Answer to Question #18301 in Economics of Enterprise for Alina Erin

Question

How one country know the other country currency worth or other country central bank reserve ?
Moreover how they know that other country is printing more money !

Answer 1

The worth of the currency depended on the value of its underlying precious metal. A coin was worth its gold or silver content, as
it could always be melted down to this. A country's worth and economic clout
was largely to its holdings of gold and silver in the national treasury. If
governments print money to pay off national debt, inflation would rise. This
increase in inflation would reduce the value of bonds. If inflation increases,
people will not want to hold bonds because their value is falling. Therefore,
the government will find it difficult to sell bonds to finance the national
debt. They will have to pay higher interest rates to attract investors. If the
government print too much money and inflation gets out of hand, investors will
not trust the government and it will be hard for the government to borrow
anything at all. Therefore, printing money could create more problems than it
solves.
Central banks perform various actions, but its most important job is to make
certain that the national currency and money supply remain stable. Depending on
the country these may be government owned and controlled or may be run under
regulations that are specifically created to prevent extensive government
interference.
The specific functions of a central bank may include many different tasks. This
type of bank has responsibilities that may include distribution of currency and
implementation of monetary policy. Regulating the banking industry and setting
official interest rates may also be done there. Some countries ask their
central bank to be the government's bank and also a lender to smaller banks,
allowing them an out within difficult times.