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9-8-2012 SWFloridaGuy: What determines the value of a country's currency? Supply and demand and determines the value. The value of a currency doesn't determine whether that country is rich or poor. That is determined by the national income, price index and GDP. Confidence that an economy is strong and the faith that strength will continue also factors in. Occasionally governments may manipulate their currency, print more bills, prevent cross border currency movements, adjust as commodity supplies change (discovery of large oil and gas fields), manipulate markets etc. A government's credibility plays a part as well and and their purchasing power demonstrates how it is comparative to others. Supply and demand is the most important factor. The highest traded currencies are the USD, Euro, and the Yen. They have a high exchange rate because they control their market zones and their use in international banking transactions. Risk factor and total business spending on fixed assets (which provides the basis for future production) and country's letter grade also help determine the value of its currency. GDP is a factor but has little to do with the actual value of currency exchange. GDP is basically used as a reference point for the health of national and global economies. When GDP is growing, workers and businesses are generally better off than when it is not. The main thing we can learn from GDP numbers (if they are accurate), is the size of the economy and how an economy is performing. Gurus claim that a country's published budget numbers can be an indicator of future exchange rates. This claim is completely bogus.

Edited by SWFloridaGuy
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it depends on what backs the currency .. comodity backed currency is backed by comodities. like oil >>>>

..i do agree with your article .. and there are lots of different ways iraq could go with this .... if they choose oil and gas comodity backing they could have a huge rv ,, if they go by way of most of the world goes .. "fiat".. i believe that mostly deals with ratings ,,credit ratings .. your currency falls with bad ratings and flourishs with good ratings ..

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What currency has ever been backed by oil? The currencies of that region are backed by foreign currency reserves, not commodities.

im not sure where your from but if its america .. your neighbor to the north .. canada .. google it

If you've ever heard the term "commodity currency," the Canadian dollar is the embodiment of that term. It's a great example of a correlation between commodity prices and currency movements.

Read more: http://www.investopedia.com/articles/forex/09/canadian-dollar-loonie-commodity-oil.asp#ixzz25uvdneoO

But it's not just oil. Canada exports huge amounts of nickel, copper, aluminum and zinc. All of these commodities are at or near record highs. With commodities accounting for 35 per cent of Canada's exports, the loonie is seen around the world as a "commodity-based currency," and has been bid up accordingly.

A commodity currency is a name given to currencies of countries which depend heavily on the export of certain raw materials for income. These countries are typically developing countries, e.g. countries like Burundi, Tanzania, Papua New Guinea; but also include developed countries like Canada and Australia. <<< we can add iraq to the list soon

In the foreign exchange market, commodity currencies generally refer to the Australian dollar, Canadian dollar, New Zealand dollar, Norwegian krone, South African rand, Brazilian real, and the Chilean peso. http://en.wikipedia.org/wiki/Commodity_currency

theres lots of options for iraq and we may be on the wrong track because they intentionally put us there..

The commodity currencies are currencies from countries that possess large quantities of commodities or other natural resources. Natural resources often constitute the majority of the countries' exports, and the strength of the economy can be highly dependent on the prices of these natural resources. Countries that are rich in natural resources include Russia, Saudi Arabia, Nigeria and Venezuela. However, the currencies of many natural-resource-rich countries are either regulated by the government or otherwise rarely traded in international markets. Therefore, commodity currency trading typically focuses on three countries that are rich in natural resources and also have liquid, freely floating currencies: Canada, Australia and New Zealand. (For background reading, see Commodity Prices And Currency Movements.)

Read more: http://www.investopedia.com/university/forex-currencies/currencies8.asp#ixzz25uzBPBRT

http://www.investopedia.com/university/forex-currencies/currencies8.asp#axzz25uvWa9de

Edited by dontlop
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the best example i can give is gold backed currency ,, thats a commodity backed currency .. your currency total value can never exceed the amount of commodity you back your currency with ..

