How do you come up with a value for a new currency?

Question

Imagine I create a new country. How do I assign a value to my currency? Can it be just any arbitrary value? Pretty much what ever is most convenient, without worrying about the rest of the world. Or is there more I have to put into consideration? And how do I determine the exchange rate once that currency has been created?

Answer 1

The short answer is "You don't, the market does."

You'll need to produce something that will make people want to buy and use your currency.  Over time, the market will figure out the value of your currency relative to others, and set the exchange rate accordingly.

Initially, your currency will be worth almost nothing, because there is nothing to back it and no market for it.  You can just say "Here's my money, and I want $1.50 for one unit of it!".  The currency needs to prove itself.

Check out the wikipedia entry on Exchange Rates, it should shed some light on how exchange rates are set.