# How can the value of a currency go up or down? Surely £1 will always be worth £1 and \$1 will always be worth \$1?

2.95K views

How can the value of a currency go up or down? Surely £1 will always be worth £1 and \$1 will always be worth \$1?

In: Economics

Yes 1\$ will always be 1\$, but what you can buy with 1\$ will not always be the same thing.
Suppose the value of your currency goes down halves, you’ll have to spend 2\$ for what used to cost 1\$.

The name of the currency isn’t it’s value.

\$1 is \$1, by definition. But it’s value is how much goods and services it can buy.

So if you can buy all the necessities needed to live for a month for like 2 grand today, but in 2025 those same exact things cost 4 grand, then the value of a dollar went down by half, even though it’s still a dollar.

This can happen several ways. If a country just prints more money but has the same goods and services, each piece of money will be worth a smaller amount of the total goods and services. If the costs of production rise, factories will raise their prices and it will take more dollars to buy the same thing. If the demand increases without a production increase, like all of a sudden there’s 2x the birth rate and there’s way more mouths to feed without more stuff being produced, then each person gets a smaller percent of the total goods for the same percent of the total money

Let’s say I have a piece of gold. And I print one piece of f paper and say it’s one dollar’s worth of gold.

You accept this because it’s easier to carry.

As long as there’s always the gold to back the paper, the value of the paper doesn’t really change.

But what if I say…. I want to do more. So I print ten pieces of paper, say they’re all worth a dollar or a euro, but all ten are only backed by the one dollar’s worth of gold (which is a great medium of exchange)

Now, each dollar is only worth one tenth of what it was before. It’s still worth a dollar, but a dollar isn’t worth as much.

That’s why your house – on average, with the exception of bubbles or genuine growth in industry – is always worth the same.

Sure it goes up in dollar amount, but that is really just the dollar amount falling. The actual value adjusted for inflation, is pretty stagnant.