How is the currency value determined (e.g. gold reserves in the country etc.,)?

would like to know how the value of currency determined. also would like to know why Yen is so low in value is it to do with the denomination or anything else. If Yen's value is actually so low Japan should be a poor country which is not the case.

Ok here is the basic idea of how currency value is determined. After the gold standard and the US dollar standard fell, the world entered an age of the floating currency exchange. This means that everyday a nations currency might be more valuable or less valuable than the day before. What determines the fluxuations? Buyers. Countries all over the world purchase other countries currencies, which determines the value. The American Dollar is strong because many many countries buy a whole lot of US Dollars. If investors and buyers decide to stop buying US Dollars, then the value of the US dollar would drop significantly. Now about your Japan question, some economists argue that a country will intentionally keep the exchange rate low so that buyers on the world market will not purchase the Yen for example. You would think that a weak national currency would indicate that this country is poor. Not always the case (China is a good exampe), the argument is that nations like Japan and China want their currency to be low in value so that other nations (like the US) will buy more Japanese and Chinese products imported. Think about it, if the US dollar is twice as strong as the Yen, than it can buy twice as many Japanse goods. If a computer costs 1,000 dollars in the US, but 1000 Yen in Japan, than you could buy two Japanese computers. make sense?

It is determined by how much each nation has a reserve at the World Bank. It could be in gold reserve or silver reserve less the amount the country owes then you get the currency value. Some values are called floating rates because the are give a bigger value than what they should have because their loan might be considered to be written off or they are given an extension to pay off their loans.

The magic word : Trust !

The Yens value is tampered with by the Chinese Governement. It is fixed a price determined by other currencies to minimize its value thereby allowing for more exports.

Value of currency is determined by how much gold backs up that currency. No gold, the currency's value very low. High gold, high value currency.

The value of currency is determined by the amount of gold it can backup.

Well, I definitely do not consider the value of the yen to be that low right now. A lot of the people who wrote are right except the ones who wrote about gold.

The guy who wrote the word "trust" is particularly right because it is all based on the investors PERCEPTION of the stability of the economy. Japan has had their act together for a long time and they are perceived to be very stable.

However, Bank of Japan manipulates the currency market by flooding the market with yen. This keeps the value low thus increasing the attractivness of its exports high. This is all much to the dismay of the US who would like Japan to buy some American stuff with all of that US currency they are hanging on to. But, buying consumer items from another country is not necessarily beneficial to Japan in the short term, and they can't see the long term.

What they often do is use that money to buy land in Hawaii and other states. Of course this doesn't do anything to affect the trade deficit.

hi bro, Japan is the world wealthiest nation and second largest economy after the USA. exchange of a nation can be either under fixed(set by govt./central bank) or flexible exchange rate(determined by demand and supply conditions in the forex market); as an economist, u don't look at nominal exchange rate but rather real exchange rate so if u buy Japanese currency u will realize that u must pay more because notes are thousands rather than every unit

depending on what the country is basing their money on. Some use gold like U.S.A. and some use diamonds

Baboon is in the right direction but there is so much more... Consider a world with 2 identical countries. Suppose both of them decide to create each a currency. Country A issues 1,000,000 A-dollars while country B issues 2,000,000 B-dollars. If all rest is equal, the exchange rate should be, initially 2 B-dollars per 1 A-dollar. This has absolutely no relation to wealth, interest rates, exports/imports etc.

As time passes, suppose everything remained equal, except country B had twice as much goods and services available for its population. Very grossly speaking. The exchange rate should drop to 1 B-dollars per 1 A-dollar.

There are many many forces acting in real world situation, but this should help you to further understand.

The value of a currency is determined on the basis of some basic principiles of economics. THE CURRENCY IS ALSO TREATED LIKE ANY OTHER COMMODITY IN ECONOMICS , SO WHEN THE DEMAND OF THIS MONEY IS MORE IN THE INTERNATIONAL TERMS THAN THE VALUE GOES UP WHEN THEW DEMAND IS LESS INTERNATIONNALLY THEN THE VALUE GOES DOWN. FOR EXAMPLE THE VALUE OF USA DOLLAR IS HIGH BECAHUSE OF THE HIGH DEMAND OF THE DOLLAR IN THE INTERNATIONAL TRADE.

the amount of gold a country has

Sometimes a store clerk asks for "dollars". I say none have been made since 1964 and would they accept Federal Reserve Notes?

