Can anyone explain how the dollar can lose value?

Question

I'm having trouble with the concept that money can actually lose value. How does that happen?

Answer 1

Within the US, inflation erodes the dollar's value by reducing what you are able to by with a dollar.

Outside of the US, in the currency market, the value of the dollar is determined based on the supply and demand for it, which is based on import/export flows and capital flows in addition to speculation.  If the supply of dollars in the currency market increases, or if the demand decreases, the value of the dollar falls against other currencies, meaning you have to pay more to switch your dollars into yen, pounds, euros, etc.