Currencies are the main engines that power the world. Currencies make it easy for people to exchange goods and services. As such, it is always very difficult for countries that have volatile currencies. Two of these countries are Zimbabwe and Venezuela, which have destroyed the value of their currencies. Today, doing business in these countries is usually very difficult.
Currencies are never equal. For example, a currency like the US dollar is not taken just as a currency like Kenyan shilling. In this article, we will look at the top 5 currencies in the world and some of their key characteristics.
Contents
US Dollar
The US dollar is one of the top 5 currencies in the world. It’s one of the safest currencies because it is usually viewed as the world reserve currency. The USD is the most traded currency in the forex market, which accounts for about 88% of all foreign exchange trading. This happened after the Bretton Woods agreement in 1945, which led to the creation of the International Monetary Fund (IMF) and the World Bank. The US dollar is the main currency that is used in world trade.
There are several factors that cause the dollar to move. These factors are employment data, trade numbers, inflation, manufacturing data, and consumer confidence. All these add up to determine the interest rates. High interest rates are usually positive for the USD. These rates are usually set by the Federal Reserve, which holds a meeting every month.
The other currencies we will look below usually depend on partly by the level of trade. The USD is different because the US is not the only country that uses the dollar for trade.
Euro
Euro is the main currency for the European Union and is the second most traded currency. It is also one of the top 5 currencies in the world. The EU is the second-biggest economy in the world after the United States. It has a combined GDP of more than $18 trillion. As a result of this, the euro is the second most-popular currency in the world. As with the USD, the euro movements depend on the economic data from Europe. Most of the data from Europe is usually released by Eurostat. This data then impacts the decisions made by the European Central Bank, which is led by Christine Lagarde.
The EU does most of the trade with countries like China, United States, Japan, Switzerland, and Russia. As an export-oriented region, the ECB prefers the euro being weak. This is important because it helps the region’s export goods.
Sterling
Sterling, also known as the British pound, is also one of the top 5 currencies in the world. This currency is important because of the size of the UK economy and the role of The City. London is the financial capital of the world.
As with the US dollar, the sterling moves according to the UK data such as employment numbers, inflation, and consumer confidence. All these numbers help the Bank of England in setting up interest rates. Higher rates are usually better for the sterling compared to lower rates.
The UK is known for its service industry, which is responsible for more than a third of its GDP. It is also known for its goods sector. The country’s biggest trading partners are China, the European Union, Sweden, and Japan among others.
In recent years, the focus of the market has been on Brexit. The happenings have led to a sharp decline of the sterling because of the importance role of the EU on the UK economy.
Japanese Yen
Japan is the third-biggest economy after the United States and China. The country has a GDP of more than $5 trillion and is known for its huge export sector. Brands like Mitsubishi and Nissan are its pride. Most importantly, Japan is known for its large overseas investments. For example, Japan is the second holder of US debt after China.
Japan does a lot of international trade. Its biggest trading partners are countries like the United States, South Korea, China, and the European Union.
The Japanese yen has a special quality that other currencies mentioned above don’t have. In the investment circles, the currency is known for its role as a safe-haven currency. Investors tend to rush to it when investment risks rise.
For example, in 2018, when North Korea was testing missiles above Japan’s airspace, many expected the currency to decline. Instead, it rose because of its role as a haven currency. This happens because of the huge investments Japan has made overseas.
The Bank of Japan is one of the most powerful central banks in the world.
Swiss Franc
Switzerland is a relatively small economy. It has a GDP of more than $678 billion. Yet, the country’s currency is one of the most important in the world. This is partly because Switzerland does a lot of trade internationally. Some of its closest trading partners are in Europe, Japan, and North America.
As with the Japanese yen, the Swiss Franc is known for its role as a safe haven currency. There are two main reasons for this. First, Switzerland has made a lot of investments overseas. In fact, the Swiss National Bank is known for its huge investments in global stocks like Apple and Microsoft. Second, Switzerland is known for its neutrality. The country does not take sides in major global conflicts. Third, the Swiss banking industry is one of the strongest. This has seen many wealthy investors pack their money in the country.
Other Top Currencies in the World
The five currencies mentioned above are the most important in the world. Still, they are not alone. Below are other important and highly-liquid currencies in the world.
- Canadian dollar. This is also known as the Loonie, and is widely known as a commodity currency.
- Australian dollar. Also known as Aussie, the currency is known for its stability.
- New Zealand dollar. This is also known as the kiwi.
- Swedish krone. This is one of the currencies that constitute the dollar index.
- Chinese yuan. While China is the second-biggest economy in the world, its currency is not very strong.
- Bitcoin. BTC is an international crypto currency that can be used to do for transactions and investment.
China is the second-largest economy in the world, but its currency, the yuan, is relatively weak. This has led to accusations that China is manipulating its currency to gain an unfair advantage in international trade.
Summary on Top 5 Currencies in the World
In this article we have looked at 5 major currencies in the world, which include the USD, Euro, GBP, Yen, and the Swiss Franc. These currencies are all relatively valuable, and they are all backed by strong economies and stable governments. The value of a currency is determined by a number of factors, including economic stability, political stability, trade volume, and foreign investment.
The foreign exchange market is the biggest market in the world. Every day, people transact more than $10 trillion. As an investor, it is possible to make money trading these currencies. This is because the exchange rate changes every day. To do this, you should get a good forex broker and learn about how these currencies move. You can find our detailed guide to trading in forex here.
Top Currencies FAQs
What is the top currency in the world?
The US dollar is the top and most popular currency in the world. It is the most traded currency in the foreign exchange market, accounting for about 88% of all trading.
What makes a currency strong?
A currency is considered strong when it has a high value relative to other currencies. A strong currency derives its higher value from a stable economy with low inflation, political stability, robust trade volume, and substantial foreign investment.
How do I tell if a currency is stronger or weaker?
To determine if a currency is stronger or weaker, compare its exchange rate to other currencies. Factors like trade balance, interest rates, economic indicators, political stability, foreign investment, central bank policies, global events, and technical analysis all play a role. Currency strength is relative and influenced by a combination of these factors.
