How is the monetary value determined

Monetary value

The monetary value is the domestic purchasing power of money, i. H. the amount of goods that can be bought for a certain amount of money (internal value). If prices rise, the value of money falls and vice versa. Externally, the monetary value is the value of a currency when exchanged for foreign currencies (external value). The term can therefore be related to Germany or to imports or to foreign countries.

The monetary value indicates the amount of goods that can be acquired with a monetary unit, or in general: the extent to which the monetary value is determined by the activities of all economic agents or by monetary policy with its use of monetary policy instruments is a point of contention that has always been discussed in monetary theory controlled. According to the so-called banking theory, the general price level of an economy is determined on the markets, and economic agents procure the means of payment required for sales themselves; According to the so-called currency theory, the central bank's money supply, especially the monetary base, determines the amount of money used in an economy and thus the general price level. At its core, the controversy between banking and currency theory from the 19th century continues to this day in the form of the controversy between monetarism and fiscalism.

Literature: Issing, O., Introduction to Monetary Theory, 9th edition, Munich 1993. Schmölders, G., Geldpolitik, 2nd edition, Tübingen, Zurich 1968.

a) Internal monetary value: indicates the purchasing power of money and is measured by the reciprocal value of the price level (p): t / p; it falls when the price level rises, so that for a certain amount of money one receives fewer goods and services on the market than before. b) External monetary value: indicates how many foreign goods one can acquire for a domestic monetary unit: w — pA. If the monetary value of foreign countries I / pA remains unchanged, the external monetary value of the domestic country fluctuates with the exchange rate (w in quantity notation, e.g. amount in US $ for 1); it rises in the event of a devaluation and falls in the event of an appreciation of the domestic currency.

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