Floating Currency?

Question

How do floating currencies like the dollar get their value? And why is the value of the dollar going down?

Answer 1

In theory currencies value are determined by demand and supply rules but in fact the government has mechanism to impact its value; called by the economists like "dirty flotation".

An explanation more detailed require to use some mathematical model or an extended and complex text. I recommend to buy some basic books in Macroeconomics to know about it like that did write Stanley Fischer or Paul Samuelson.

The problems in external accounts in US is the reflex of the problems in internal economy and we can expect for the next month more depreciation of US dollar; usually this process take many month and by a day-to day monitoring is not seen and appreciated.

Answer 2

Money allows people to make an exchange today for money and take that money and make an exchange in six months or even years later.  Barter requires all exchanges happen in time right now.  Money permits time to be disconnected from trades.  When you have two currencies, they are both claims on future production of the society that uses the currency.  Their relative values will become a function of the current and future production sharing and investment sharing between the two currency zones.

If you get paid at work today and spend some of the money for bills over the next two weeks, there isn't a large difference between doing that and barter.  Your boss could have paid your bills on your behalf and it would have been no different than if you had worked for your boss in exchange for natural gas, electric, groceries and so forth.  If you set some of the money aside for a vacation in six months, then you have deferred the claim on production by six months.

If in six months your vacation is in another country, then you will need to exchange your currency for the currency of the other country.  Depending on how scarce your currency is, compared to its use, your currency will be more or less valuable.

The dollar is going down because in order to protect the financial system from failure the government is printing money and loaning it to banks.  Whenever you print more of something you make it less scarce and its value falls relative to other things.