subject: Exchange rates of a currency are expressed in terms of dollar [print this page] In earlier times, that is before the First World War and even earlier, the currencies of the world were evaluated in terms of gold, which is precious, and has been an object of desire for centuries. This implies that a currency note of a given denomination of any country represented an amount of gold that could actually be purchased with it. This system remained in practice for a long time. It was in 30' that US initiated a practice whereby it set the value of dollar at a level. This was $35 per ounce of gold. This helped other countries as they could now evaluate the value of their currency in terms of a dollar. However, the system could not continue for long, as because of inflation, the value of US dollar decreased while the values of other currencies of the world increased. Eventually, US cut the value of dollar by half which meant that one ounce of gold was now worth $70. It was in 1971 that US finally said goodbye to this system and dollar no longer represented any amount of gold. Now the dollar was left to the vagaries of the market forces.
However, despite erosion in its value, dollar continued to be a major currency of the world. It still dominates in the major currency markets of the world. In fact, exchange rates of all currencies of the world are expressed in terms of dollars which in itself signifies the importance of dollar in world economy. It is considered to be the universal currency of the world as it has great liquidity and is accepted in many countries of the world. Along with Euro, Australian dollar, British pounds and Japanese yen, American dollar is one of the major currencies of the world.
As much as exchange rates of any currency depend upon the value of dollar, they also depend upon many other factors. If a country is growing economically, and the political conditions in the country are stable, the exchange rates of the currency of that country remain stable leading to its development. However, these rates are volatile and subject to change whenever the conditions are not favorable such as political instability, inflation, war or famine, or poor economic policies of the government of the day. The exchange rates of the currency of such a country suffer a blow and they decrease, which further aggravates the situation as no country in the world is self sufficient and depends upon imports to sustain development. When the exchange rates go down, the country has to spend more on imports, which reflects badly on the health of its economy.
Crude oil is one entity that is a must for the energy purposes of any country. Majority of the countries of the world are dependent upon imports as they do not produce oil in sufficient quantities. To fulfill the requirements of infrastructure, these countries need to spend on import of this precious oil. If the exchange rate of currency goes down, import of crude oil puts a heavy burden on the economy of a country.
Exchange rates of a currency are expressed in terms of dollar
