The movement of goods, labor and capital in a modern economy is directly related to the exchange of currencies. To ensure an equivalent exchange, the purchasing power of the currency must be taken into account. This economic category is based on the ratio of national price levels for a homogeneous set of goods and services.
As a rule, an exporting country that sells something abroad immediately exchanges foreign currency, while an importing country, on the contrary, needs currency in order to be able to purchase goods in another state. In these conditions, the purchasing power of the currency comes to the fore. This category denotes the amount of goods that the consumer is able to buy in the market of the country that issues this currency.
Half a century ago, gold was the equivalent of exchange. Its amount in a specific currency was fixed by the law of the state. The exchange rate of the national currency was determined by the content of the precious metal in various currencies.
Currently, the purchasing power of the national currency is defined through the concept of "consumer basket". For example, if such a “basket” costs 300 euros, then the purchasing power of such a currency will be 1/300 of the “consumer basket”. If you compare the purchasing power of currencies, you can get the price of a unit of a particular currency in the monetary units of another. The information basis for calculating purchasing power is provided by data on the level of prices and on the structure of household expenditures in the sphere of consumption.
In practice, the concept of "parity of currencies" is often used, which means their equality. Such parity cannot be arbitrarily set. It is determined by comparing the purchasing power of different currencies, by calculating how many units of one currency must be spent to acquire a thing. Currency rates based on purchasing power parity change following changes in prices for commodity items included in the "consumer basket".
The theory of purchasing power parity is based on the quantitative and nominalistic theories of money, which were initiated by the English economists D. Hume and D. Ricardo. At the center of such views is the statement that the exchange rate of the national currency depends on the relative value of money, on the price level and on the amount of financial resources in circulation.
The purchasing power of the currency is taken into account when determining the quantitative ratio accepted for the translation of foreign exchange earnings that enterprises receive from export-import operations.
As an economic category, the purchasing power of currencies is inherent in commodity production. It constitutes the value basis of the exchange rate and expresses the production relations between the producers of goods and the world market.
Comparison of national monetary units can only be based on the value ratio, which is closely related to the processes of production and exchange of goods. It is through purchasing power that producers and buyers of goods and services are able to compare prices for the national currency with prices in other states.
In the current economy, the international movement of capital is growing steadily, which affects the purchasing power of national currencies in relation not only to tangible goods, but also to financial assets. The decline in purchasing power and the fall in the exchange rate are directly related to each other.
