Things you don't learn in school- The real value of money

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Money has become such an important aspect in our lives that we cannot imagine ourselves being without it. The development of money as part of a social system has really changed life in ways that no one can imagine. In the beginning before money was created, life was much simpler, but it has changed the world in so many ways that it consumes our lives.  

Imagine yourself trading something now like in the olden days. How would you decide on the value of something and if it is worth trading for whatever you are trading for? Money can take a physical form such as gold coins, copper and nickel coins as well as paper. Money is a mechanism that facilitates a process. 

Each country has its own currency. The design of the money is their own, as well as the value. What is worth a lot in one country can be worth nothing in another.  Money makes the world go round! Ever since money were brought into the equation there has been quite a lot of conversation about it. 

In today’s life, you need money to literally do everything. Nothing is ever for free anymore and it just shows you how the human has evolved over time.  

How is the value of money determined? 

The value of money is determined by the demand, but just because there is a demand for something it doesn’t mean that you can go and print as much money as you like. The amount of money printed is determined by the government in each country and works according to the present value of the actual fiat money.  This works in the same way as when you pay for a service and for goods. If there is a big demand for a certain product, the company creates more of the same products. If the demand is not so high, then less products are created. 

All the different currencies from different countries can be compared to the currencies from other countries.  To determine the value of YOUR currency you need to check how much of YOUR specific currency can buy a different foreign currency. This is what the exchange rate measures.    

The foreign exchange market determines the exchange rate. Supply and demand are taken into consideration and then expectations for the future is taken into consideration.  This is the reason why the value of money fluctuates throughout the day.   The fact of the matter is that the value of money does not stay the same at all times. 

The economy plays a great roll in the value of our money and it all depends on the value of a specific day.  Many countries all over the world has a low economic growth, and if this happens traders invest their money in a specific currency like the dollar that is quite stable. This strengthen the value of the dollar and once again changes the value of other currencies.  

Even though you might not really care whether the value of your currency is high or low, and it is just something that you accept it affects you very much in a negative way.  

How It Affects You  

The value of money affects you a lot in your everyday life. Petrol, diesel and gas prices go up and if the price of any of the three above-mentioned goes up then you can be almost certain that prices for food and other goods will become more expensive and you are experiencing the reduced value of money.  

Inflation is when the value of money declines over time. People tend to buy more things when they expect the prices to go up.  This increases the demand; therefore, producers drive the prices up. The government keeps a constant eye on the inflation because if the inflation becomes unstable, the government reduces the money supply, or they raise the interest rates.  

Deflation is when the value of money increases. This sounds like fun, but it can actually worsen the economy. The housing market can drop and decrease the prices of houses. Investors lose a lot of money on their investments because interest rates drop. Once this happen do not make huge changes in your life, because you’re going to feel it when the interest rates go back up.