Money, Currency And why is the Pound So Expensive?

Before we begin to know how a currency works I would like to confuse you with some facts.

This is a hundred US dollar bill and here is something weird about it.

The cost – 12.5 cents.

The purchasing power – 100 dollars.

(https://www.marketwatch.com/)

In other words, printing a 100 dollar bill requires only 12.5 cents.

So if this is the case why don’t we produce as many bills as we want? Won’t that make us all rich?

If you think this the best idea to get rich, then you should try living in Zimbabwe. Yes, you read it correct Zimbabwe tried this mentality and created a massive inflation. For instance, dinner at an average place in Zimbabwe will cost you around 151,000,000,000,000,000 (approx) Zimababwaen dollars per person. Imaging taking that much cash for a dinner.

But why on earth did this even happen?

Every currency has a purchasing power of it’s own. This purchasing power depends upon the total amount of currency in the open market.

More currency in market means less purchasing power per unit and less currency in the market means more purchasing power per unit.

Still didn’t get it ?

Here’s a simple way. If you produce ‘X’ percent of more 100 dollar bill, then the new purchasing power of 100 dollar bill will be reduced by ‘X’ percents.

This brings us to the almighty POUND. Worlds costliest currency despite of having a poor performing economy (at the time of writing). The number of pounds in an open market is so less that its purchasing power is extremely high.

How high exactly?

The 151,000,000,000,000,000 Zimababwaen dollar dinner will cost around 15 – 20 Pounds (if not less).

Honestly I can’t think of anything more for this blog. I hope you liked the read, in case you didn’t I am sorry but there is no dislike button, you can always use comments though.

By Bhavik Gandhi December 13, 2019