if you back your currency with gold you cannot value your currency for more than the amount of gold you have in its currenct exchange rate.. if you sell some gold your currency must go down in value ..the same goes with oil commodity backed currency .. if you have 15 trillion dollars worth of proven reserves ,, your currency cannot be valued over 15 trillion dollars .. and as you sell your oil your currency value goes down along with it .... the thing iraq has going for it is .. it sells its oil for dollars but the dinar could be backed by oil .. .. so as they sell their oil the currency value goes down .. but they are gaining dollars for that oil so it can simnoutaiously be backed by the dollars in reserve ..or have two currencies running concurrently .. one backed by oil the other backed by the dollar as the oil backed dinar depletes 15 trillion in value . the dollar backed dinar gains 15 trillion in value ...... the dinars would be used locally in the iraqi market .. the dollar could be used to buy foriegn goods ..

iraqi proven reserves are only a small part of their reserves .. 80% of iraq hasnt been explored yet . they dont know how much oil they may really have right now its 150 billion barrels or 15 trillion dollars worth not to mention gas ,, some say their reserves could be around 300 billion barrels or 30 trillion dollars worth ,, plus the natral gas

.. im not claiming this is iraqs stratedgy ,, its just an option that could give the dinar a big rv .. just deleting zeros wont do it .. its got to be backed by something ..for now anyways .. 50 years down the road iraq could be a good place to do buisness after the coruption is cleared out .. and they may have a great credit history and a fiat currency could be a thing of their future . but right now i dont think anyone trusts them to rv trillions of dollars on their word ..they can do it ..but if they screw it up it will just be devalued all over again .. i think a commodity based curency would be the best option for iraq at this time

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I found this article very interesting.

A List of Factors Which Determine Currency Value

A List of Factors Which Determine Currency Value

Posted: Friday, October 09, 2009

by Thomas Sullivan

The information presented here is designed for the Forex/currency trader. This information is also useful to anyone who would like to develop an understanding of factors which determine currency value. For the currency trader, this understanding is needed in order to develop a currency trend analysis for a particular country. Developing accurate currency trends is the key to successful Forex trading.

What determines the value of a countries currency really comes down to supply and demand of that currency. If a particular countries currency is in high demand by purchasers such as travelers, governments, and investors, this will increase the value of the countries currency. The factors that follow may have a positive or negative affect on the demand for a particular currency. Lets take a look at these factors.

1) Printing of Currency:

If a country prints an excessive amount of currency, more then what it normally would, this can decrease the value of the currency. Any time you have more of anything, this can result in a decrease in it's value. This is true whether you are talking about currency or commodities such as iron ore, crude oil, coal, gold, silver and platinum. A large amount of currency in circulation can lower the value of a currency. A small amount of currency in circulation can result in the value of the currency increasing.

2) Current State of the Economy:

If a countries economy is not doing well, this can decrease the demand for that countries currency. Specifically, here we are talking about the degree of unemployment, degree of consumer spending, and extent of business expansion that is taking place in a country. High unemployment, decrease consumer spending, with a decrease in business expansion, means a poor economy and a decrease in currency value.

The potential for economic growth in a country should also be looked at. If the potential is strong, then it's currency value would expect to increase. Also, if a country produces products that other countries want to buy, this can increase the value of that countries currency.

3) Prices of Foreign Goods:

Related to the economy, is the prices of foreign goods. If a foreign company sells goods in a country which are cheaper then comparable products produced in that country, this can hurt the economy of that country. A poor economy results in a decrease in demand for that countries currency, which lowers it‘s value.

4) Political Conditions of a Country:

To what degree does political corruption exist within a country? To what degree do political affairs have on the economy of that country? A country which is known to have corrupt politicians, can result in a lowering of the value of it's currency.

5) How Secretive is a Country:

A country which operates at a high level of secrecy, at least as observed by those outside the country, can result in a lowering of the value of their currency. Another words, if not much is known about a country due to a restriction of media expression within that country, this can lower the value of it's currency.

6) National Debt of a Country:

To what degree are politicians addressing a national debt problem? Are politicians causing an increase in the national debt? In a democratic society, national debt must be paid by the taxpayer. If taxes increase, this results in a lowering of the purchasing capability of society, which results in a deleterious affect on the economy. In this case, currency value will decrease.

7) Presidents Popularity:

If a president is popular, this can increase the demand for a currency. If the presidents popularity is dropping, due to unpopular government policies, this may result in a decrease in demand for a currency and a subsequent lowering of it's value.

