How is dollar value determined? Can it ever drastically change?


Like say I have the Zimbabwe note for 100 trillion dollars, which is only worth 40 cents USD right now. Will it ever change so that one zimbabwe dollar get even a little close to a cent USD? That would effectively make anyone who owned that note a multibillionaire.

In: Biology

There is a market for US dollars and Zimbabwe dollars. The traffic in USD is very high, so when you want to buy or sell then there is a narrow range of prices available to you. When more people want to buy than sell, the price goes up, and vice versa. Same with all floating currencies.

However, the volume in USD is very high, so it would take a lot of people to decide that USD are worthless for the price to go down much (or up much). All those people changing their mind seems unlikely.

It ultimately comes down to supply and demand like any other commodity. If people want to trade more or less with a given currency, its value will move accordingly. Likewise, if the supply is increased (such as what happened with the Zimbabwe note), it’s value will decrease.

The Zimbabwe note is not used by many other countries. But more importantly, the period of hyperinflation both dramatically increased supply and decreased confidence in the currency, lowering its demand. Seeing as it would be very difficult to recall all the high-valued notes, the currency supply remains high, and it is unrealistic to expect the Zimbabwe notes to ever have any significant value.