# Are currencies equilibrating?

I was travelling recently and realised that dollars, euros, British pounds and Swiss francs all have more or less the same worth (i.e. 1 dollar $$\cong$$1 pound $$\cong$$ 1 euro $$\cong$$ 1 chf). This was not the case when I was a child.

Is there a trend here or am I interpolating to much? Are different currencies evolving over time towards all being equal?

PS: Please don't just answer 'yes' or 'no'. Whatever the answer is, I will wonder why it is so.

## 2 Answers

There is no economic reason for currencies to do so. There might be psychological reasons, but it seems that is not the case, as (for example) the gap between the Indian rupee and the US dollar has been steadily widening.

https://www.poundsterlinglive.com/bank-of-england-spot/historical-spot-exchange-rates/usd/USD-to-INR

There have also been cases where the exchange rate was such a large number that a country just decided to slash several zeros from their currency. (An example.) There would be no need for this if the natural tendency was to gravitate towards one.

This would only be the case if the currencies were fixed to each other. This was the case when the gold standard was still implemented for example, exchange rates would still fluctuate but should be the same in the long run. The mission of most central banks today is to ensure price stability. Hence in a perfect world the US dollar would buy the same amount of goods as a Swiss franc would in Switzerland or a euro in Europe. This is called purchasing power parity. The nominal value of currency is theoretically arbitrary as long as the real value is the same.

• I'm not sure that you understood my question. From my very narrow experience, it looks like all the exchange rates are getting closer to each other. My question (which might be a bit silly) is: Are exchange rates slowly changing in time in such a way that we will arrive in the future at an equilibrium where they are all the same? – Steven Mathey May 27 '19 at 19:50