Why would a central bank or country not want their currency to appreciate against other currencies?
I wrote about the dynamic of why either of a lower or higher exchange rate would be good for economies in Would dropping the value of its currency be good for an economy? A strong currency allows consumers to   import goods cheaply from the rest of   the world.  A weak currency allows   producers to export goods cheaply to   the rest of the world.  People are   both consumers and producers.    Clearly, there have to be trade-offs. Strong or weak mean relative to Purchasing Power Parity (i.e. you can buy more or less of an equivalent good with the same money). Governments worrying about unemployment will try and push their currencies weaker relative to others, no matter the cost.  There will be an inflationary impact (imported inputs cost more as a currency weakens) but a country running a major surplus (like China) can afford to subsidise these costs. It would essentially make goods from other countries more cheaper than goods from US. And it would make imports from these countries to China more expensive.  The below illustration is just with 2 major currencies and is more illustrative to show the effect. It does not actually mean the goods from these countries would be cheaper. 1 GBP = 1.60 USD  1 EUR = 1.40 USD 1 CNY = 0.15 USD Lets say the above are the rates for GBP, EUR, CNY. The cost of a particular goods (assume Pencils) in international market is 2 USD. This means for the cost of manufacturing this should be less than GBP 1.25 in UK, less than 1.43 in Euro Countires, less than 13.33 CNY in China. Only then export would make sense. If the real cost of manufacturing is say 1.4 GBP in UK, 1.5 EUR in Euro countires, clearly they cannot compete and would loose. Now lets say the USD has appreciated by 20% against other currencies. The CNY is at same rate. 1 GBP = 1.28 USD 1 EUR = 1.12 USD 1 CNY = 0.15 USD Now at this rate the cost of manufacturing should be less than GBP 1.56 GBP, less than 1.78 EUR in Euro Countires. In effect this is more than the cost of manufacturing. So in effect the goods from other countires have become cheaper/compatative and goods from China have become expensive. Similarly the imports from these countires to China would be more expensive.
Because people trade currency in exchange for goods and services. They can easily prevent competition by violent means or by having control of the market through market share. Price can be controlled by the threat of super low prices in order to drive out competing businesses. "Like Jeremy T said above, silver is a value store and is to be used as a hedge against sovereign currency revaluations.  Since every single currency in the world right now is a free-floating fiat currency, you need silver (or some other firm, easily store-able, protect-able, transportable asset class; e.g. gold, platinum, ... whatever...) in order to protect yourself against government currency devaluations, since the metal will hold its value regardless of the valuation of the currency which you are denominating it in (Euro, in your case).  Since the ECB has been hesitant to ""print"" large amounts of currency (which causes other problems unrelated to precious metals), the necessity of hedging against a plummeting currency exchange rate is less important and should accordingly take a lower percentage in your diversification strategy.  However, if you were in.. say... Argentina, for example, you would want to have a much larger percentage of your assets in precious metals. The EU has a lot of issues, and depreciation of hard assets courtesy of a lack of fluid currency/capital (and overspending on a lot of EU governments' parts in the past), in my opinion, lessens the preservative value of holding precious metals.  You want to diversify more heavily into precious metals just prior to government sovereign currency devaluations, whether by ""printing"" (by the ECB in your case) or by hot capital flows into/out of your country.  Since Eurozone is not an emerging market, and the current trend seems to be capital flowing back into the developed economies, I think that diversifying away from silver (at least in overall % of your portfolio) is the order of the day. That said, do I have silver/gold in my retirement portfolio?  Absolutely.  Is it a huge percentage of my portfolio?  Not right now.  However, if the U.S. government fails to resolve the next budget crisis and forces the Federal Reserve to ""print"" money to creatively fund their expenses, then I will be trading out of soft assets classes and into precious metals in order to preserve the ""real value"" of my portfolio in the face of a depreciating USD. As for what to diversify into?  Like the folks above say: ETFs(NOT precious metal ETFs and read all of the fine print, since a number of ETFs cheat), Indexes, Dividend-paying stocks (a favorite of mine, assuming they maintain the dividend), or bonds (after they raise the interest rates).  