What gives the dollar it's value?

Answer 1

The Dollar is considered a good like a pair of shoes or some food. The value of a good is determined directly through demand and supply. If more currency is demanded the price will go up and vice versa. WORKED EXAMPLE Imagine a pair of shoes costs $100 in the USA or 100 pounds in the UK Assume the exchange rate is 1 pound = $100. UK consumers will be able to buy the same shoe in the USA for just 1 pound. As such people begin to change their pounds into dollars to buy the shoe. However as demand and supply dictates, the higher the demand the higher the price. As more and more people change their money into dollars, the dollar will 'appreciate' in value. For example, after a few months the exchange rate becomes 1 pound to $50 . The shoes are still very cheap to UK consumers and so they will continue to change their pounds into dollars. This will happen until 1 pound = $1 (in my example) In reality there are so many goods to choose from and also speculation buy traders that can affect the value FUNDAMENTALLY THE LAW OF DEMAND AND SUPPLY WILL VALUE ANY GOOD OR SERVICE IN THE WORLD