A note is an instrument of debt, a promise to pay. Not payment.

The value of paper currencies is determined by Faith, and is a function of supply and demand and a belief that the paper can be exchanged for something of value.

The Fed Res system is the biggest fraud perpetrated since Nebuchednezar decreed that lead was equal in value to gold.

America never was on the gold standard. Coinage Act of 1792 established the "dollar" as the national money and defined a "dollar" as a certain weight of fine silver, 425...grains or so. Modeled it after the Spanish silver dollar then in wide circulation in the U.S.

These coins we have now, made to look like silver, used to be called "fraud". In 1792 the penalty for adulterating the coinage was death.

The value is determined by supply and demand...If there is more demand than supply, the value spikes. If there is more supply than demand, the value plunges. It does have to do with inflation, but has nothing nothing to do with gold reserves as ramsubbu33 answered.

value of a currency does not determines whether that country is rich or poor.it depends on the national income,price index and G.D.P(gross domestic product) of a country.u know it,i know it,EVERYBODY IN THE WORLD KNOWS IT,japan is world leader in science and technology.

By the people who use it.

The value of anything is what a WILLING buyer will pay a WILLING seller.

COMMENT
The Yen is not a weak currency!
The Yen is the denominated (exchange) currency of Japan. If the US used the Penny instead of the Dollar as the exchange currency, the Yen and the Penny would have similar values today.

Confidence in a country's strong economy, and trust in its ability to continue to be strong, determines currency values. (Occasionally, currencies can be artificially propped-up for political reasons, but not forever.)

The US no longer uses gold reserves to value currency.

I hope this answers the question you asked.

This and its related questions are encrusted with myth legend and lots of nonsense. I'll have a go at it, and will leave out all the Economics 101 answers parroted from the usual textbooks. They're useful, but awfully simplified. PhD economists have been regularly surprised by how economies behave (relatively low inflation and relatively low unemployment were a surprise in 90s; veyr large deficits in the US (government accounts and national economy account) not leading to high inflation).

Anyway, to take as an example the foo, the national currency of Foomania. I have in my hand 1 foo (coin or paper). I'd like to buy an apple from you -- you have two. You would be insane to sell me an apple for one foo if it costs you more than 1 foo to acquire one. Or maybe you're an apple hoarder and wouldn't sell at any price. Or you hate them and will take anything for both. Averaged over all the apple purchases, it becomes clear that there is value (expressed in foos, of an apple; of course wormy ones and blotchy ones probably doen't even have that value).

Clearly the same thing can be said of rail cars full of chemicals of tons of steel in this form and with that specification. And so on to most everything else. If there's an apple blight (think mad cow disease here), the cost of an apple in foos will go down because fewer people will want them and be willing to pay for them. Or someone might try to corner the market in apples, at which point they could charge more than the idealized value the 'market' would find it it weren't interferred with. Krueger the match King and John D Rockefeller and the attempt by the Hunts to corner the world silver market in the 70s I think it was, are all examples. but let us neglect criminal ingenuity for the moment.

Notice that I've not tagged the foo with any fixed conversion to anything. Like, for instance, gold. Many people feel that gold is something more fundamaental as a currency than anything else, and in some sense that's true, as it doesn't rust, looks warm and shiny yellow, and has a few industrial uses. But currencies have been officially, large round rocks, sea shells, silver, gold, and unofficially, tulip bulbs, real estate, clever Net ideas (even nutty ones), ...

Governments have more or less settled on easily produced printed paper with very little intrisic value of its own.

