Who decides the strength? Like, why isn’t there one international unit and things just cost more/less in other countries?
In:
Back in the day (before credit cards) it really was like a market: you could go from bank to bank and each one would give you a slightly different rate. People would charge as much as they could get away with. Sometimes, it depended on how much of that currency they had in hand. It got to be a bit of a racket.
Here’s the modern version:
There’s this idea called “price point parity”. It means that something (let’s say a tampon) has the exact same value regardless of the currency it is in. Cotton, string, plastic–it costs about the same to make and store wherever you are. The idea is that there’s a “real value” of the tampon, but there’s tons and tons of variables (taxes, prices, supply, demand, etc.). Making it even more complex, sometimes governments will manipulate the value of their currency (through a central bank) to make a currency stronger, better for trade, or to manage inflation. So a dollar might one day be more powerful than it was, compared to the pound. Maybe there was a cotton shortage in the UK and people who want tampons can’t get them easily, so with dwindling supply, the price goes up.
If you’re flying from New York to London and you want to exchange your dollars for pounds, there is a bank that going to give you something as close to that real value as they can–with a little extra for themselves. The bank is on BOTH SIDES of this equation. They’re going to pay very close to the value of the currencies they’re holding; looking very close at the price of a tampons in pounds, and the price in dollars.
When you look at the exchange rate on interbank, you’re seeing something like an average of all of the banks. And many banks have agreed to follow that [convention.](https://convention.How)
[How](https://convention.How)’s that?
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