8) War and Terrorists Attacks:

A terrorists attack can increase the probability of a war. A war or the strong potential for a war can decrease the demand for a currency, simply because a war drains the economy. Wars are expensive and must be paid by the taxpayer. You simply can not have a growing economy during war time. So war lowers the value of a currency.

9) Government Growth:

Is government growing and expanding to much? New growth by developing departments, and creating unnecessary programs, all costs money. Again, the taxpayer will need to pay for the new growth, which for the long run has a negative affect on the economy. Excess government growth can lower the value of a countries currency.

10) Tax Cuts for the Consumer:

Tax cuts can stimulate the economy, as long as the consumer spends the extra money he or she may have. But also, tax cuts which are to large can result in high demand for products, which may raise prices, which can lead to inflation and the desire to purchase cheaper foreign products. But in general, tax cuts historically have been good for the economy, which can result in an increase demand for that countries currency.

11) Interest Rates:

A higher interest rate means a higher demand for a currency. Foreign investors in a currency prefer a higher interest. It is the same principle when you shop around for the highest interest rate when putting money into a savings account. This increase in demand for a currency results in an increase in it's value.

12) Housing Market:

If there is a slowing of a housing market, this means the sellers asking price will be less, and with the realization that a persons home is worth less, this results in less consumer spending. This has a negative affect on the economy. Again, poor economic conditions result in a lower demand for the currency, thereby lowering it's value.

13) Positive or Negative Perception:

How purchasers of a currency perceive the previous discussed parameters, can determine the degree of demand for a currency. Whether or not the perception is accurate or not is not as important as what the perception itself is. Perception is what determines if a currency purchaser decides to buy or sell a currency.

To conclude, the factors presented here are determinants of the degree of demand on a currency, and therefore it's value. There are other factors such as manufacturing growth, degree of entrepreneurship in a country, employment growth, and even the weather and it's affect on the agricultural industry, energy consumption, and local economies. These also can determine the demand for a currency. The factors listed here determine the perception that a potential buyer of currency may have. And here, perception means everything. How a potential buyer of a currency looks at a particular country using these parameters, will determine the demand on the currency, and ultimately it's value.

With this understanding, it is not difficult to see why the value of the US dollar has dropped so much lately. This is mainly due to a sky rocketing federal deficit, the lack of the current administration's desire to reduce the federal deficit, enormous government growth, the fed's high level of money printing, a slow housing market, a decrease in the President Obama's popularity, and a current poor economy which includes relatively high unemployment, all of which were previously discussed. Investors outside the United States are looking at the US dollar as to risky, which results in a decrease in demand for the US dollar, and a drop in it's value.

Thomas Sullivan, the author of this article, is a web publisher and developer who lives in the Boston, MA area. He is the creator and web master for the site Forex Trading.

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im not sure where your from but if its america .. your neighbor to the north .. canada .. google it

If you've ever heard the term "commodity currency," the Canadian dollar is the embodiment of that term. It's a great example of a correlation between commodity prices and currency movements.

Googled. The Canadian dollar's value might fluctuate with oil prices, but it is a fiat currency which means it's not backed by oil or any other commodity.

Canadian Dollar - Fiat or Commodity Currency?

The highest traded currencies are the USD, Euro, and the Yen. They have a high exchange rate because they control their market zones and their use in international banking transactions.

The yen is currently valued at just over 1 cent.

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Googled. The Canadian dollar's value might fluctuate with oil prices, but it is a fiat currency which means it's not backed by oil or any other commodity.

Canadian Dollar - Fiat or Commodity Currency?

why would it fluctuate with oil prices ..? do all fiat currencies fluctuate with oil prices ? .. you should do some more reading on commodity backed currencys

Fiat Money is where the quantity of money that can be printed is unlimited, as it is not attached to a fairly fixed commodity. Despite being legal tender, the country need not hold it’s worth in commodity.

Commodity Backed Money is where the quantity of money is backed with a commodity, which it can be traded in with at request. The money supply cannot increase past the worth of commodity the country holds. The Gold Standard was the best example.

i see no reason why iraq couldnt do the same thing

Measuring Value

A wide variety of possible commodities could be used to measure value. We could, for instance, use wheat (or rice), probably the most universally needed commodities for human survival. But any single commodity will have the disadvantage that it represents only a part of the total package essential to human or economic exchange. On the other hand we cannot use commodities that do not have a high degree of universal usefulness. If we examine commodities that are universally used around the world, around thirty are essential to world trade. These thirty commodities represent the bulk of three essential categories: energy, agriculture and forestry production, and Minerals. Under energy we find oil, coal, and gas to be most important. Under agriculture and forestry we find grains, cotton, beans, and wood most important. And under minerals we find copper, tin, gold, silver, platinum, etc.

