Why Do We Have Exchange Rates?
As we look at the world and the way we have progressed over the last few thousand years, one of the most fascinating things which we have done is develop our own forms of money and different currencies all over the world. The idea of using valuable metals to buy products and services has dated back for many thousands of years and the system has only continued to develop and change over the years. Today we are looking a little deeper into the history of money and specifically exchange rates. Why do we have them and what are they used for in the modern day?
Before we start thinking about trading or the foreign exchange market and such, we will want to delve back in time a little bit to see where exchange rates came from and why they came to be. Back hundreds of years ago even before coins and currencies came into be, people would give precious metals to others in exchange for things like food and shelter and products. Precious metals were always something popular to exchange because the richer class would use these metals to decorate their homes and make clothing etc. Gold, silver and copper were all used for this purpose and as well know, whoever has possession of more gold was the richest.
So, if we exchange metals in exchange for products, surely there is a universal value according to the weight right? Well, not quite. The main reason why exchange rates came into being is because different countries in the world have different volumes of precious ore in their lands. Not every inch of the earth is made equally and this means that some countries might have no gold mines while another might have a lot of gold mines. When we look at the relative value of gold for each country, it can be assumed that where there is no gold, the value is higher because there is a high demand for it. Rarer items are more valuable so this means that every country would have a different idea of how valuable gold and silver are.
As the world developed more and more, the idea of this evolved and instead of simply having different values of gold, they would have different values of currencies. Every country in the world can offer different resources and commodities, and this in part will affect how valuable their currency is to the rest of the world. This is why some of the most valuable currencies in the world are the US Dollar, the British Pound and the Euro.
Fast forwarding to today, currencies change in value all the time depending on events around the world, the economy and lots of other factors. We use exchange rates these days to trade currencies on the forex market and keep the economy going. People can use their own trading platforms or an automated trading system to trade every day and earn money to support themselves and their families. Exchange rates are incredibly important in the trading and the financial world and they keep the world turning each and every day.