What's the average value of a currency?

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What's the average value of a currency?

Postby Dingbats » Tue Jul 17, 2012 10:38 am UTC

On the one hand you have ridiculously low-valued currencies like formerly the Italian and Turkish liras, or the ones on Wikipedia's list of least valued currency units; on the other you have the Kuwaiti dinar at 1 KWD = 3.56 USD, and others on the list of highest valued currency units. But what is the average? I've been googling around to no avail.

Of all the currencies in the world, what is on average the value of one unit? Someone has to know this.

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Re: What's the average value of a currency?

Postby Pazuzu » Tue Jul 17, 2012 12:04 pm UTC

I don't see how this can relate any useful information and as such I can't see why anyone would calculate it. In addition, there's the problem that it wouldn't be a constant, but a floating number subject to constant change.

What do you need it for?

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Re: What's the average value of a currency?

Postby Dingbats » Tue Jul 17, 2012 12:07 pm UTC

Pazuzu wrote:I don't see how this can relate any useful information and as such I can't see why anyone would calculate it. In addition, there's the problem that it wouldn't be a constant, but a floating number subject to constant change.

What do you need it for?

Why would anyone calculate Yoda's power output? It's meaningless but it's fun. Yes, of course it changes all the time, but you can probably get a nice round number that's close enough for quite a while.

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Re: What's the average value of a currency?

Postby gorcee » Tue Jul 17, 2012 1:38 pm UTC

Average value in what units? Dollars? Rupees?

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Re: What's the average value of a currency?

Postby Dingbats » Tue Jul 17, 2012 2:18 pm UTC

gorcee wrote:Average value in what units? Dollars? Rupees?

Doesn't matter I guess, it's easy to convert.

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Re: What's the average value of a currency?

Postby gorcee » Tue Jul 17, 2012 2:59 pm UTC

Dingbats wrote:
gorcee wrote:Average value in what units? Dollars? Rupees?

Doesn't matter I guess, it's easy to convert.


Is it?

The conversion from US Dollars to Pound Sterling to Euros does not always result in the same answer as the conversion directly from US Dollars to Euros.

For instance, converting 1 USD to GPB to EUR results in (as of one minute ago) .819006 EUR, while converting 1 USD to EUR results in .818981 EUR.

This difference is small if you're just converting one dollar, but sufficiently large to really wreak havoc on any computation of an average (also, it's sufficiently large to not be a result of truncation error).

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Re: What's the average value of a currency?

Postby Dingbats » Tue Jul 17, 2012 3:49 pm UTC

gorcee wrote:
Dingbats wrote:
gorcee wrote:Average value in what units? Dollars? Rupees?

Doesn't matter I guess, it's easy to convert.

Is it?

The conversion from US Dollars to Pound Sterling to Euros does not always result in the same answer as the conversion directly from US Dollars to Euros.

For instance, converting 1 USD to GPB to EUR results in (as of one minute ago) .819006 EUR, while converting 1 USD to EUR results in .818981 EUR.

This difference is small if you're just converting one dollar, but sufficiently large to really wreak havoc on any computation of an average (also, it's sufficiently large to not be a result of truncation error).

Oh right, I thought you just meant which currency I'd like the end result in. You're right, it would be different depending on which currency you're using to "measure" the others. I would guess that USD would be the easiest one to get data on, so that's probably the best bet (although of course I would prefer SEK, since that's the currency I'm most familiar with).

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Re: What's the average value of a currency?

Postby beojan » Tue Jul 17, 2012 4:09 pm UTC

gorcee wrote:The conversion from US Dollars to Pound Sterling to Euros does not always result in the same answer as the conversion directly from US Dollars to Euros.

For instance, converting 1 USD to GPB to EUR results in (as of one minute ago) .819006 EUR, while converting 1 USD to EUR results in .818981 EUR.

This difference is small if you're just converting one dollar, but sufficiently large to really wreak havoc on any computation of an average (also, it's sufficiently large to not be a result of truncation error).


In that case, money could conceivably be made by converting a (very large, to allow for fees) sum of US Dollars into Sterling Pounds, then Euros, then back to US Dollars.

Such transactions would soon make the exchange rates consistent. (I also just checked on XE.com, and (1 USD to GBP to EUR) = (1 USD to EUR))

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Re: What's the average value of a currency?

