Have you ever think about why we have difference in the values of the currencies? Today, in Sri Lanka we can sell 1 USD for about 181 LKR.
OMG !
What a huge difference?
How this occurs? Have you think about it? Who are responsible for these differences?
Let us have a look on it briefly.
Let us assume that there are two countries, Country-A and Country-B. Both have 1 kg (1000 g) of Gold (say). Due to their mutually exclusiveness, they may have difference currencies (Currency-A is in Country-A and Currency-B in Country-B).
Under the supervision of IMF, initially they print currencies with total value of 1000. The face value of notes shall be differ in both countries but the total face value should be 1000.00 units (Currency-A or Currency-B). That is, Country-A can print 1000 notes with face value 1.00 in each while Country-B can print 2000 notes with face value 0.50 in each. This can differ for country to country.
In this case, each country prints currency value 1.00 for each 1 g of gold they posses. After printing 1000.00 units, the both countries leave the money to public usage with the expectation of 25% of 1000.00 as tax from alll the transactions involve using this 1000.00 units.
Country-A has good tax payers and gets 250.00 in the accounts as total tax gathered. In the mean time Country-B has people who are reluctant to pay tax and after one accounting calendar, total tax gathered was 100.00 units.
Now, in Country-A, they have 1000 g of gold and 1250.00 Currency-A in total with 1000.00 physically existing currency. Now they have to print extra 250.00 face value which is acquired successfully from the people's transactions. Using the 250.00 Currency-A, Country-A buys 250 g of Gold and prints notes worth face value in total of 250.00 Currency-A. Now, the gold stock in Country-A is 1250 g and the total face value in usage is 1250.00 Currency-A. Thus, 1 g of gold equals to 1.00 Currency-A.
But in Country-B, as it got 100.00 Currency-B as the tax collected, it will be recorded as only 400.00 Currency-B is in the Country officially. Balance 600.00 is hidden by the people from the official transaction by the people who are reluctant to pay the tax. This tells that the Country-B has only 400.00 Currency-B. Country-B can buy 100 g of gold and can print notes worth face value in total of 100.00 Currency-B. Now the total face value in official account is 500.00 Currency-B. But it has to be 1250.00 Currency-B. To fill the missing notes, Country-B has to print notes worth face value in total of 750.00 Currency-B. Now, IMF will not allow Country-B to print that amount as Country-B has already printed notes for the stock of gold available. But for the next accounting year people need currencies, so Country-B must has to print new notes. So IMF will instruct to reduce the currency value against the gold and print the new notes. Now as per accounts, Country-B has 1100 g of gold and total face value of money available is 2000.00 Currency-B. That is 1 g of gold equals to 1.81 Currency-B.
We consider gold as the unit for international transactions. So now when we consider Country-A and Country-B, initially 1.00 Currency-A=1.00 Currency-B. and after the first year of individual transactions with in the countries, 1.00 Currency-A=1.81 Currency-B.
So what if this is happening for a long time?
I hope now you have gt an idea why 1.00 USD = 181.00 LKR.
So who are responsible for the destruction of the currency value?
Absolutely RIGHT !!
People who are reluctant to pay TAX.
And this is why having or maintaining Black Money is considered as a CRIME. And this is why some governments are doing demonetization to time to time.
OMG !
What a huge difference?
How this occurs? Have you think about it? Who are responsible for these differences?
Let us have a look on it briefly.
Let us assume that there are two countries, Country-A and Country-B. Both have 1 kg (1000 g) of Gold (say). Due to their mutually exclusiveness, they may have difference currencies (Currency-A is in Country-A and Currency-B in Country-B).
Under the supervision of IMF, initially they print currencies with total value of 1000. The face value of notes shall be differ in both countries but the total face value should be 1000.00 units (Currency-A or Currency-B). That is, Country-A can print 1000 notes with face value 1.00 in each while Country-B can print 2000 notes with face value 0.50 in each. This can differ for country to country.
In this case, each country prints currency value 1.00 for each 1 g of gold they posses. After printing 1000.00 units, the both countries leave the money to public usage with the expectation of 25% of 1000.00 as tax from alll the transactions involve using this 1000.00 units.
Country-A has good tax payers and gets 250.00 in the accounts as total tax gathered. In the mean time Country-B has people who are reluctant to pay tax and after one accounting calendar, total tax gathered was 100.00 units.
Now, in Country-A, they have 1000 g of gold and 1250.00 Currency-A in total with 1000.00 physically existing currency. Now they have to print extra 250.00 face value which is acquired successfully from the people's transactions. Using the 250.00 Currency-A, Country-A buys 250 g of Gold and prints notes worth face value in total of 250.00 Currency-A. Now, the gold stock in Country-A is 1250 g and the total face value in usage is 1250.00 Currency-A. Thus, 1 g of gold equals to 1.00 Currency-A.
But in Country-B, as it got 100.00 Currency-B as the tax collected, it will be recorded as only 400.00 Currency-B is in the Country officially. Balance 600.00 is hidden by the people from the official transaction by the people who are reluctant to pay the tax. This tells that the Country-B has only 400.00 Currency-B. Country-B can buy 100 g of gold and can print notes worth face value in total of 100.00 Currency-B. Now the total face value in official account is 500.00 Currency-B. But it has to be 1250.00 Currency-B. To fill the missing notes, Country-B has to print notes worth face value in total of 750.00 Currency-B. Now, IMF will not allow Country-B to print that amount as Country-B has already printed notes for the stock of gold available. But for the next accounting year people need currencies, so Country-B must has to print new notes. So IMF will instruct to reduce the currency value against the gold and print the new notes. Now as per accounts, Country-B has 1100 g of gold and total face value of money available is 2000.00 Currency-B. That is 1 g of gold equals to 1.81 Currency-B.
We consider gold as the unit for international transactions. So now when we consider Country-A and Country-B, initially 1.00 Currency-A=1.00 Currency-B. and after the first year of individual transactions with in the countries, 1.00 Currency-A=1.81 Currency-B.
So what if this is happening for a long time?
I hope now you have gt an idea why 1.00 USD = 181.00 LKR.
So who are responsible for the destruction of the currency value?
Absolutely RIGHT !!
People who are reluctant to pay TAX.
And this is why having or maintaining Black Money is considered as a CRIME. And this is why some governments are doing demonetization to time to time.
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