Why is there two currencies in Venezuela's money?
Venezuela is a command economy, and one that isn't doing terribly well right now, with rampant inflation in the several hundred percent range.  As such, they've tried to limit or eliminate exchanges between their currency and foreign currencies. Currently, they allow a limited amount of exchange at fixed rates (according to a Bloomberg article, those vary between 6.3, 13.5, and 200) for certain purchases, and then otherwise disallow exchange between the currencies.  However, there is a black market (illegal in Venezuela, but legal in the US) which allows the price to float, and is much higher - 800 or so according to that article from last year.  A recent Valuewalk article lists the black market rate at closer to 900, and slightly different official rates.  It's worth a read as it explains the different official rates in detail: Currently there are four exchange rates: First is the official one,   called CENCOEX, and which charges 6.30 bolivars to the dollar. It is   only intended for the importation of food and medicine. The next two exchange rates are SICAD I (12 bolivars per dollar) and   SICAD 2 (50 bolivars per dollar); they assign dollars to enterprises   that import all other types of goods. Because of the fact that US   dollars are limited, coupons are auctioned only sporadically; usually   weekly in the case of SICAD 1 and daily for SICAD 2. However, due to   the economic crisis, no dollars have been allocated for these foreign   exchange transactions and there hasn’t been an auction since August   18, 2015. As of November 2015, the Venezuelan government held only $16   billion in foreign exchange reserves, the lowest level in over ten   years, and an amount that will dry up completely in four years time at   the current rate of depletion. The last and newest exchange rate is the SIMADI, currently at 200   bolivars per dollar. This rate is reserved for the purchase and sale   of foreign currency to individuals and businesses.
The exchange rate between two currencies is simply the price that the most recent market participants were able to agree on, when trading. ie: if the USDCAD is 1.36, it's because the last trade that happened where someone bought 1 USD cost 1.36 CAD. There is no one person/organization which 'decides' the rate between two currencies. The rate moves you see is just the reality of money changing hands as people in various situations trade currencies for various reasons. Just like with stocks or any other market product, foreign exchange rates can fluctuate wildly based on many things. It is very difficult to forecast where rates will go, because the biggest changes in rates can often be unpredictable news events. For example, when Brexit happened, the value of the GBP plummeted relative to other currencies, because the market traders had less faith in the UK economy, and therefore weren't willing to pay as much to buy GBP. See more here: https://money.stackexchange.com/a/76482/44232. There is a very high level of risk in the foreign exchange market; for your sake, don't get involved in any trading that you do not well understand, first. Canada, like other second-rate economies with weak currencies, provides USD accounts.  It is not the same vice versa.  It is rare to find a direct deposit foreign currency account in the US as it is the world-leading currency. "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's no way the greek government has the cash to defend a peg. Defending a peg takes a lot of cash. If your currency goes above the peg, you need to print more. If it goes below the peg, you need to buy it back, with euros for example. Greece has no euros, and so cannot defend a peg. "They acquired the debt from the VZ Central Bank. Providing the Central Bank with dollars will help them control inflation. The argument against the deal is colossally stupid, and basically rests on the idea that the world community just needs to let VZ get as shitty and miserable as possible so the people will overthrow the government. Anything that eases the pain, like injecting US Dollars into the central bank, is therefore seen as ""propping up the government""" 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.) I don't think this can be explained in too simple a manner, but I'll try to keep it simple, organized, and concise. We need to start with a basic understanding of inflation. Inflation is the devaluing of currency (in this context) over time. It is used to explain that a $1 today is worth more than a $1 tomorrow. Inflation is explained by straight forward Supply = Demand economics. The value of currency is set at the point where supply (M1 in currency speak) = demand (actual spending). Increasing the supply of currency without increasing the demand will create a surplus of currency and in turn weaken the currency as there is more than is needed (inflation). Now that we understand what inflation is we can understand how it is created. The US Central Bank has set a target of around 2% for inflation annually. Meaning they aim to introduce 2% of M1 into the economy per year. This is where the answer gets complicated. M1 (currency) has a far reaching effect on secondary M2+ (credit) currency that can increase or decrease inflation just as much as M1 can... For example, if you were given $100 (M1) in new money from the Fed you would then deposit that $100 in the bank. The bank would then store 10% (the reserve ratio) in the Fed and lend out $90 (M2) to me on via a personal loan. I would then take that loan and buy a new car. The car dealer will deposit the $90 from my car loan into the bank who would then deposit 10% with The Fed and his bank would lend out $81... And the cycle will repeat... Any change to the amount of liquid currency (be it M1 or M2+) can cause inflation to increase or decrease. So if a nation decides to reduce its US Dollar Reserves that can inject new currency into the market (although the currency has already been printed it wasn't in the market). The currency markets aim to profit on currency imbalances and in reality momentary inflation/deflation between currencies. "Wiki's not entirely accurate.    