Postby gorcee » Tue Jul 17, 2012 6:03 pm UTC

beojan wrote:In that case, money could conceivably be made by converting a (very large, to allow for fees) sum of US Dollars into Sterling Pounds, then Euros, then back to US Dollars.

Such transactions would soon make the exchange rates consistent. (I also just checked on XE.com, and (1 USD to GBP to EUR) = (1 USD to EUR))


Yes, such a thing is possible. However, I believe there are regulatory controls on such a thing, and also exchange fees cut into this very narrow margin. I might be wrong, however, and people may actually use this to make money. I've thought about doing so myself, but lack sufficient funds to make the effort pay off.

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Re: What's the average value of a currency?

Postby JohnGalt » Tue Jul 17, 2012 6:39 pm UTC

beojan wrote:
gorcee wrote:The conversion from US Dollars to Pound Sterling to Euros does not always result in the same answer as the conversion directly from US Dollars to Euros.

For instance, converting 1 USD to GPB to EUR results in (as of one minute ago) .819006 EUR, while converting 1 USD to EUR results in .818981 EUR.

This difference is small if you're just converting one dollar, but sufficiently large to really wreak havoc on any computation of an average (also, it's sufficiently large to not be a result of truncation error).


In that case, money could conceivably be made by converting a (very large, to allow for fees) sum of US Dollars into Sterling Pounds, then Euros, then back to US Dollars.

Such transactions would soon make the exchange rates consistent. (I also just checked on XE.com, and (1 USD to GBP to EUR) = (1 USD to EUR))

I THINK that for some such conversions there does exist minor discrepancies, and in theory you could make money that way. However, the fluctuations are such that it would be a gamble, and seeing as you need to invest very large amounts for a relatively small return its not worth it.

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Re: What's the average value of a currency?

Postby SecondTalon » Tue Jul 17, 2012 8:06 pm UTC

gorcee wrote:
beojan wrote:In that case, money could conceivably be made by converting a (very large, to allow for fees) sum of US Dollars into Sterling Pounds, then Euros, then back to US Dollars.

Such transactions would soon make the exchange rates consistent. (I also just checked on XE.com, and (1 USD to GBP to EUR) = (1 USD to EUR))


Yes, such a thing is possible. However, I believe there are regulatory controls on such a thing, and also exchange fees cut into this very narrow margin. I might be wrong, however, and people may actually use this to make money. I've thought about doing so myself, but lack sufficient funds to make the effort pay off.


Currency trading is a very real thing, and people make money doing it.

From what I understand, it's less about minute-to-minute exchanges, and more about buying a shitload of Canadian money when the Canadian Dollar is cheap, then trading it back six months later when it's high.

It's basically like playing the stock market and trading stocks, only the companies are countries.
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Re: What's the average value of a currency?

Postby gorcee » Tue Jul 17, 2012 8:16 pm UTC

SecondTalon wrote:
gorcee wrote:
beojan wrote:In that case, money could conceivably be made by converting a (very large, to allow for fees) sum of US Dollars into Sterling Pounds, then Euros, then back to US Dollars.

Such transactions would soon make the exchange rates consistent. (I also just checked on XE.com, and (1 USD to GBP to EUR) = (1 USD to EUR))


Yes, such a thing is possible. However, I believe there are regulatory controls on such a thing, and also exchange fees cut into this very narrow margin. I might be wrong, however, and people may actually use this to make money. I've thought about doing so myself, but lack sufficient funds to make the effort pay off.


Currency trading is a very real thing, and people make money doing it.

From what I understand, it's less about minute-to-minute exchanges, and more about buying a shitload of Canadian money when the Canadian Dollar is cheap, then trading it back six months later when it's high.

It's basically like playing the stock market and trading stocks, only the companies are countries.


Yes, I know that. But that's different than taking advantage of a non-zero sum circular currency exchange, by going USD -> GBP -> EUR -> USD and ending up with a small profit in the end.

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Re: What's the average value of a currency?

Postby Роберт » Tue Jul 17, 2012 8:30 pm UTC

gorcee wrote:Yes, I know that. But that's different than taking advantage of a non-zero sum circular currency exchange, by going USD -> GBP -> EUR -> USD and ending up with a small profit in the end.

