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
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
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