Now let's look at the history of a currency. I'll take some examples from history here, but put it in terms of foos for brevity. In the period before WWI, a single foo bought more than it did after the War. Pretty much everyone decided that foos were worth less and so raised prices (as given in foos) during and after the War if they could get away with it (ie, no imposed price controls). In the 1920s, in the US, a loaf of bread was 2 cents or 4 cents. By 2000, a loaf of bread (with more chemicals and stuff to increase shelf life and such) was 250 cents or more. More or less the same loaf of bread. In pre-War Germany a rich merchant put up a prize of a million marks for anyone who could prove or disprove Fermat's Last Theorem. when Andrew Wiles eventually proved it in the '90s, thw million marks would by perhaps a cup opf coffee. But Wiles apparently received it. After the War, there was a period in which the mark's puchasing power dropped so far and so fast that people saved no currency at all, expecting that it whatever it might be able to purchase today, it wouldn't be able to purchase much of anything in a week. Wheelbarrows full of marks bought a loaf of bread at one point. Sopmething like that has happened in several nations in the 50 years after WWII.

So far, currency is worth whatever it will buy, and that's deteremined by the opinions of everyone buying or selling stuff using that currency. Opinons change, the value of the currency will change.

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That's true for every currency, except that governemnts sometimes try to force currencies to be 'worth' something or other. So many foos per gallon of gas, or pound of butter, or kiogram of milk, ... Big round rocks for instance, or sea shells, or gold. Since governemnts aren't very nimble at the best of times, and since their decisions can be influenced by enough effort (in the US, it's called lobbying, in many countries it's called bribery, but it's about the same thing), the governments decisions aren't usually right on.

So if I can buy one apple in Foomania for a foo, and two apples in Barmania for two bars, it would seem that the foo is equal to two bars. A really small country won't be very stable because some sharp operator could 'sak' the governemnt to print (or coin) more money, thus making a single apple worth more of the money, there being more money chasing more or less the same number of apples. That's harder to do in a very large country, so its currenty should be more stable (all things being equal) than the smaller country's.

In principle then, every currency establishes its value this way, and after it's been established it will be easy to extablish the reate of exchange between the currencies. Pick something for which there is an extablished value in each currency... Like apples, for instacce. But there's not much oil in Japan, very little rice in Chad, and so on. So it's not so easy as it is in principle.

And when you add in lots of large currency movements, by investors, by governments, by businesses, it's difficult to quite see what the actual exchange rate ought to be. It gets arcane, to say the least. And political stability comes into it as well. right now, Nepal isn't a very good choice for anyone looking for a stable currency. There something rather like a civil war going on right now, so anyone putting money on either side of the the Nepalese currency will lose value (or gain value) must be something of a gambler. Betting on a large economy like the United States to continue to exist is a lot less risky. So the US ought to be able to borow money at a lower interest rate than Nepal, and it's actually so.

========

growth / shrinkage in economies

If some part of the total value of goods and services in a currency area must ordinarily be in actual circulation to cover transactions, and that total value chages, the amount of currency in circulation should change as well. At least in theory. Actually figuring out how much, and even in which direction, is not very easy. One school of economists thinks that this sort of adjustment is the key to managing a currency (and so a national econonmy). Another school thinks that it's not this so much as keeping economic activity underway that's significant. And, in times of confusion or fear or whatever, it's the government which is the adjustor of last resort. The government must adjust demand to keep an economy on a more or less even keel. Another school, now almost entirely discredited, takes the position that one country should exploit another (trade restrictions, taxes, etc) so as to benefit its economy, if necessary at the expense of the other. And there are many others, most with more or less support from academic schools or business groups or political movements.

Not one of these theories has been shown to be correct. And it may be that none can ever be, for the underlying behavior is a conscious one, and changes with the evaluations of every holder of a currency, and every vendor selling to them.

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distortions

There are several possible sources of distortioins in this ideal. The real world is not even this clear. There are curency manipulators within governments (some public in their demands, some not; print more bills, use silver in addition to gold in coins, prevent cross border currency movements, ... ), there are changes in commodity supplies (eg, the discovery of oil in the North Sea), market manipulations (eg, railroad freight rates famously in 19th centruy America, coffee and chocolate in the modern era all thought by suppliers to be the result of mendacious motives on the part of (often mysterious) middlemen), forgery (ie, bogus currency such as N Korea is alleged to be producing to 'assist the US Treasury with its printing problems'), which have affected currency valuations, ...

Since currency issues are a slippery thing to think about, there are a large number of active conspiracy theories. They have the virtue of simplifying this stuff to the point that one can deal with it (or something imagined to be it) more easily. At least one of the answers here comes from such a background, adn regards the US Federal Reserve Banks as illegitimate, even evil. Illegal, unConstitutional, and so
on and on.

