Like why can’t some country say something like “our country’s currency value will be 200 times that of US dollars ” . And who determines this value or how it is determined. And why it constantly changes.
In: Economics
The short answer is “free-market supply and demand sets the prices.” However, countries do have some tools to control the value of their currencies in relation to other currencies.
* They can expand the supply of their currency (and lower its relative value) by printing more money. This is called inflation. It’s generally a bad situation to be in, but sometimes it’s the only way to get out of an even worse situation (like having tons of foreign debt that you cannot pay).
* They can abolish the currency, and start over with a new one, usually allowing everyone who holds their old currency to trade it in at a rate like 100:1 or 1000:1 for the new currency. This is called “currency devaluation,” and it’s basically like doing a whole bunch of inflation all at once. This messes up their economy pretty bad, but again, it’s a tool that can be used to get out of an even worse problem. It can get them to a new controllable stable value level instead of an uncontrollable inflation spiral.
* They can also reduce their money supply (and increase its relative value) by a number of means. By reducing the rate of new money printing; by offering government-backed securities that must be purchased with their currency (like US Treasury Bonds); or by raising taxes and reducing government spending to stockpile the surplus tax revenue.
* Keep in mind that governments have the power to create “demand” for their own currency, by requiring their citizens to pay taxes, fees, public services, etc. only in their domestic currency. Raising taxes, or tightening up the laws on what can be paid for with foreign currencies, can help increase and stabilize the value of their currency. Of course, these moves have their own economic and social consequences, that the government will have to deal with.
In addition to these indirect methods, countries often *do* try very hard to directly manage the exchange rates between their currencies and and others. Often, they will have an official exchange rate, and the government will only “sell” its foreign currency stockpiles for domestic currency at that official rate.
This can be a helpful tool to try to manage inflation, but if the official rate gets too far away from the actual free-market value of its domestic currency, then people just stop using the government exchanges and start up black markets. This is what’s happening in Venezuela right now, [for example](https://www.thebrokebackpacker.com/changing-money-venezuelas-black-market/).
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