economy, the value of currency is mainly affected by factors such as market supply and demand and monetary policy. Market supply and demand refers to the demand and supply of currency in the market. When the demand for currency increases or the supply decreases, the currency value may rise. Monetary policy refers to the government or central bank affecting the value and circulation of currency by adjusting money supply, interest rates and other means.
The impact of monetary policy on currency value is multifaceted:
1. Interest rate regulation:
Monetary policy can affect currency value by adjusting the interest rate level. When the central bank adopts expansionary monetary policy, lowering interest rates can stimulate economic growth and investment, thereby increasing the money supply, which may lead to currency depreciation. On the contrary, when the central bank adopts tightening monetary policy, raising interest rates can curb inflation and an overheated economy, reduce the money supply, and may lead to currency appreciation.
2. Money supply regulation:
Monetary policy can also affect currency value by adjusting the money supply. When the central bank increases the money supply, it may cause the currency to depreciate; conversely, when the central bank reduces the money supply, it may cause the currency to appreciate. This is because the increase or decrease in the money supply will affect the supply and demand relationship of currency in the market, thereby affecting the value of the currency.
3. Foreign exchange market intervention:
The central bank can affect the currency value by intervening in the foreign exchange market. When the central bank purchases the domestic currency, it can increase the demand for the domestic currency, thereby promoting the appreciation of the currency; conversely, when the central bank sells the domestic currency, it can increase the supply of the domestic currency, thereby promoting the depreciation of the currency. Foreign exchange market intervention is one of the tools commonly used by central banks to maintain the stability of currency values.
4. Economic policy expectations:
Expectations of monetary policy will also have an impact on currency value. Market participants' expectations of future monetary policy will affect their assessment of currency value, thereby affecting currency value fluctuations. If the market expects the central bank to adopt a tightening monetary policy, it may cause the currency to appreciate; conversely, if the market expects the central bank to adopt an expansionary monetary policy, it may cause the currency to depreciate.