What is the purchasing power of the currency?


2018-03-17 18:05:08




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The Purchasing power of money - characteristics of the monetary unit of any country. It shows how the number of goods (or services) at the current level of prices and tariffs can be purchased per unit of the currency.
the Classic definition of the term "purchasing power" is in the works of economists in the famous work of the American mathematician, Professor at Yale University (USA) Irving Fisher, earned world renown and all encyclopedic, legal, economic dictionaries. Under the purchasing power of money (currency) is the ability of a given monetary unit can be exchanged for a certain amount of commercially available goods and services.

Thus, this feature means the content of the monetary unit of countries with commodity weight. It is calculated as the index value is the inverse of the price index. It depends on the structure of trade and value of goods.

Dictionary interprets this concept as the ratio of income and price level. That is, in fixed income rising prices for goods and services leads to a decrease in the purchasing power of each monetary unit. The same line exists in relation to other economic indicators - cost of living index.

The Purchasing power of any currency is an important indicator to determine the exchange rate. Installation equivalent course impossible without knowledge of the purchasing power of each monetary unit, i.e., the amount of wealth available to acquire on the market of a particular country and the national currency.


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The 70-ies of the 20th century, this value was measured in gold. The amount of gold and its price in the currency has been enshrined in the legislation of each state. For example, for a long time the price of the dollar was equal to 1/35 of a Troy ounce parts (international unit of gold weight). The basis of the exchange rate was a comparison of gold content in units of different currencies.

Currently, gold is used instead of "consumer basket", i.e. a specific set of goods and services. It is clear that in each country, the population for the purchase of the same goods takes different amount, which speaks of the different purchasing power of local currencies. In addition, the purchasing power of the population depends on many other factors, the main of which is the ratio between the value of the "consumer basket" and the actual level of remuneration. They are determined by a number of man-hours required for the purchase of a product.

The Purchasing power of the Russian ruble, according to experts, falls over the year by 15-25%. Finance, incorporated in the state budget for compensation costs of inflation to the end of the year time to depreciate. Real growth of prices and tariffs more than twice as fast as government funding. Given the constant backlog of salaries, benefits and pensions for cost of living you can talk about the decline in the purchasing power of the ruble at least 30-35% per year.

At the same time, by estimations of analysts, cost of goods, services, and with them, respectively, and the purchasing power of the ruble in different regions can vary considerably (8-16 times). Ie in fact, a strong national currency of a single purchasing power in our country not exists.

The Exchange rate of the ruble, according to the Central Bank, in the last 15 years no less than 70% supported by exports of raw materials (mainly oil and gas) and semi-finished products from it. What then is the declared economic growth? Due to the growth in retail prices. In all the regions in most industries there is a drop in production volumes and commodity output, but rising prices allow to speak about a supposedly growing economy.

To restore equilibrium "supply and demand" on commodity-money market, the government needs to pursue a policy of containment of growth of the money supply and stimulate the production (as, for example, in China at the beginning of the monetary reform). In conditions of financial restrictions policy pursued by our government since 1991, the decline in output, increasing dramatically the share of exports of natural raw materials at dumping prices, leading to a further collapse of the manufacturing sector.

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Alin Trodden - author of the article, editor
"Hi, I'm Alin Trodden. I write texts, read books, and look for impressions. And I'm not bad at telling you about it. I am always happy to participate in interesting projects."

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