The hands behind currency valuation

Currency valuations affect a lot of things and are themselves influenced by still more variables. The strength of a nations' labor force in terms of skill, marketability, productivity and economic growth builds confidence in a currency. The Yuan Renminbi or RMB is an example of an emerging global currency that is increasingly being used as a reserve currency by other nations according to CNN International.

Image source: Fran Hogan

Government fiscal policy, like central bank monetary policy also plays a role in the valuation of currency. Sometimes this is done to the detriment of an economy per Hedge Fund Manager David Einhorn in a New York Times Op-Ed.  More specifically, Einhorn states our government's use of cash basis accounting understates the actual financial obligations taken on by an increasingly unsustainable cash-flow. Moreover, it is the money made from the hands of a nation's people that fiscal decision makers are themselves handling. 

• Federal Reserve: $9.545 trillion in checking, saving and M.M.F.s
• Issues in Political Economy: Equity rises increase currency strength
• Commodity prices rise with dollar depreciation per the FAO
• Countries de-value currency to boost exports per The Economist
• 33-50 percent of post Civil War currency was counterfeit per FBSF
• The $ symbol is believed to originate from the Spanish Dollar

Monetary policy also plays an important role in currency valuation. Since central banks can change money supply, they can also change the value of money by increasing or decreasing the amount of money in an economy. Altering money supply enhances economic performance at best and is an economy eroding cancer at worst. When the value of money erodes or loses purchasing power, inflation protection helps preserve net worth and becomes useful in long-term financial planning. The valuation of different currencies represent various nations' economies and competition between those economies.