That sounds essentially like the day-trading version of currency trading, and it seems to me like it could very easily be real. And it's high-risk and probably has a large number of fees involved, so it's not some sort of magic get-rich-quick scheme.
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Re: What's the average value of a currency?

Postby Arrian » Tue Jul 17, 2012 8:57 pm UTC

gorcee wrote:Average value in what units? Dollars? Rupees?


I would probably go with the median price of a universal commodity, like the Economist's Big Mac Index. (i.e. if oil is a million Turkish Lyra, 100 USD and 80 Euro a barrel, the USD would be the median currency.) On the other hand, that's easy to game. The Law of One Price isn't inviolable, but it's generally useful for this kind of thing.

You could use the price of oil in different currencies, but I think it's generally traded in only a couple currencies at the world level, so that could end up just being a restatement of current exchange rates.

A couple problems I can think of with comparing exchange rates or prices based on internationally exchanged commodities are that governments can limit exports of their currency or imports of the commodity, leading to differing prices for domestic goods and services compared to international goods and services. If you care about where currencies rank for international trade, that's not a problem, but if you're trying to figure out an index to take income in any currency and convert it to a standard of living in real terms, then you'll likely have issues.

As for the nature of the Foreign Exchange market, High Frequency Trading is certainly part of the field. I'm not really familiar with either Forex markets or HFT, but I believe that trading in forex relies on making very large investments on very small margins, like fractions of a basis point. I never though of it as a buy and hold, my impression was that a successful forex trader was up all night watching the monitors closely and trying to catch an edge before it disappeared, the kind of situation where HFT would quickly drive slow traders out of the market.

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Re: What's the average value of a currency?

Postby gorcee » Tue Jul 17, 2012 9:07 pm UTC

Arrian wrote:
gorcee wrote:Average value in what units? Dollars? Rupees?


I would probably go with the median price of a universal commodity, like the Economist's Big Mac Index. (i.e. if oil is a million Turkish Lyra, 100 USD and 80 Euro a barrel, the USD would be the median currency.) On the other hand, that's easy to game. The Law of One Price isn't inviolable, but it's generally useful for this kind of thing.

You could use the price of oil in different currencies, but I think it's generally traded in only a couple currencies at the world level, so that could end up just being a restatement of current exchange rates.

A couple problems I can think of with comparing exchange rates or prices based on internationally exchanged commodities are that governments can limit exports of their currency or imports of the commodity, leading to differing prices for domestic goods and services compared to international goods and services. If you care about where currencies rank for international trade, that's not a problem, but if you're trying to figure out an index to take income in any currency and convert it to a standard of living in real terms, then you'll likely have issues.

As for the nature of the Foreign Exchange market, High Frequency Trading is certainly part of the field. I'm not really familiar with either Forex markets or HFT, but I believe that trading in forex relies on making very large investments on very small margins, like fractions of a basis point. I never though of it as a buy and hold, my impression was that a successful forex trader was up all night watching the monitors closely and trying to catch an edge before it disappeared, the kind of situation where HFT would quickly drive slow traders out of the market.


Most ForEx HFT involves waiting for changes in the conversion rate, so, for example, converting $1B USD to GBP at 10 AM, and converting it back when the exchange rate is more favorable at, say, 10:08 AM, for instance. I think that taking an extra step through EUR, or YEN, or whatever, would probably be basically the same thing, except you have two variables to monitor instead of one.

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Re: What's the average value of a currency?

Postby beojan » Tue Jul 17, 2012 9:07 pm UTC

JohnGalt wrote:
beojan wrote:
gorcee wrote:The conversion from US Dollars to Pound Sterling to Euros does not always result in the same answer as the conversion directly from US Dollars to Euros.

For instance, converting 1 USD to GPB to EUR results in (as of one minute ago) .819006 EUR, while converting 1 USD to EUR results in .818981 EUR.

This difference is small if you're just converting one dollar, but sufficiently large to really wreak havoc on any computation of an average (also, it's sufficiently large to not be a result of truncation error).


In that case, money could conceivably be made by converting a (very large, to allow for fees) sum of US Dollars into Sterling Pounds, then Euros, then back to US Dollars.

