Five Global Events That Can Change The Value of Currency
The world of currency can be a strange and complex one, full of seemingly unrelated, inexplicable ups and downs that change the international value of the money in our pockets.
Many of us have dropped into a travel bureau to exchange our pounds for a foreign currency, and most of us have spent a not-too-insignificant amount of time comparing currency boards online or in-store to ensure we’re getting the most bang for our buck – but how many have actually wanted to know what’s going on behind the scenes? What events are causing the price of the pound to go up or down against different currencies?
The truth is, there are many things can impact the price we pay for foreign currency, but one of the biggest factors that affect currency rates are important international events that, for better or for worse, can rock the global economy. From leadership changes in major nations to medical triumphs in response to pandemics, these big moments in history can cause enormous ripples that are felt right down to our local banks and our travel bureaus. We’ve seen this most recently in the global response to the Coronavirus pandemic and the subsequent travel restrictions, which has meant a lot of us haven’t been able to get to our local bureaux to pick up new currencies in a little while.
Off on your holidays soon? Check out your global currency knowledge to make sure you can tell your lev from your yen, your krone from your rupees and your pesos from your francs. Test yourself with our fun Real or No Real currency quiz below, then read on to explore some examples of events that can cause changes in the way we buy and sell foreign currency.
1. Political changes and new laws
The price we can buy and sell our currencies for is often determined by the way the global economy reacts to political changes across the globe. Political parties can sometimes make new rules which affect the way businesses sell their goods – restrictions can make it harder for them to sell, while changes that support trade can work in their favour.
Whatever these new laws are for, their impact on the economy of a country also resonates in the currency of that country. If business is good thanks to the new laws, goods become more in-demand which can see the value of the currency go up. If the new laws cause a downturn in business, products become less competitive and the value of the currency can go down.
2. Natural Disasters
As if natural disasters couldn’t be any worse, their impact on the economy can be devastating. From typhoons to droughts, tsunamis to hurricanes and earthquakes to eruptions, these terrible events can wipe out invaluable infrastructure and turn lives upside down. Beyond the tragic loss of life and the terrible destruction of homes and livelihoods, business and trade can also grind to a halt.
As businesses stop trading when their factories, stores and workplaces are destroyed, money and produce can stops coming in and out of the country. Because of this, the economies of nations struck by natural disasters can often take an enormous hit. As is a common thread in the events listed in this blog, when a country’s economy falls it will often take down the currency with it.
3. Vaccines and new pandemics
Pandemics are big news, as we’ve all found out recently. The COVID-19 crisis swept through our towns and cities, changing our lives in so many ways. As we grappled with the initial months of the pandemic, economies and currencies across the globe plummeted as people stopped spending money in shops, tourism collapsed and the way we worked changed.
The good news is, as more and more vaccines enter circulation, the potential for normality comes back into play, and investors and business start to amp up investments and operations in response. As lockdown rules end, high streets and town centres will open up, people will start spending more money and currencies and economies are expected to jump up again.
4. New currencies entering the market
A new currency is a massive deal in the global economy, especially if it comes from a wealthy nation or better yet, a collection of states. Depending on how well the currency performs and the pros and cons that it brings to the table, the changes that are caused in the aftermath can be good or bad.
A good example of a new currency having an effect on existing currencies is when the Euro was first introduced in 1999. Initially, the Euro was just used for accounting and electronic payments – there were no new notes or coins, and there wouldn’t be until 2002. Currency investors across the world were unsure of the potential of the new Euro, with many wondering if it was just an economic experiment or whether it could actually work as a major currency. Because of this uncertainty, neighbouring currencies like the British pound rose in value, while the Euro struggled while it found its footing in the market.
5. Presidential elections and inaugurations
Presidential elections and inaugurations, especially for the richest countries in the world like the USA and China, can cause massive changes in the global economy. New presidents often bring in new views on the economy and how the nation should spend its money, and these initial changes can cause major disruption in the markets, with some companies benefitting, and others not so much.
After the most recent election for example, that of President Joe Biden, stock markets across America responded positively and investors invested more money in more companies. This saw an improvement in the economy and as a result, the value of the dollar rose against other major currencies around the world. President Biden’s positive economy speech at his inauguration in February 2021 had a similar impact, promoting growth in the dollar as a currency.
World currencies with Asda Travel Money
This guide is just a quick glance at the major events that happen across the globe that can boost the value of a currency or drag it down. There are countless other factors that can see the value of your money rise and fall from an international perspective, and the more you know, the more you can plan to exchange your pounds for other foreign currencies at the best rate possible.
Think you know your currencies? Think you can tell your lev from your yen, your krone from your rupees and your pesos from your francs? Test your knowledge of global currencies with our Real or No Real currency quiz – play below!
Once you’ve given our game a go, if you’re starting to plan for a holiday and you’re looking to exchange money in advance, we offer great rates on a range of currencies for you to get financially set and prepped for your trip abroad.
With an 0% commission and an in-store exchange rate guarantee, we’ve got your travel money needs covered. Find out more here.