Currency is an expression of national stability

And finally, here’s what Joe’s interested in this morning

In the short term, the stuff that drives currency markets in developed countries is kind of banal. Inflation, central bank expectations, trade data... these are some of the things that might cause exchange rates to move higher or lower on a given day. But ultimately, a currency is an expression of politics and national stability. Unlike other financial assets, it's fundamentally a social network: something that is accepted as having value because of public trust. That's one reason why the most stable countries in the world (the U.S., Switzerland, Japan, etc.) tend to have very strong currencies. The euro is weak right now not because of economic performance, but because of uncertainty about the future of the single-currency bloc as a political entity. At the far end of the spectrum, you have currencies like the Turkish lira or the Venezuelan bolivar that reflect deep dysfunction. If the developed world continues to look more like emerging markets, then currencies may move even more on politics and less on things like interest-rate differentials. To see what happens to a currency when politics undergoes an extreme collapse, check out our recent Odd Lots podcast with the historian Rebecca Spang on the monetary history of the French Revolution.