Such transactions would soon make the exchange rates consistent. (I also just checked on XE.com, and (1 USD to GBP to EUR) = (1 USD to EUR))

I THINK that for some such conversions there does exist minor discrepancies, and in theory you could make money that way. However, the fluctuations are such that it would be a gamble, and seeing as you need to invest very large amounts for a relatively small return its not worth it.

Upon giving it more thought, the act of buying or selling such a large amount of a currency could itself affect, through changing the supply/demand dynamics, the exchange rate to a degree that overwhelms the discrepancy that the trader is attempting to exploit.

However, I think such discrepancies would soon be corrected through normal trading as I find it highly unlikely that that the value of a currency, especially important reserve currencies such as the USD, GBP or EUR, would be allowed to remain inconsistent for long.

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Re: What's the average value of a currency?

Postby Silas » Wed Jul 18, 2012 5:42 pm UTC

The question as posed has some problems with its definitions. The Vietnamese đồng is worth something like $0.005- but the smallest coin in circulation is 200VND, and the smallest change it's even putatively possible to make is 100VND (by shuffling 500s and 200s). Is it really meaningful to talk about a single đồng as if it were a thing? Do we include the Somaliland shilling as well as the Somali shilling? If we do, then what about various local alternative currencies? Chuck E Cheese tokens? How do we weight different currencies? Is it by outstanding coins and notes, or by activity conducted in them?

Contrary to what some have been saying, I think it's acceptable to treat exchange rates with one currency (arbitrarily-chosen, so dollars) as canonical. It'll introduce a certain amount of error, but not enough to be noticed against the error bars for other economic data that we'd have to rely on, anyway.

With all that in mind, I think the best (most informative and easiest-to-calculate) definition is to include, as possible, every national currency, weighted according to the amount of commerce conducted in that currency. This has the virtues of not being greatly affected by omitting minor currencies (or errors in estimating their value), and of relying on readily-available data. GDP data for various countries is available, and so are exchange rates. Assume that all of a country's GDP is conducted in its national currency.

Using the IMF data from the wiki page (second column), and exchange rate mostly from Google Finance (I had to look elsewhere for Iranian riyal data), I made it as far as Israel (#40, not counting Hong Kong), and the figure seems to be stable at around $0.67. If I add in "the rest of the world" with its currencies valued at zero for a lower bound, that drops to just $0.61 (if I use the highest value so far, that of GBP, it rises to $0.74).

Long story short, weighted by use, and making some simplifying assumptions, we can say that the average primary unit of currency is worth between sixty and seventy cents, US/Canadian/Australian.
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Re: What's the average value of a currency?

Postby Dingbats » Wed Jul 18, 2012 6:08 pm UTC

Silas wrote:The question as posed has some problems with its definitions. The Vietnamese đồng is worth something like $0.005- but the smallest coin in circulation is 200VND, and the smallest change it's even putatively possible to make is 100VND (by shuffling 500s and 200s). Is it really meaningful to talk about a single đồng as if it were a thing? Do we include the Somaliland shilling as well as the Somali shilling? If we do, then what about various local alternative currencies? Chuck E Cheese tokens? How do we weight different currencies? Is it by outstanding coins and notes, or by activity conducted in them?

Contrary to what some have been saying, I think it's acceptable to treat exchange rates with one currency (arbitrarily-chosen, so dollars) as canonical. It'll introduce a certain amount of error, but not enough to be noticed against the error bars for other economic data that we'd have to rely on, anyway.

With all that in mind, I think the best (most informative and easiest-to-calculate) definition is to include, as possible, every national currency, weighted according to the amount of commerce conducted in that currency. This has the virtues of not being greatly affected by omitting minor currencies (or errors in estimating their value), and of relying on readily-available data. GDP data for various countries is available, and so are exchange rates. Assume that all of a country's GDP is conducted in its national currency.

Using the IMF data from the wiki page (second column), and exchange rate mostly from Google Finance (I had to look elsewhere for Iranian riyal data), I made it as far as Israel (#40, not counting Hong Kong), and the figure seems to be stable at around $0.67. If I add in "the rest of the world" with its currencies valued at zero for a lower bound, that drops to just $0.61 (if I use the highest value so far, that of GBP, it rises to $0.74).

