When the interest rate is positive, what happens to the value of money as we move from the future to the present?


2 Answers

Samantha Mitchell Profile
When the interest rate is positive it often means the value of money is more positive.

  • Inflation can be an effect of a rising interest rate into the higher positive area
Inflation can cause an initial rise in currency value, for instance meaning that the dollar could be worth more with inflation. This effect will often decline after time, requiring a reverse effect in which the dollar or other currency will turn to a negative rate, thus decreasing in value.

  • It is thought that when the interest rate is positive then the value of money will also improve
Unfortunately, there are many ways to interpret how the value of money is affected. The recession that started as a result of 2007 sub-prime issues can provide a good example. In 2007 the value of the dollar started to decline as money for mortgages dried up and banks became unstable. The unstable economy meant an unstable currency because people were not willing to invest.

So rather than looking at a positive interest rate, it is more important to look at the positive nature of the economy. When people have confidence in the economy, even when there is inflation, the dollar or currency tends to rise due to positive futures.
When the economy is in jeopardy it can mean trouble for the currency. On the other hand, in order to bolster the economy, those who are in power and have money may try to promote the currency to increase in value by investing - thus helping to stabilize the economy. Other countries want a weak dollar as it means their currency will be of more value; hence the push and pull system.
Amanda Wells Profile
Amanda Wells answered
The best way to get a variety of information to help you with this question is to type some of the key words in a search engine and explore the links that come up. For example, if you type 'positive interest rate' you find several articles including this one, and you can do the same with phrases like 'value of money'. There is plenty of information on the internet, but you have to search carefully.

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