Read more:

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Googled. The Canadian dollar's value might fluctuate with oil prices, but it is a fiat currency which means it's not backed by oil or any other commodity.

Canadian Dollar - Fiat or Commodity Currency?

The yen is currently valued at just over 1 cent.

3. The Japanese Yen

The Japanese yen is easily the most traded currency out of Asia and viewed by many as a proxy for the underlying strength of Japan's manufacturing-export economy. As Japan's economy goes, so goes the yen (in some respects). Many use the yen to gauge the overall health of the Pan-Pacific region as well, taking economies such as South Korea, Singapore and Thailand into consideration, as those currencies are traded far less in the global forex markets.

The yen is also well known in forex circles for its role in the carry trade. With Japan having basically a zero interest rate policy for much of the the 1990s and 2000s, traders have borrowed the yen at next to no cost and used it to invest in other higher yielding currencies around the world, pocketing the rate differentials in the process. With the carry trade being such a large part of yen's presence on the international stage, the constant borrowing of the Japanese currency has made appreciation a difficult task. Though the yen still trades with the same fundamentals as any other currency, its relationship to international interest rates, especially with the more heavily traded currencies such as the greenback and the euro is a large determinant of the yen's value.

Edited by SWFloridaGuy
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I said highest traded. I said nothing of the rate. What's your point?

3. The Japanese Yen

The Japanese yen is easily the most traded currency out of Asia and viewed by many as a proxy for the underlying strength of Japan's manufacturing-export economy. As Japan's economy goes, so goes the yen (in some respects). Many use the yen to gauge the overall health of the Pan-Pacific region as well, taking economies such as South Korea, Singapore and Thailand into consideration, as those currencies are traded far less in the global forex markets.

The yen is also well known in forex circles for its role in the carry trade. With Japan having basically a zero interest rate policy for much of the the 1990s and 2000s, traders have borrowed the yen at next to no cost and used it to invest in other higher yielding currencies around the world, pocketing the rate differentials in the process. With the carry trade being such a large part of yen's presence on the international stage, the constant borrowing of the Japanese currency has made appreciation a difficult task. Though the yen still trades with the same fundamentals as any other currency, its relationship to international interest rates, especially with the more heavily traded currencies such as the greenback and the euro is a large determinant of the yen's value. (For more, see The U.S. Dollar And The Yen: An

The highest traded currencies are the USD, Euro, and the Yen. They have a high exchange rate because they control their market zones and their use in international banking transactions.

I don't deny that the yen is highly traded. It's the next line that I was addressing. Many people seem to be of the opinion that an internationally traded currency must have a high value and that's not the case. That was my point. If you inadvertantly included that line from your source that's understandable. But I feel that this is how a lot of misinformation is spread in the dinar forums. No offense.

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I don't deny that the yen is highly traded. It's the next line that I was addressing. Many people seem to be of the opinion that an internationally traded currency must have a high value and that's not the case. That was my point. If you inadvertantly included that line from your source that's understandable. But I feel that this is how a lot of misinformation is spread in the dinar forums. No offense.

Obviously, that line does not apply to the Yen and who has ever said that an inernationally traded currency must have a high value? Certainly I've never said that, so you seem to be answering your own questions. I'm assuming you find no further discrepancies with my findings or I'm sure you would have voiced them.

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I don't deny that the yen is highly traded. It's the next line that I was addressing. Many people seem to be of the opinion that an internationally traded currency must have a high value and that's not the case. That was my point. If you inadvertantly included that line from your source that's understandable. But I feel that this is how a lot of misinformation is spread in the dinar forums. No offense.

The whole point I was trying to make is that determining a currency's value is extremely complex and there are many factors. You seem to have read my explanation and twisted it to mean the exact opposite. If you have a better understanding of what determines the value of a country's currency I'm all ears. Thanks and hope you enjoy the rest of your weekend.

Thanks for the post and the link Jackster. :twothumbs:

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