how is one currency more powerful than another? If you exchange $100 to 102 francs don’t you still have $100 but in francs?

Question

how is one currency more powerful than another? If you exchange $100 to 102 francs don’t you still have $100 but in francs?

In: 53

Answer 1

This very question bothered me so much it’s one of the reasons I studied economics.

Basically yes, you are right, in the long run. However, in the short term, the interest rate on the money of one country might be better than another, so everyone buys the stronger currency. Meanwhile, domestic prices of stuff haven’t changed *yet*, so you are getting more or less stuff for the conversion of your money.

So like converting inches to centimeters, neither the bigger amount per unit nor the smaller are “strong” or “weak”. But in the short run, *with recent changes*, currencies are strong or weak relative to each other.

Side note: strong and weak ≠ good and bad, respectively. A weak currency encourages exports, and a strong currency encourages imports.