Currency Exchange

Imagine a giant global farmers market where every country has a stall selling the same thing: confidence. The United States is selling dollars, Japan is selling yen, Europe is selling euros. But here is the twist. Nobody is buying these currencies because they want the paper. They are buying them because of what they believe that paper can do tomorrow. If America's stall looks busy, prosperous, and well run, everybody wants dollars. If Japan's stall starts looking shaky, people dump yen and rush to a different stall. Now the drama starts. A vendor at the American stall announces they are raising prices, meaning interest rates go up. Suddenly everybody wants American dollars because parking your money there now pays more. The dollar stall gets mobbed. Meanwhile the Japanese stall drops its prices to attract business, and the yen gets weaker.