That’s a lot of money. Or is it?

We’re heading to Korea soon to celebrate my younger brother’s wedding.  I went ahead and exchanged some USD to KRW (South Korean Won) here before leaving.

This is the 1,000 Won bill.

1000 won

If you’re from anywhere other than Korea, your first thought might be “Wow!  That’s a lot of money.  A thousand Won has got to be able to buy a ton of stuff!”

In fact, at the time of this post, the exchange rate is about 1075 Won to $1 USD.  This THOUSAND Won is worth about $0.93.

This makes intuitive sense to most people.  Obviously, different countries have different currencies and each will be worth more or less than our domestic denomination.  To go a step further, what really determines the VALUE of any currency is what you can get in exchange for it.  If I can take this 1000 Won bill and buy a steak and lobster dinner, I don’t care what the exchange rate is to USD, THAT’S A GOOD DEAL!

What escapes the average citizen is when a country arbitrarily inflates or deflates the value of its currency by playing around with the money supply.  If the currency is not tied to anything of value, like Gold or Oil or Land or Porches, the Treasury can basically print or destroy currency at their whim.

What happens as a result is not immediately visible to most citizens.  They go around thinking their money has a fixed value when in fact (in the case of the Treasury printing HUGE amounts of money to be circulated) their money is slowly losing value right before their eyes.

Economists will tell you that the way printing money affects the economy has the same impacts of a tax.  It’s a tax that hurts the poorest the most.  And unlike your income tax, where you pay the IRS up front with each paycheck and they give you a small ‘refund’ at the end of the year, currency manipulation isn’t something from which you can request a refund.

 

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