Question

Please write about your own understanding of the importance of the position of a central currency

Answer 1

Currency changes value in world market with respect to other currencies during trade transactions . This occurs due to supply and demand of currency in world market . It is sometimes important to maintain a strong currency or a currency that is costlier to buy with other currencies . The appreciation in the exchange rate would also help keep inflation low, and reduce the price of imports . This improves or boosts up domestic living standards because we can import goods at cheaper prices due to strong currency . The important thing we should take into consideration is that a strong currency is only desirable if it is the result of increased competitiveness . But a strong currency also leads to trade deficit because imports become cheaper and exports costlier to other countries . So if a country is competitive enough and has domestic resources to compete imports then strong currency maintainence is viable .