What is the purchasing power of the currency?

The purchasing power of money is a characteristic of the monetary unit of any state. It shows how many goods (or services) at an existing level of prices and tariffs can be purchased per unit of that currency.
The classical definition of the term "purchasing power" is given in the works of economists: in the famous work of the American mathematician, professor of Yale University (USA) Irving Fischer, who gained world fame, as well as in all encyclopaedic, legal, economic dictionaries. The purchasing power of money (currency) is understood as the ability of a given monetary unit to be exchanged for a certain quantity of goods and services that are available for sale.

Thus, this characteristic means the filling of the monetary unit of the country with the commodity mass. It is calculated in the form of an index, the value of which is inverse to the value of the price index. It depends on the structure of turnover and the value of goods.

The economic dictionary interprets this concept as a ratio of income and price level. That is, with a fixed income, the rise in prices for goods and services leads to a decrease in the purchasing power of each monetary unit. The same correspondence exists with respect to another economic indicator - the cost of living index.

The purchasing power of any currency is an important indicator for determining the exchange rate. The installation of an equivalent course is impossible without knowing the purchasing power of each monetary unit, that is, the amount of material goods available for purchase in the market of a country for the national currency.

Until the seventies of the 20th century, this value was measured in gold. The amount of gold and its value in currency were fixed in the legislation of each state. For example, for a long time the dollar price was equal to 1/35 of a troy ounce (the international unit of gold weight). The basis for the exchange rate was the comparison of the gold content in units of different currencies.

At present, instead of gold, a "consumer basket" is used, that is, a certain set of goods and services. It is clear that in each country the population spends a different amount for the acquisition of the same benefits, which indicates the different purchasing power of local currencies. In addition, the purchasing power of the population depends on many other factors, the main one of which is the ratio between the value of the "consumer basket" and the real wage level. It is determined by the number of man-hours of work required to purchase a particular product.

The purchasing power of the Russian ruble, according to experts, falls by 15-25% per year. The finances put into the state budget for compensation of inflation costs, by the end of the year, have been depreciating. The real increase in prices and tariffs more than double the government funding. Given the constant backlog of salaries, allowances and pensions from the subsistence minimum, one can speak of a drop in the purchasing power of the ruble by at least 30-35% per year.

At the same time, according to analysts' estimates, the value of goods, services, and, accordingly, the purchasing power of the ruble in different constituent entities of the Russian Federation can vary significantly (by 8-16 times). That is, in fact, there is no solid national currency with a single purchasing power in our country.

The exchange rate of the ruble, according to the Central Bank, has been supported by at least 70% over the past 15 years through the export of raw materials (mainly oil and gas) and semi-finished products from it. Due to what then is the declared economic growth carried out? Due to the growth of retail prices. In all the subjects of the Federation, in most industries there is a decline in output and output of marketable products, but rising prices allow us to speak of an allegedly developing economy.

To restore the balance of the "demand-supply" on the commodity-money market, the state needs to pursue a policy of containing money growth and stimulating production (as, for example, in China at the beginning of monetary reforms). Under the conditions of the policy of financial constraints, carried out by our state since 1991, there is a decrease in production volumes, the share of exports of natural raw materials at dumping prices sharply increases, which leads to the further collapse of the industrial sector of the economy.