Once you have your diversification percentages decided, then you just adjust that based on macro-economic trends, in order to avoid pitfalls. If you want to know more, look through: http://www.mauldineconomics.com/ < Austrian-type economist/investor http://pragcap.com/ < Neo-Keynsian economist/investor with huge focus on fiat currency effects" When economies are strong, it is particularly alluring to have a single currency as it makes trade and tourism simpler and helps reduce costs. The problem comes when individual member economies get into trouble. Because the Eurozone is a loose grouping of nations, there is no direct equivalent of the US Federal government to coordinate a response, there is instead an odd mixture of National and Central government that makes it harder to get a unified approach to the economy (OK, it's maybe not so different to the US in reality).  This lack of flexibility means that some of the key levers of international finance are compromised, for example a weak economy can't float its currency to improve exports. Similarly individual country's interest rates can't be adjusted to balance spending. I suspect the main reason though is political and based on concepts of sovereignty and national pride. The UK does the majority of its trade with the Eurozone, so the pros would possibly outweigh the cons, but the UK as a whole (and some of our papers in particular) have always regarded Europe with suspicion. Most Brits only speak English and find France and Germany a strange and obtuse place. The (almost) common language makes it easier to relate to the US and Canada than our near neighbours. It seems the perception amongst the political establishment is that any attempt to join the Euro is political suicide, while that is the case it is unlikely to happen. Purely from a personal perspective, I'd welcome the Euro except it means a lot of the products I routinely buy would become a lot more expensive if price is 'harmonised'. For an example compare the price of the iPod Touch in the UK (£209.99) to France(€299). The French pay £262 at the current exchange rate, which is close to 25% more. Ouch. See also my question about Canada adopting the US Dollar "You are violating the Uncovered Interest Rate Parity.  If Country A has interest rate of 4% and Country B has interest rate of 1%, Country B's expected exchange rate must appreciate by 3% compared to spot. The ""persistent pressure to further depreciate"" doesn't magically occur by decree of the supreme leader. If there is room for risk free profit, the entire Country B would deposit their money at Country A, since Country A has higher interest rate and ""appreciates"" as you said. The entire Country A will also borrow their money at Country B.  The exception is Capital Control. Certain people are given the opportunity to get the risk free profit, and the others are prohibited from making those transactions, making UIP to not hold." Firstly currency prices, like any asset, depend on supply and demand. Meaning how many people want to exchange a currency to another one vs. wanting to buy that currency using another currency. Secondly, it really depends on which country and economy you are talking about. In emerging economies, currencies are very often influenced by the politics of that country. In cases like the US, there are a myriad reasons. The USD is mostly governed by psychology (flight to safety) and asset purchases/sales. In theory, currencies balance, given the inflation of a country and its trade with other countries. e.g. Germany, which was always exporting more than it was importing, had the problem of a rising currency. (Which would make its exports more expensive on foreign markets. This is the balancing act.) Some countries are considering stocking up on gold to shore up their notes.  (Or so I heard)  If this happens, gold will obviously become more rare.  The price will then be valued not only by the buying and selling of it but also by the forced rarity of it. I think part of the confusion is due to the age of the term and how money has changed over time relative to being backed by precious metals vs using central banks etc. Historically: Because historically the coin itself was precious metal, if a change occurred between the 'face value' of the coin and value of the precious metal itself, the holder of the coin was less affected since they have the precious metal already in hand. They could always trade it based on the metal value instead of the face value. OTOH if you buy a note worth an the current price of ounce of gold, and the price of gold goes up, and then the holder wants to redeem the note, they end up with less than an ounce of gold. In the more modern age  The main concern is the cost to borrow funds to put money into circulation, or the gain when it goes out of circulation.  The big difference between the two is that bills tend stay in circulation until they wear out, have to be bought back and replaced.  Coins on the other hand last longer, but have a tendency to drop out of circulation due to collectors (especially with 'collectible series' coins that the mint seems to love to issue lately).  This means that bills issued tend to stay in circulation, while only a percentage of coins stays in circulation.  So the net effect on the money supply is different for the two, and since modern 'seigniorage' is all about the cost to put money in circulation, it is different in the case of coins where some percentage will not remain circulating. To make it simple, just use gold as the main benchmark. Gold price never moves, FIAT currencies move around the price of gold.  