GBP stronger than USD: Why?

[FrostyBoy]

Yeah that's all, I'm just wondering why the British Pound is stronger than the US Dollar. I suck at economics.

btw, Rufus, I stumbled upon your Rummikub room, small internet.

[KrazyHorse]

Why shouldn't it be?

[SlowwHand]

That's a stupid ****ing answer, from such a self-proclaimed genius. You tool.

[KrazyHorse]

Do you enjoy following me around and nipping at my heels, lapdog?

July 12, 2009, 08:44
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[KrazyHorse]

Assuming that this question comes from the same silly premise that I've seen it come from before, namely that relative value of two currencies at some given can tell you anything about the relative sizes of the economies of their respective currency zones:

a) Why should this be the case? Do you have any reason whatsoever to believe this?

b) Imagine that the US was run by a dictator with absolute control of all monetary matters. He announces today that the currency of the US starting tomorrow will be the New US Dollar. Today's USD will be exchangeable for 0.5 NUSD. All currently existing contracts, debts etc denominated in USD will be automatically rewritten to swap USD amounts for 0.5 times those amounts in NUSD. Bank account balances will be halved and denominated in NUSD. Wages will be halved and delivered in NUSD.

Now, if the exchange rate today is 1.6 USD per GBP, what will the exchange rate tomorrow be in terms of NUSD per BP? Did anything in the real economy of the US change? Of course not. The exchange rate will be 0.8 NUSD per GBP.

[Kuciwalker]

Easier example. Imagine that we just considered $10 bills as the "basic unit" of US currency.

[KrazyHorse]

Easier in terms of complexity. Perhaps not easier for him to understand. Remember who you're talking to.

Plus, my example has happened in real-life. Mexican peso, Zimbabwean dollar, etc.

[Barnabas]

The reason is just because.

There is nothing strange about it.

[Barnabas]

Perhaps Frosty meant why the dollar is devaluating against the pound sterling?

[Rufus T. Firefly]

btw, Rufus, I stumbled upon your Rummikub room, small internet.

Different Rufus, I'm afraid. I keep thinking of changing my nickname, since there are so many Rufus T. Fireflies on teh interwebs.

[Tattila the Hun]

Assuming that this question comes from the same silly premise that I've seen it come from before, namely that relative value of two currencies at some given can tell you anything about the relative sizes of the economies of their respective currency zones:

a) Why should this be the case? Do you have any reason whatsoever to believe this?

b) Imagine that the US was run by a dictator with absolute control of all monetary matters. He announces today that the currency of the US starting tomorrow will be the New US Dollar. Today's USD will be exchangeable for 0.5 NUSD. All currently existing contracts, debts etc denominated in USD will be automatically rewritten to swap USD amounts for 0.5 times those amounts in NUSD. Bank account balances will be halved and denominated in NUSD. Wages will be halved and delivered in NUSD.

Now, if the exchange rate today is 1.6 USD per GBP, what will the exchange rate tomorrow be in terms of NUSD per BP? Did anything in the real economy of the US change? Of course not. The exchange rate will be 0.8 NUSD per GBP.

I'd imagine the NUSD would actually be a lot less valuable, a sudden chance like this would ruin the faith people have in currency.

[Tuberski]

Because Britains believe in their currency more than Americans do.

ACK!

[Solomwi]

I'd imagine the NUSD would actually be a lot less valuable, a sudden chance like this would ruin the faith people have in currency.

Why would that change cause anybody to lose faith in the currency? Nobody loses faith in length when they start measuring with a meterstick rather than a foot-long ruler.

[Ben Kenobi]

Yeah that's all, I'm just wondering why the British Pound is stronger than the US Dollar. I suck at economics.

btw, Rufus, I stumbled upon your Rummikub room, small internet.

It's because Sterling was 6x the value of the USD when the USD was created.

[Spiffor]

I'd imagine the NUSD would actually be a lot less valuable, a sudden chance like this would ruin the faith people have in currency.

Plenty of currencies have been changed like that (among whic the Franc, and recently the Turkish currency).

In some cases, this "new currency" boosts the population's morale, which can tilt the money's value slightly higher.