What policy in economics makes for a strong currency?

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readerofbooks eNotes educator| Certified Educator

There are several ways in which to answer this question. The best way to answer this question is to look at the idea of supply and demand. In short, the more you have of something, the less it is worth. The less of something there is, the more it is worth.

So, if you print a lot of money, as our government has been doing, then there is more money in circulation. This means that the dollar will get weaker over time, because there is so much of it. Whenever a nation debases its currency, inflation takes place and this basically means that the currency becomes weaker. The only reason why the US dollar is not tanking is because other governments are in trouble as well.

In light of this, to have a strong currency, you need to do two things. First, you need to limit the amount of dollars that is in circulation. Second, you need to have a solid economy, so that other nations will want to hold the dollar. The more other nations want the dollar, the stronger the currency will be.