So, when comparing US$ and Australian dollars to the gold, you know which currency is moving up and which down. "The answer from littleadv perfectly explains that the mere exchange ratio doesn't say anything. Still it might be worth adding why some currencies are ""weak"" and some ""strong"". Here's the reason: To buy goods of a certain country, you have to exchange your money for currency of that country, especially when you want to buy treasuries of stocks from that country. So, if you feel that, for example, Japanese stocks are going to pick up soon, you will exchange dollars for yen so you can buy Japanese stocks. By the laws of supply and demand, this drives up the price. In contrast, if investors lose faith in a country and withdraw their funds, they will seek their luck elsewhere and thus they increase the supply of that currency. This happened most dramatically in recent time with the Icelandic Krona." There are some out there making the argument that negative yields on the German Schatz (2-year note) are the result of speculators betting on a break-up of the euro area and its common currency. Specifically that assets held in euros, i.e. German bonds, would be re-denominated into a new Deutschmark that would appreciate in value against other European currencies. "The basic idea is that money's worth is dependent on what it can be used to buy. The principal driver of monetary exchange (using one type of currency to ""buy"" another) is that usually, transactions for goods or services in a particular country must be made using that country's official currency. So, if the U.S. has something very valuable (let's say iPhones) that people in other countries want to buy, they have to buy dollars and then use those dollars to buy the consumer electronics from sellers in the U.S. Each country has a ""basket"" of things they produce that another country will want, and a ""shopping list"" of things of value they want from that other country. The net difference in value between the basket and shopping list determines the relative demand for one currency over another; the dollar might gain value relative to the Euro (and thus a Euro will buy fewer dollars) because Europeans want iPhones more than Americans want BMWs, or conversely the Euro can gain strength against the dollar because Americans want BMWs more than Europeans want iPhones. The fact that iPhones are actually made in China kind of plays into it, kind of not; Apple pays the Chinese in Yuan to make them, then receives dollars from international buyers and ships the iPhones to them, making both the Yuan and the dollar more valuable than the Euro or other currencies. The total amount of a currency in circulation can also affect relative prices. Right now the American Fed is pumping billions of dollars a day into the U.S. economy. This means there's a lot of dollars floating around, so they're easy to get and thus demand for them decreases. It's more complex than that (for instance, the dollar is also used as the international standard for trade in oil; you want oil, you pay for it in dollars, increasing demand for dollars even when the United States doesn't actually put any oil on the market to sell), but basically think of different currencies as having value in and of themselves, and that value is affected by how much the market wants that currency." "Wikipedia talks about the Chinese currency: Scholarly studies suggest that the yuan is undervalued on the basis of purchasing power parity analysis. so despite it appearing cheaper due to the official exchange rate, the price in China might actually be fair. There are also restrictions on foreign exchange (purportedly ""to prevent inflows of hot money""), which, in concert with any other legal obstacles to owning or trading on the Chinese exchange, may also explain why the high-frequency traders aren't tripping over each other to arbitrage away the difference." It's called correlation. I found this: http://www.forexrazor.com/en-us/school/tabid/426/ID/437424/currency-pair-correlations it looks a good place to start Similar types of political economies will correlate together, opposite types won't. Also there are geographic correlations (climate, language etc) The Euro is a common currency between various countries in Europe.  This means that individual countries give up their traditional sovereign control of their own currency, and cede that control to the EU. Such a system has many advantages, but it also means that individual countries cannot deal with their unique situations as easily.  For instance, if the US were a part of the EU, then the Fed couldn't issue $600B the way they are to bolster the economy. The danger to the Euro is that countries will withdraw their participation in order to micromanage their economies more effectively.  If a major country withdraws its participation, it could start a domino effect where many countries withdraw so that they too can manage their economies more effectively.  As more countries withdraw, a shared currency becomes less and less appealing. Money, like anything else, is subject to the demands of people.  There are times when money is in high demand.  This drives up its value. People in Japan want cash because they have an immediate need to buy emergency supplies as well as rebuild and replace damaged items.  This is why the yen strengthened.  This is probably why the market plummeted as people liquidated some of their stocks to get cash. The Bank Of Japan (BOJ) will not stand for a rising yen, however.  It is pulling a Bernanke and printing yen in an effort to keep it weak.