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
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.
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