I am a new nation. How will I evaluate my currency against currencies of other countries.?

Question

I searched all related questions but am not clear yet. To simplify my question " I (XYZ) am a new nation established today, 1000 population. 300 employed. Rest 700 children and school going. I(XYZ) have 100 KGs of Gold, 200 KGs of silver, 1000 KGs of coal. POliticla situation stable. Name of my currency is XYZ $. How will my government determine its exchange rate against US $, UK pound or j*p Yen. What will be the requisite rate in terms of XYZ$ against US $ and UK pound and j*p yen. I shall be grateful for a thorough reply.

Answer 1

Gold, silver and coal will not determine value alone. The rest of the country's balance sheet has to be revealed in terms of what is renewable and can be produced.

The country's ability to produce goods for export will determine what global traders will pay in exchange for currency.

Expect it to trade low against other currencies in the beginning until production and gross domestic product can be established.

Right now, the balance sheet in terms of exportable goods is undetermined. Pegging the currency to fixed assets is falacious because fixed assets will be consumed or diminished over time thus damaging the currency in the long term.

Currency is only a form of barter in the form of fungible units. Absent some ability to produce and sell in commerce, the currency will have virtually no value outside of the country.

The alternative would be to peg the unit to another major currency, but that would entail, still, the ability to produce exports the profits from which would support acquiring imports.

Answer 2

You have two possible options.  1. you can peg your currency to another major currency such as the dollar or the euro.  

2. you can allow your currency to float in the foreign exchange market, in which case the market will decided a fair price for your currency.  

One thing to keep in mind is that your exports help determined the demand and thus the price for your currency. If you produce a product or service that other countries want then those countries will buy and thus appreciate your currency in oder to acquire your products and services.  On the other hand if you produce nothing then I see no reason for anyone to buy your currency.

Answer 3

You don't. You allow the market to value your currency. If a Government decides to fix its exchange rate, it is harming itself with potential economic collapse. Look at what happen to Argentina when it fixed its currency to the US Dollar. Now it lets the market freely trade the Argentine Peso and its worth around $0.33/cents per peso.

Free Markets work. Government Decrees do not.

Answer 4

What the new nation do you live?Initially try to make the comparison.