My conspiracy theorist answer is because the Fed is not a government entity, it gives them increased flexibility with decreased transparency and the ability to do what is necessary to keep the currency/economy afloat under the fiat money system.  A good book I found on this is Ron Paul's ""End the Fed""." "Currently, there is simply no reason to do so. It's not a problem. It is no more of a problem or effort to denote ""5,000"" than it is to denote ""50.00"". But if there were a reason to do so, it wouldn't be all that difficult. Of course there would be some minor complications because some people (mostly old people presumably) would take time getting used to it, but nothing that would stop a nation from doing so. In Iceland, this has happened on several occasions in the past and while Iceland is indeed a very small economy, it shouldn't be that difficult at all for a larger one. A country would need a grace period while the old currency is still valid, new editions of already circulating cash would need to be produced, and a coordinated time would need to be set, at which point financial institutions change their balances. Of course it would take some planning and coordination, but nothing close to for example unifying two or more currencies into one, like the did with the euro. The biggest side-effect there was an inflation shot when the currencies got changed in each country, but this can be done even with giant economies like Germany and France. Cutting off two zeros would be a cakewalk in comparison. But in case of currencies like the Japanese Yen, there is simply no reason to take off 2 zeros yet. Northern-Americans may find it strange that the numbers are so high, but that's merely a matter of what you're used to. There is no added complication in paying 5.000 vs. 50 at a restaurant, it merely takes more space on a computer screen and bill, and that's not a real problem. Besides, most of the time, even in N-America, the cents are listed as well, and that doesn't seem to be enough of a problem for people to concern themselves with. It's only when you get into hyper-inflation when the shear space required for denoting prices becomes a problem, that economies have a real reason to cut off zeros." "I'd suggest that Bitcoin is not ""just"" anything. If wealthy Chinese have found it useful, good for them. If enterprising Venezuelan manage to afford basic necessities with it, that's great too.    Both of those are just use cases in the end. There have been others, and there will be more.   It remains to be seen just how draconian capital controls need to be to really prevent Bitcoin from being used in those environments. But if anybody can do draconian, it's probably China, so this will be a great experiment of sort, if they still have the stomach for that kind of thing.  If you're arguing that the market value of bitcoin is only rising because of one use case, I invite you to [look at this historical bitcoin price chart](https://bitcoincharts.com/charts/bitstampUSD#rg2920ztgSzm1g10zm2g25zvzl), spot the period of activity for your given use case, and estimate how the price action was influenced over that period by this use case. Then contrast it with the part of the graph outside of your chosen period, and make sure your idea adequately explains both parts." In banks and institutions where you could look at the money supply of M1 which is the physical currency in circulation compared to M2 which would be all the deposits that tend to be valued much more. http://www.federalreserve.gov/releases/h6/current/ would be the link where as of Nov. 2014 the figures are M1 - 2,849.8 M2 - 11,588.7 Footnotes from that: M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve   Banks, and the vaults of depository institutions; (2) traveler's   checks of nonbank issuers; (3) demand deposits at commercial banks   (excluding those amounts held by depository institutions, the U.S.   government, and foreign banks and official institutions) less cash   items in the process of collection and Federal Reserve float; and (4)   other checkable deposits (OCDs), consisting of negotiable order of   withdrawal (NOW) and automatic transfer service (ATS) accounts at   depository institutions, credit union share draft accounts, and demand   deposits at thrift institutions. Seasonally adjusted M1 is constructed   by summing currency, traveler's checks, demand deposits, and OCDs,   each seasonally adjusted separately.  M2 consists of M1 plus (1)   savings deposits (including money market deposit accounts); (2)   small-denomination time deposits (time deposits in amounts of less   than $100,000), less individual retirement account (IRA) and Keogh   balances at depository institutions; and (3) balances in retail money   market mutual funds, less IRA and Keogh balances at money market   mutual funds. Seasonally adjusted M2 is constructed by summing savings   deposits, small-denomination time deposits, and retail money funds,   each seasonally adjusted separately, and adding this result to   seasonally adjusted M1. Where M1 sounds like the physical money outside the banks and M2 is the money inside the banks. Did you mean something more specific here? http://en.wikipedia.org/wiki/Gross_domestic_product would be a link about GDP in terms of economic output that has more than a few pieces to it that I'm sure whole courses in college are devoted to understanding this measurement. "Congratulations!  You see the problem.  You can't get away from unstable currencies. The other problem is that the US will shut down anything that appears to be providing a replacement for the US Dollar.  Once a token or medallion or gift certificate or whatever starts being used outside the confines of one business or one network of businesses, it will be shut down, quickly.  It happened with Las Vegas gambling tokens.  