Which factors change the value of money?

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Influencing factors and consequences

The production of a 50-euro banknote costs only a few cents, but the banknote is worth a lot more. That was not always so. Long ago there were coins that were made from precious metals such as gold. The value was derived from the weight. That changed with the printing of banknotes. In order to give them a value that everyone involved recognizes, the equivalent of the banknotes was deposited in gold at the central bank.
The central bank thus guaranteed that every banknote would be exchanged for gold at a fixed exchange rate. In this way, a stable international currency system was created, because only as many banknotes were allowed to be printed as there was gold in the central bank's vault. This system was practiced until the 1970s.
The graph shows the fluctuations in the value of the euro in relation to the US dollar over the course of a year. Source: https://de.statista.com
Today, the monetary value is understood to be the value of a currency that it has both within (internal value) and outside of a country (external value). The internal value results from how many goods one can purchase domestically with a defined amount of money; the external value shows the purchasing power of this currency in international trade. The monetary value is determined by various factors. The central banks have a great influence because they can directly influence the amount of money in circulation. The central bank's interest rate policy is an important instrument: it can raise or lower the price of money lent (change the key interest rate) and thus influence the economy and the value of money. The most important goal of the central banks is to keep the monetary value stable, i.e. to prevent a loss of monetary value (inflation).
Expectations of how it will develop are also a major factor in determining the value of a currency: If the euro is expected to rise, many forex traders on the market buy euro while it is still “cheap”. An increased demand leads to a rising price. The same applies to expectations of economic developments. Due to these influences, the monetary value is constantly subject to small fluctuations. It should also be noted that today a large part of the money also exists in electronic form as numbers on accounts. Countries with a healthy economy and a stable political system are generally less affected by large fluctuations in value than countries that are not.

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