Long story short, weighted by use, and making some simplifying assumptions, we can say that the average primary unit of currency is worth between sixty and seventy cents, US/Canadian/Australian.

Amazing work, thank you! I didn't expect anyone to go through that work.

I assume though, that this number most reflects a handful of important currencies (USD, EUR, GBP, CHF, JPY and a couple of others). In my original post I was actually looking for an unweighted average, although this of course poses a number of problems as you point out; mainly which currencies to count and finding the data for the really minor ones. (I don't think the Vietnamese đồng not having coins below 200 is a problem, I'm only interested in the worth of a nominal unit, regardless of people actually thinking in thousands or whatever.) I could go through Google's list of exchange rates and ignore the GDP's, but then I'd miss out on a lot of currencies. I was hoping for someone to magically know the answer.

Although thinking about it a bit more, the problems mentioned may very well make the calculation pretty arbitrary, as it would probably differ a lot depending on your criteria. (Do currencies pegged at par to say, the USD count?) Your number is probably the closest we'll get to a meaningful answer, so thanks a lot! I suspect the unweighted average would be significantly lower.

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Re: What's the average value of a currency?

Postby JohnGalt » Wed Jul 18, 2012 6:18 pm UTC

Silas wrote:The question as posed has some problems with its definitions. The Vietnamese đồng is worth something like $0.005- but the smallest coin in circulation is 200VND, and the smallest change it's even putatively possible to make is 100VND (by shuffling 500s and 200s). Is it really meaningful to talk about a single đồng as if it were a thing? Do we include the Somaliland shilling as well as the Somali shilling? If we do, then what about various local alternative currencies? Chuck E Cheese tokens? How do we weight different currencies? Is it by outstanding coins and notes, or by activity conducted in them?

Contrary to what some have been saying, I think it's acceptable to treat exchange rates with one currency (arbitrarily-chosen, so dollars) as canonical. It'll introduce a certain amount of error, but not enough to be noticed against the error bars for other economic data that we'd have to rely on, anyway.

With all that in mind, I think the best (most informative and easiest-to-calculate) definition is to include, as possible, every national currency, weighted according to the amount of commerce conducted in that currency. This has the virtues of not being greatly affected by omitting minor currencies (or errors in estimating their value), and of relying on readily-available data. GDP data for various countries is available, and so are exchange rates. Assume that all of a country's GDP is conducted in its national currency.

Using the IMF data from the wiki page (second column), and exchange rate mostly from Google Finance (I had to look elsewhere for Iranian riyal data), I made it as far as Israel (#40, not counting Hong Kong), and the figure seems to be stable at around $0.67. If I add in "the rest of the world" with its currencies valued at zero for a lower bound, that drops to just $0.61 (if I use the highest value so far, that of GBP, it rises to $0.74).

Long story short, weighted by use, and making some simplifying assumptions, we can say that the average primary unit of currency is worth between sixty and seventy cents, US/Canadian/Australian.

Can you say exactly how you used the GDP to weight the currency values.

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Re: What's the average value of a currency?

Postby Silas » Wed Jul 18, 2012 7:48 pm UTC

JohnGalt wrote:Can you say exactly how you used the GDP to weight the currency values.

I took the nominal GDP (in USD) of each country, multiplied that by the value in dollars of one (pound, euro, rupee, what have you), summed that up, and divided by the sum of all nominal GDPs (of countries included). I can probably figure out how to get you my excel file, if you want.

Dingbats wrote:I assume though, that this number most reflects a handful of important currencies (USD, EUR, GBP, CHF, JPY and a couple of others).

The US, Britain/Canada/Aus, and the Eurozone account for about half the weights. China and Japan are big players, though, and Russia, Mexico, and Korea are on the list, too. But maybe our answer should be weighted toward big economies. We want to know, presumably, so that we can form a picture of how things ought to be, so it makes sense to spend more time looking at success stories.

Dingbats wrote:In my original post I was actually looking for an unweighted average, although this of course poses a number of problems as you point out; mainly which currencies to count and finding the data for the really minor ones.
...
Although thinking about it a bit more, the problems mentioned may very well make the calculation pretty arbitrary, as it would probably differ a lot depending on your criteria. (Do currencies pegged at par to say, the USD count?) Your number is probably the closest we'll get to a meaningful answer, so thanks a lot! I suspect the unweighted average would be significantly lower.

