can somebody explain to me why sanction against a country causes its money’s value to drop. let’s assume this country is self-sustained (no import required) then does int’l exchange rate even matter? and if this country is a major exporter of oil, how does oil price drop affect its int’l exchange rate?
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All modern currency’s are what’s called “fiat currency”, they’re not equivalent to anything physical like an amount of gold, they’re just pieces of paper (see /u/Curben’s comment for the history on non-fiat money). Fiat currencies are only worth anything because we all agree they are. And part of that agreement is some trust that the currency will still be useful at some point in the future…this is why currencies from large stable economies tend to be popular, there’s very little risk that the US Government will vanish tomorrow and your US dollars will be worthless.
On the other hand, if there are sanctions against your country there’s some risk…especially if those sanctions include an inability or restriction on trading your currency for another currency that might be more stable. That’s what’s going on in Russia right now…nobody wants Rubles (including the Russians) because there’s so many restrictions on the Russian economy they’re not confident their rubles will be worth anything (or at least worth as much) in the future, so they’re trying to trade them for other currencies. This floods the market with rubles…supply goes up, price goes down.
If a country is totally self-sustained and doesn’t need any foreign currency, they don’t have to care.
If a country is an oil exporter, it matters what currency their contracts are in. Most oil trades in USD or EUR so they care about the exchange rate because that’s how much local currency they’ll get. Changes in oil price, by themselves, don’t impact the exchange rate.
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