Currency and gold reserve

[opportunist86]

This is a general economic question and not related to Pakistan or any other country's economy.
Is value of currency still depending on amount a gold a country has reserved with bank of England? If no, then how do we define the value of a currency?
If yes, then why are the countries with more amount of gold less developed than those which have less reserves of gold?

 

[Jungibaaz]

This is a general economic question and not related to Pakistan or any other country's economy.
Is value of currency still depending on amount a gold a country has reserved with bank of England? If no, then how do we define the value of a currency?
If yes, then why are the countries with more amount of gold less developed than those which have less reserves of gold?

There are two E/R determinant mechanisms; your old gold standard and free-floating system.
Gold standard is old news, however, gold reserves are still used defend currencies, they're traded in liquid markets .
Gold bullion today is essentially a reserve asset, the free floating system is all to do with demand for a currency and monetary policy.

For example higher interest rates tend to keep currency in demand, central banks can manipulate both inflation and E/R in this way.Think of the basic laws of demand, if Demand>supply the price rises, hence if the demand for a currency is high, it will appreciate E/R. There also other determinant such as current account situation, imports weaken E/R and exports strengthen the currency (ironically the higher the E/R the lower the demand for exports and the higher the demand for imports). Inflation also matters, higher the inflation, lower the value of the currency. It also depends on public debt, budget deficit or surplus, also inflows of capital, investment etc.

It all boils down to demand and supply for a currency.

 

[RazorMC]

This is a general economic question and not related to Pakistan or any other country's economy.
Is value of currency still depending on amount a gold a country has reserved with bank of England? If no, then how do we define the value of a currency?
If yes, then why are the countries with more amount of gold less developed than those which have less reserves of gold?

Gold standard is long gone. Everything is based on fiat/paper currency now.

In one phrase; more paper --> less value