In short, there's no easy answer. In fact, since people are involved, there probably isn't an answer at all. Lots of them, none of them quite right, few entirely wrong; and the list can be expected reliably to change over time. Explanations for it all are not quite snark hunting, but...

the value of a currency is determined by the countries reserves (Gold, Securities, reserve currencies e.g. USD, GBP, EUR) and Japans future growth. The market rate also includes speculation, rumours, and the psychology of the market.

Gold reserves are no longer used as the primary value of a currency. This went out with Bretton Wood in the 1930's.

The Yen is not weak, but quite strong, check out the index and compare that to the USD index.

In any case what made you decide the YEN is weak. Remember that the currency has no decimals. If it did have decimals the rate would be quoted as 1.08 or 1.10 etc. instead of 108 or 110. In fact it would be almost at par with the US Dollar. It is in the interest of Japan to have moderate weaker currency, as this helps with Export and therefore the balance of payments and current account of the country

by the market rates for money trading its how commercial banks operate they invest in currencies while we sleep and move the money from one to another currancy until the tradeing results in a profit

currency value determined by the purchasing power of it, if it can buy more at a given time comparative to others, then it is more valuable. And it can be shown in terms of other currencies. Implicitly it also show the creditibility of the nation origin, the government, the econmomy, interest rate the demand and supply of the currency etc.
yen is not low in value, it just the denomination difference, if a 1000 yen to 1 Us$, if 1000 yen can buy an apple as 1 us$ can, it doesnt make a difference, this is how people get confused between face value and intrinsic value(purchasing power).

a country's monetary policy is not influenced by the monetary authority's decisions (as is practice in a central banking system) but is determined by supply and demand.

currencies' values are set by traders, very simplified anwer but that's about the size of it. Value compared to rubles, dollars or yuan depends on the a currency's value relative to the value of the other currency.

When will people realize that fort knox is a fairy tale and governments do not back their dollars with gold in a big vault. Gold is only worth so many dollars so how can you back your dollar with something that only has value in your dollar. Gold itself has little real value, you cant eat it, it doesnt make things, it just sits there and looks shiny. Yes it has some industrial use but not more than other metals.

You dont need to back currency, its just a medium of exchange.

Exchange rates are based on the demand of goods from a particular country. In order for a country to buy another country's goods they must purchase that country's currency by exchanging it for their own, so a high demand for a country's goods will create high demand for that currency relative to the currency of the country that is trying to import.

You can determine the value of a currency by looking at the number printed upon it. That's what the cashier at my local taco stand does. Easy in, easy out.

The value of everything, including curencies is determined by supply and demand, what is called market forces.

It depends on the standard of living in each country. Back in the sixties the standard of living was low. You could buy a loaf of bread for 3 pennies. Fish and chips for one shilling which was about 25 cents. While here it would cost you 75 cents. Over in Europe many country are using the euro which is a way to standardize the money. Great Briton doesn't belong to it yet. They changed their money to the decimal system like Canada and our money. But there standard of living is so much higher than ours and Canada now. It all depends on what country you're in as to how much people get paid and what they pay to live. Just because the Yen is so low doesn't mean that it's a poor country. It means things are cheaper there than here. Like China has a low standard of living. That's why we can buy so thing so much cheaper there than here. And China is a great nation.
Chuck

Read baboon's response. Also read this:

http://www.investopedia.com/articles/basics/04/050704.asp

The floating currency system is not something I'm fully aware of but I do know that currency is no longer determined by the gold standard. Before, you could walk into the national bank of your country and ask for your cash's value in solid gold. For a long time banks hoped this wouldn't happen as the country didn't have enough gold as cash that was in circulation and the system was dropped. I'm not sure if this is intentional but countries don't advertise that their entire currency system is now a matter of mutual agreement with other countries rather than something as concrete as gold.

Currency value is determined by the average amount of money it will take to fill up your tank with gas. you take all your extra money then go to the gas station spend all the money you have left and your tank will still not get full. This must mean that you dollar are going down in value right. LOL

this is a killer Question

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