You can't have an unweighted average unless you have an authoritative list of what you're averaging. And since the world can't agree on how many countries there are (just look in the Israel/Palestine thread if you think I'm joking), we don't have an exhaustive list of currencies, either. For messy situations like this, you need a weighting rule so that you can eventually say, "ok, we're done, the rest can't change the outcome much." Otherwise, you risk having to say, "oh, crap, we forgot Ruritania, whose currency is the.... uh, do they even have their own money? Literal ounces of gold, you say? Those are worth, like, $1,600, this is gonna screw up our numbers."

What might suit you better is to weight national currencies by population. That way, you don't have to treat Sammarinese ducats (not a real thing) with the same respect as RenMinBi. (The biggest catch is that the list of countries-by-population doesn't drop off as sharply as -by-GDP, so you have to consider more countries, or accept less reliable results. I covered 90% of world GDP, but only about 80% of population.) For the top 41 countries, the average was $0.23, with lower bound $0.18.
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Re: What's the average value of a currency?

Postby Dark567 » Tue Jul 24, 2012 5:21 pm UTC

SecondTalon wrote:Currency trading is a very real thing, and people make money doing it.

From what I understand, it's less about minute-to-minute exchanges, and more about buying a shitload of Canadian money when the Canadian Dollar is cheap, then trading it back six months later when it's high.
It's both. HFT is a really big deal trading currencies due to some particular unique properties unique to ForEx, (like in order to be long on any currency you have to bet against another). I'd be willing to bet short-term trades as a percent of all trades are actually much higher in ForEx markets than equity markets.
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Re: What's the average value of a currency?

Postby mosc » Wed Aug 01, 2012 6:12 pm UTC

Silas wrote:The question as posed has some problems with its definitions. The Vietnamese đồng is worth something like $0.005- but the smallest coin in circulation is 200VND, and the smallest change it's even putatively possible to make is 100VND (by shuffling 500s and 200s). Is it really meaningful to talk about a single đồng as if it were a thing? Do we include the Somaliland shilling as well as the Somali shilling? If we do, then what about various local alternative currencies? Chuck E Cheese tokens? How do we weight different currencies? Is it by outstanding coins and notes, or by activity conducted in them?

Contrary to what some have been saying, I think it's acceptable to treat exchange rates with one currency (arbitrarily-chosen, so dollars) as canonical. It'll introduce a certain amount of error, but not enough to be noticed against the error bars for other economic data that we'd have to rely on, anyway.

With all that in mind, I think the best (most informative and easiest-to-calculate) definition is to include, as possible, every national currency, weighted according to the amount of commerce conducted in that currency. This has the virtues of not being greatly affected by omitting minor currencies (or errors in estimating their value), and of relying on readily-available data. GDP data for various countries is available, and so are exchange rates. Assume that all of a country's GDP is conducted in its national currency.

Using the IMF data from the wiki page (second column), and exchange rate mostly from Google Finance (I had to look elsewhere for Iranian riyal data), I made it as far as Israel (#40, not counting Hong Kong), and the figure seems to be stable at around $0.67. If I add in "the rest of the world" with its currencies valued at zero for a lower bound, that drops to just $0.61 (if I use the highest value so far, that of GBP, it rises to $0.74).

Long story short, weighted by use, and making some simplifying assumptions, we can say that the average primary unit of currency is worth between sixty and seventy cents, US/Canadian/Australian.


I would not use GDP, I'd use the amount of money held as reserve. The US Dollar is bar far the world's largest reserve currency, the average value of a reserve currency monetary unit is going to be pretty close to a dollar. The Euro's worth more than a dollar but the yen is worth a lot less than a dollar (though traded far less than the euro). This is what world banks, regardless of their country of origin, deal with in terms of the monetary unit the hold. Reserve currency has the advantage of telling you the average monetary unit's magnitude for money that's exchanged the most commonly. This also makes the most sense of when a person is referring to 20 units of money. They're probably talking about USD but if they're not, it's magnitude will most often be expressed and tracked relative to it.
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