Eli5 what causes a currency to lose value?

Question

Eli5 what causes a currency to lose value?

In: 1

Answer 1

Are you talking about buying power or inflation — like the same amount of money doesn’t buy as much any more?

Or are you talking about currency exchange rates? Like the value of the dollar in relation to the euro or the pound or the yen goes down.

The latter is just supply and demand. If more people are converting from dollars to euros than from euros to dollars then the exchange rate goes down. A trade deficit can cause that but also other ways of flowing money like buying foreign bonds, etc.