Eli5: why does currency strenght matter? Why does it matter if my currency is 1=1£ or 10=1£?
In: Economics
It doesn’t. The change of relative strengths over time matters – if currency A drops vs currency B, then it will be more expensive for country A to import from country B, for example.
But if 1A = 1000B, constantly, forever, then it’s irrelevant. It may just happen that there are 1000 more units of currency B in circulation than currency A, and the “market cap” of both currencies is the exact same.
Imagine country A, with currency A, has a “wealth” of 1 billion, and currency A has 1 million units in circulation. Each unit of A is worth 1000.
Country B, with currency B, has a “wealth” of half a billion, but there are only 10 units of currency B in circulation. Each unit of B is worth 50 million.
1B = 50000A. Does that mean B is the stronger currency? No – each unit is more valuable, but as a currency A is representing double the value.
The most powerful currency in the world, by VERY far, is the USD – yet the euro and gdp have stronger units.
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