Interest rate hikes are reaching their peak, and while stock prices and exchange rates seemed to have recovered, but they are once again showing a high exchange rate, recording around 1,350 won as of September 27, 2023. In fact, one of the most important things when dealing with foreign stocks is undoubtedly the exchange rate. How can we predict the exchange rate and how does it fluctuate? What exactly is currency?
History of Currency
Metallic Currency
Even in the primitive age, there was a primitive form of bartering and commodity currency, but for a long time in early civilizations, we used metallic currencies like gold, silver, and copper. In ancient Rome and medieval Europe, while metallic currencies like gold, silver, and copper were used, each nation and city had its regulations and currency systems. The value of the currency was primarily based on the weight and purity of the metal it was made from. In other words, the quantity and quality of the metal largely determined the value of the currency, and even the ratio between gold and silver wasn't fixed.
Bimetallic System
By the mid - 19th century, as there was a demand for monetary system stability, a bimetallic system was introduced that set a corrected exchange rate between gold and silver.
However, with the discovery of new mines and advancements in mining technology, there was continuous fluctuation in the relative values of gold and silver, creating a disparity between the nominal value set by governments or central banks and the intrinsic value based on the metal constituting the currency.
When there is a difference between the nominal and intrinsic values, the currency system became chaotic due to Gresham's Law.
Gresham's Law
"Bad money drives out good money."
When there is a difference between nominal and real values, good money disappears from the market.
Suppose the nominal value between gold and silver is 1:10, but the intrinsic value is 1:20. When people recognize this value difference, they tend to hoard gold. Because if gold is used as a currency at a 1:10 nominal rate, its intrinsic value as a metal is 1:20, making it a loss if used as currency. Consequently, people hold onto gold coins, waiting for its nominal value to rise or looking for an opportunity to sell them for their metallic value.
Problems with Metallic Currency
Weight and Volume Issue
Metallic currencies posed inconveniences in international trade and mobility, thus becoming easy targets for theft.
Standardization Problem
Different nations or regions had varying qualities, weights, and purities of currency.
Metal Shortage
At certain times and in certain areas, a shortage of metals limited the issuance of currency, causing difficulties in trade and economic expansion.
Value Fluctuations in the Age of Metallic Currency
While the value fluctuations of modern currency are influenced by a complex combination of central bank policies, political factors, sentiment, and the flow of international trade, in this era, it was influenced by supply and demand factors like advancements in mining technology.
By the end of the 19th century, in the midst of such circumstances, the Gold Standard, based on the single metal of gold, emerged.
댓글