Why do currencies cover orders of magnitude?

Question

Using 1 USD as a reference, most currencies are within an order of 5 away from the USD: that is, one unit of most currencies is worth between 0.2 USD and 5 USD. (Source.) In fact, most European currencies (Pound, Euro, Franc) are almost exactly 1 USD (0.75, 0.90, 0.98, respectively).

However, there are some currencies that are orders of magnitude away from the USD: 100 Yen constitutes a USD, and 1000 Won constitutes a USD.

Why are these currencies so far from the value of 1 USD? What happened during the development of these countries (in this case, Japan and South Korea) that caused their currency unit to be astronomically different from the USD?

Answer 1

No matter where you live in the world, there is sort of a minimum value that your currency needs to practically be able to represent somehow. If your standard unit of currency is more than that minimum value, you need to subdivide your currency to be able to represent smaller values. In the U.S., we subdivide our U.S. Dollar into 100 cents, meaning that the smallest value that you can spend is $0.01. (My parents talk about being able to go to the store when they were kids and buy candy for 1 cent, but that is no longer the case.)

If your standard unit of currency is small enough, you don't need to subdivide it any further. This is the case with Japanese yen; 1 yen is roughly equivalent in value to 1 U.S. cent, and you won't find anything for sale in Japan for a fraction of a yen.

I visited the Czech Republic last summer. One Czech koruna is roughly equal to 4 U.S. cents, and I didn't see anything for sale there for fractions of a koruna.

There really isn't anything more to it than that. If we, in the U.S., decided that we didn't like the decimal point anymore and valued everything in cents, nothing would change, except that what we know today as the one-dollar bill would have the number 100 on it, and a price tag that had $4.95 on it today would look like 495¢ instead.

Currencies change in value with respect to each other from time to time. You can read about some of the events in the past that affected the value of the Japanese yen on the yen Wikipedia article, but none of that history is really relevant if you are concerned about the value today. If a currency goes up in value, it will just have to be subdivided more so that the smallest values can still be represented. If on the other hand, the value of the currency goes down (much more common), some of the smallest subdivisions will be eliminated. Canada has already stopped production of their penny, and there is discussion in the U.S. about doing the same here.

When the Euro was created (about 20 years ago), they had to pick some value to begin with, and they chose to make the Euro equal in value to the U.S. dollar at the time. It has since changed in value with respect to the dollar, and today 1 euro = $1.11 USD.

Answer 2

Currencies fluctuate depending on many factors, most important factor might be monetary policy of the respective country the currency belongs to. Gold generally is a good indicator as the USD also went away from a Gold Standard with the Bretton Woods System.

As for the Japanese Yen, Wikipedia holds an entry for the Japanese Yen and its history. From there you can read the following quote:

Fixed value of the yen to the U.S. dollar

No true exchange rate existed for the yen between December 7, 1941, and April 25, 1949; wartime inflation reduced the yen to a fraction of its pre-war value. After a period of instability, on April 25, 1949, the U.S. occupation government fixed the value of the yen at ¥360 per US$1 through a United States plan, which was part of the Bretton Woods System, to stabilize prices in the Japanese economy.[19] That exchange rate was maintained until 1971, when the United States abandoned the gold standard, which had been a key element of the Bretton Woods System, and imposed a 10 percent surcharge on imports, setting in motion changes that eventually led to floating exchange rates in 1973.

The declining exchange rate of the Japanese Yen VS the USD can be tracked very well through historical charts, Wikipedia has some data on the same site Japanese Yen Historical exchange rate

To answer your question: In any case im aware of extensive monetary policy (inflating the currency) lead to these exchange rates. The Zimbabwe Dollar is a good example for that as well as the Japanese Yen and the US Dollar itself compared to Gold.

As for the exchange rates, the Foreign exchange markets averaged $5.3 trillion per day in April 2013. Exchange rates are settled 24/7/365 through spot and interbank markets.

Answer 3

I won't speak to the usual variations in your first paragraph. But as for paragraph two, there are no fractional Japanese Yen as there are pennies (USD) and pence (GPB). Consider one JPY as you would one USD cent.

Answer 4

A unit is just very different in different countries. It has nothing to do with anything good or bad with the countries. Its like saying why is a meter and a mile so different.

Answer 5

There are 22,000 Vietnamese Dong to a USD, making it one of the world's least valued currency units. But denominations under 1,000 are rarely used (in tourist areas at least). They might as well say it's 22 Dong to a dollar - the zeros make no practical difference. The zeros remain because back in 1985 they revalued the Dong (1 new dong worth 10 old dong) and this led to inflation. So I understand their reluctance to repeat this.

There is a general trend that poorer countries have less valuable currency units. But it's not a strict rule. Vietnam, for example, is not the poorest country in the world. Before the introduction of the Euro, the Italian Lira was a notable example of a developed economy with a low-valued currency unit.

You see the locals' attitude to money expressed in the currency. While in developed countries people throw small change into jars at home, this is not the case in poorer countries. In India, coins are rarely used, and you can see from the heavily worn low-denomination notes, how these have been carefully kept inside clothes and shoes. Money is more precious with extreme poverty.

I find the Thai Baht to have an especially convenient value - about 35 to a dollar. A very pleasant currency to use. Although technically subdivided into 100 satang, the satang is not much used. That makes the Western practice of pounds and pence or dollars and cents look like unnecessary complexity.