Another more recent attempt was with the Liberty Dollar, gold and silver coins and certificates that not only had precious metal backing, but whose proponents encouraged taking them to retailers and paying with them as if they were US Dollars.  There were other problems with this idea, but it was the competitive stature of the Liberty dollar that got the headquarters raided and the main site shut down. Basically, all signs point toward dealing with currencies and their state of being systematically eroded over time.  If you do find one that appears to exist, be wary, because the rules can change at any time, and the ""money"" will be nowhere near as liquid as a proper currency." "No money is gone.  The movement of the existing currency has slowed down.  Currency moves through the economy through deposits or loans to banks, and withdrawal from banks as proceeds from loans or return of deposits.  When a bank makes a loan they provide a balance in a bank account, which isn't converted to hard currency until withdrawn.  So those bank loans essentially count as currency, and thus effectively multiply the stock of currency available.  Deposits into money market funds, and those funds loans into the commercial paper markets, have the same effect.  Banks and money funds are now making fewer loans.  In particular they are not funding ""companies"" that invested in securitizations of home mortgages and credit card receivables, but they are also lending less to businesses and consumers.  Because they are lending less they are ""effectively multiplying"" the currency less.   Think of deposited and lent currency as spare cycles on a desktop computer.  You let your computer help decipher the genome when you aren't using it yourself.  If you somehow feared that you would lose those cycles, slowing down your own computing, you would be less likely to lend those cycles out.  There would still be the same number of computing cycles in the world, but the stock of those available for actual computing would appear to be diminished.  The technical term for this concept is ""monetary velocity"" and it is a crucial factor in determing the level of overall economic activity, banking stability, and inflation." "Bingo, great question.  I'm not the original poster, ""otherwiseyep"", but I am in the economics field (I'm a currency analyst for a Forex broker).  I also happen to strongly disagree with his posts on the origin of money.  To answer your question:  the villagers are forced to use the new notes by their government, which demands that their income taxes be paid with the new currency.  This is glossed over by otherwiseyep, which is unfortunate because it misleads people who are new to economics into believing the system of fiat money we have now is natural/emergent (created from the bottom-up) and not enforced from the top-down.  Legal tender laws enforced in each nation's courts mean that all contracts can be settled in the local fiat currency, regardless of whether the receiver of the money wants a different currency.  These laws (and the income tax) create an artificial ""root demand"" for the fiat currency, which is what gives it its value.  We don't just *decide* that green paper has value.  We are forced to accumulate it by the government.  Fiat currencies are not money.  We call them money, but in fact they are credit derivatives.  Let me explain:  A currency's value is inextricably tied to the nation's bond market.  When investors buy a nation's bonds, they are loaning that nation money.  The investor expects to receive interest payments on the bonds.  The interest rate naturally rises as the bonds are perceived to be more-risky, and naturally falls as the bonds are perceived to be less-risky.  The risk comes from the fact that governments sometimes get really close to not being able to pay their interest payments.  They get into so much debt, and their tax-revenue shrinks as their economy worsens.  That drives up the interest rate they must pay when they issue new bonds (ie add debt).  So the value of a currency comes from tax revenue (interest payments).  If a government misses an interest payment, or doesn't fully pay it, the market considers this a ""credit event"" and investors sell their bonds and freak out.  Selling bonds has the effect of driving interest rates even higher, so it's a vicious cycle.  If the government defaults, there's massive deflation because all debt denominated in that currency suddenly skyrockets due to the higher interest rates.  This creates a chain of cascading defaults - one person defaults, which leads another person, and another, and so on.  Everyone was in debt to everyone else, somewhere along the chain.  In order to counteract this deflation (which ultimately leads to the kind of depression you saw in 1930's US), governments will print print print, expanding the credit supply via the banks.  So this is what you see happening today - banks are constantly being bailed out all over the Western world, governments are cutting programs to be able to meet their interest payments, and central banks are expanding credit supplies and bailing out their buddies.  Real money has ZERO counterparty risk.  What is counterparty risk?  It's just the risk that the guy who owes you something won't honor his debt.  Gold and silver and salt and oil aren't IOU's.  So they can be real money." Money is no longer backed by gold. It's backed by the faith and credit of the issuing government. A new country,say, will first trade goods for dollars or other currency, so its ownership of gold is irrelevant. Its currency will trade at a value based on supply/demand for that currency. If it's an unstable currency, inflating too quickly, the exchange rate will reflect that as well.  More than that your question kind of mixes a number of issues, loosely related. First is the gold question, second, the question of currency exchange rates and they are derived, with an example of a new country. Both interesting, but distinct processes.