Why is the usd stronger than other currencies?


For example, why when I visited the Czech Republic did my money go further when converted into koruna? I get 1 usd isn’t 1 kc but not why can I get more things per dollar

In: Economics

The “strength” of a currency doesn’t really have anything to do with the units it uses. For example, which is a greater distance: 20 kilometers or 14 miles? It is 14 miles even though 20 is a higher number than 14.

Similarly the units of currencies are mostly irrelevant and miss the point, you would need to talk about the average income in the countries and purchasing power parity.

Instead what is usually meant when referring to a currency as being strong is that there is a high and reliable demand for that currency. The US dollar is going to be able to be traded for valuables in the future, the US government isn’t going to collapse or cause hyperinflation of the dollar. There is going to be a demand for USD because people will need it to purchase things in the future. A weaker currency might have uncertainty attached to its stability or a limited usefulness for exchange, as there may not be many things one would need that currency to obtain.

What you’re getting at here is an economic concept called [purchasing power parity](https://en.wikipedia.org/wiki/Purchasing_power_parity).

Different goods have different prices in different places, even accounting for currency conversion. This can be because of differences in local supply (goods are cheaper near where they’re produced, generally speaking), differences in laws creating different transaction costs (e.g. if imports of a certain good are banned or heavily taxed), labor costs (almost every good needs some local labor, if just to run the store where you’re buying it), and so on.