Exchanging one currency for another is something you may need to do if you’re traveling internationally. Depending on your choice of destination, your money may go further in some countries than others if you’re able to take advantage of favorable exchange rates.
How much is a dollar worth outside of the U.S.? To answer that question, it helps to understand how exchange rates work and the various factors that influence currency values.
Table of Contents
- Types of Exchange Rates
- Exchange Rate Calculation
- Factors That Affect Currency Value
- Countries Where the US Dollar Is Strong
- Countries Where the US Dollar Is Weak
- The Takeaway
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Types of Exchange Rates
An exchange rate is the rate at which you can exchange one currency for another. Currency exchange rates are influenced by a number of factors, including the state of the economy in a particular country, interest rates, and unemployment rates. There are generally three types of exchange rate systems that can determine the value of currency.
• Free-floating. In a free-floating or flexible exchange rate system, currency values are determined by supply and demand. Federal governments and central banks don’t participate in the system, since it’s self-regulating. The United States is the closest example of what a free-floating exchange system looks like in action.
• Fixed exchange. Fixed or pegged exchange rate systems rely on the government to set exchange rates between different currencies. In this system, the weaker currency is fixed, or pegged, to the stronger one. A fixed exchange encourages stability in currency values, but it can leave governments with less room to maneuver if economic disruption occurs.
• Managed float. Managed float exchange systems combine some of the features of free-floating and fixed exchanges. In this type of arrangement, central banks play an active role in the buying and selling of foreign currencies.
Understanding currency exchange rates is important for determining the purchasing power of a dollar. A currency’s foreign exchange rate reflects its price, while its value determines how much purchasing power it holds. In other words, currency values dictate just how far your money goes.
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Exchange Rate Calculation
Calculating currency exchange rates is a fairly straightforward process. You’ll take the starting amount of currency that you have and divide it by the amount of currency you’d end up with if you exchanged it. Here’s what the formula looks like:
Original currency amount / Ending currency amount = Exchange rate
For example, say that you’re planning a trip to Europe and you want to know what the exchange rate is from USD to Euros. If you were to exchange $100 in U.S. currency and get 90 euros in exchange, your exchange rate would be 1.11.
$100 USD / $90 EUR = 1.11
You can also do the calculation in reverse, dividing your current currency by the exchange rate instead. That would tell you how much money you could expect to get when exchanging currency for a different one. If you’re curious about what a country’s exchange rate is while you’re traveling, that information is usually readily available at banks, airports, or currency exchange shops.
Factors That Affect Currency Value
As mentioned, currency value is how much purchasing power your money has. There are numerous factors that can influence a currency’s value and how much it fluctuates over time.
• Inflation. Inflation refers to price increases for consumer goods and services over time. When inflation rises, purchasing power decreases. Knowing how to find the inflation rate and what’s considered normal can help with gauging currency values at a given point in time.
• Interest rates. Governments can use interest rate policy to direct the economy and monetary policy. When a government raises rates, that can increase its currency’s value, as foreign investors may be attracted to the higher rates their money can earn on deposit at banks. Compounding interest at consistently higher rates directly correlates to the time value of money.
• Gross domestic product (GDP). Economic indicators, including gross domestic product, can influence currency values. The stronger a country’s economy is perceived to be, the more value its currency may hold.
• Unemployment rates. Unemployment rates are another economic indicator that can sway currency values higher or lower. When unemployment is low, that can be a sign of a solid economy, while higher unemployment rates may suggest a weaker or weakening economy.
• Government debt. How government debts are managed can also impact currency values. If a government is struggling to pay its financial obligations, that could cause a drop in currency values, especially if the government decides to print more money to cover its debt obligations.
• Political climate. The political conditions of a country matter when determining currency values. Countries that are politically stable are less likely to see huge fluctuations in currency values compared to ones that are going through significant upheavals or periods of civil unrest.
Understanding what affects currency values is important if you’re saving or investing and keeping some of your assets in cash. Specifically, it matters as it relates to the store of value.
What is store of value? In simple terms, it’s an asset that holds its value well over time. Gold and other precious metals are examples of potential stores of value, as they tend to be more insulated against negative economic events that could affect what currencies are worth.
Stocks can also be potential stores of value, though it’s important to consider risk and what you’ll pay for them. Dollar-based investing can make it easier to invest in stocks in smaller increments if you’re worried about losing value. Learning how dollar-based investing works can help you to decide if it might be right for you.
Cash, meanwhile, is usually considered a poor store of value as it can quickly lose purchasing power when currency values drop. Curious about how inflation might be affecting your personal spending power? Using an hourly wage inflation calculator can give you insight into just how much your paychecks are worth over time.
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Countries Where the US Dollar Is Strong
When the U.S. dollar is strong, it means that it’s rising in value compared to other currencies. A strong dollar can be used to buy more foreign currency. That’s a good thing if you’re traveling and want to get the most value for your dollars when exchanging for local currency.
Here are some of the countries where the U.S. dollar is strongest as of August 21, 2023.
• Peru: 1 USD = 3.72 Peruvian sol
• Mexico: 1 USD = 17.04 Mexican peso
• Japan: 1 USD = 146.39 Japanese yen
• Egypt: 1 USD = 30.90 Egyptian pound
• Chile: 1 USD = 869.25 Chilean peso
• Argentina: 1 USD = 350.02 Argentine peso
• Colombia: 1 USD = 4,063.33 Colombian peso
• Russia: 1 USD = 93.75 Russian ruble
• Philippines: 1 USD = 56.46 Philippine peso
• Cuba: 1 USD = 23.98 Cuban peso
From an investment perspective, holding foreign currency debts when the dollar is strong can be a positive thing. If the value of your home country’s currency increases while the debt’s currency value declines, that can increase overall net worth.
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Countries Where the US Dollar Is Weak
When the U.S. dollar is weak, it means that its value is in decline in comparison to other currencies. So if you’re exchanging U.S. dollars for a stronger foreign currency you won’t have as much purchasing power.
In terms of countries where the dollar is weakest, the list generally includes any countries that use the euro. The current exchange rate from U.S. dollars to euros is 1 USD = 0.92 EUR. Countries that use the euro include:
• Austria
• Belgium
• Croatia
• Cyprus
• Estonia
• Finland
• France
• Germany
• Greece
• Ireland
• Italy
• Latvia
• Lituania
• Luxembourg
• Malta
• Netherlands
• Portugal
• Slovakia
• Slovenia
• Spain
If you’re planning to travel to any of these countries, it’s important to know the current exchange rate and what you’ll pay in currency conversion fees to trade out your dollars for euros.
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The Takeaway
Knowing how much a dollar is worth in different locations can help you to plan your next vacation. You might also be interested in currency exchange rates if you’re interested in trading foreign currencies as part of your investment strategy. Whether you’re spending money at home or abroad, it’s important to keep track of where your cash is going.
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FAQ
What country is a dollar worth most?
Some of the countries where a dollar is worth the most money include Mexico, Peru, Chile, and Colombia. It’s possible to exchange dollars for local currency in these countries at favorable exchange rates.
Is the US dollar worth the most in the world?
The U.S. dollar is the world’s reserve currency and is the most widely used currency for global trade. That does not mean, however, that it’s the world’s top currency in terms of value. Other currencies may surpass the value of the U.S. dollar depending on economic conditions and the supply-demand environment in the foreign exchange market.
How much is $1 in Mexico right now?
How much is a dollar worth in pesos? It depends on which country you’re in, as several countries have their own version of the peso. If you’re specifically asking how much is a dollar worth in Mexico, $1 will get you 17.04 Mexican pesos as of August 21, 2023.
Photo credit: iStock/Foremniakowski
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