A currency is a system of money in common use, there are various recognized currencies that are traded between nations in the foreign exchange market. The term currency has its own synonyms money coin and banknotes. In times of old when people were using barter as a primary way of exchanging now the main exchange item is currency. At first, starting from metal coins to designing banknotes and now even cryptocurrencies they have come a long way. The world’s most-traded currencies today are the ones of strong and powerful nations.
Most traded currencies of today
As mentioned world’s most traded currencies have always been the ones of powerfull nations and that tradition still continues today. For example, the most traded currency in the world right now is the US Dollar (USD). It became the official currency of the united states in 1792. United States dollar is the most exchanged currency globally average volume of 2.2 trillion a day.
There are several reasons why USD is so popular one of the main reasons is that the US has the world’s largest economy. Also, a lot of commodities are priced in USD, for example, god and oil.
The second place goes to European unions official currency Euro (EUR) with a daily average volume of 800 million. Euro is the official currency of most well developed European countries, for example, Germany and France.
Interestingly Japanese yen does a better job than British pound in the foreign exchange market. While thinking the United Kingdom is a European country Yen still holds a better ground than British banknotes.
United States Dollar
As mentioned the United States has the world’s largest economy and a lot of commodities are traded in USD. Dollars exchange value can also be influenced not only by the united states but by the countries in which USD is used as an official or as their secondary (de facto) currency. USD is the most traded currency in the Forex market its held in every major bank in the world and can influence the value of the world’s major resources such as gold, gas, oil, and copper. Almost 50% of world trades are done in US Dollars.
The dollar’s value is measured by the US Treasury notes and the amount held by foreign governments. United States currency many times overcome others in terms of salary. A lot of people prefer getting their salary in USD rather than their national currency. USD still continues to dominate the world trade market with its value and roots deep in commodity trade.
European Union EURO (EUR) is the second most traded currency in the world after USD. It was first introduced in 1999 alongside a plan that EU members would adopt Euro as their national currency. Unlike the US currency Euro is managed by only one bank, European Central bank but the currency is shared by 19 countries which are part of the European Union. Of these 19 countries, every one of them can set their own policy that affects the Euro in global market trade. Euro was supposed to be the only currency within EU countries but 8 countries could not take on Euro as their national currency due to the lack of strength of their budget.
Euro has a major power not only in the EU zone but in other countries as well. For example, Iran prefers Euro for all foreign transactions, which also includes commodities such as gas and oil were USD dominates.
With the dominance of other currencies, the Euro also has its pros and cons. When small EU countries adopted the euro the could enjoy lower interest rates. Also when their countries were linked to well developed Germany or France that boosted their economies as well.
With all the advantages Euro gives to Eurozone countries it also has a disadvantage. For example, countries that adopt Euro can not print their own national currencies plus their debt-to-GDP must be less than 60%. Also, their budget deficit must be less than 3% which for some EU countries is not easy to do.
Japanese Yen (JPY)
Japanese Yen is the world’s third most traded currency in the Forex exchange market. The currency is also used as a reserve after USD, EUR, and the British pound sterling.
The new currency act of 1871 made JPY the only national currency in Japan. until that Japan’s feudal fiefs could issue their own money and the situation was getting out of hand. In 1882 the Bank of Japan was established so it could make Yen gain a monopoly on all other currencies and control the money supply.
After the second world war, the Japanese Yen lost all its value and with some reforms and gaining monopoly it still managed to gain an upper hand on most of the world’s other currencies. Due to the low cost and value of Yen, a lot of traders use to borrow yen and then invest that paid its toll on Japanese national currency. Today JPY stands on top of other well developed European currencies, for example, the Swiss Franc and Swedish Krona.
The pound sterling (GBP)
United Kingdom’s national currency the pound sterling is used in the UK and also in its territories. Its the fourth most traded currency in the forex global market Standing on top of Australian Dollar and when it comes to commodities and world reserve currencies it surpasses JPY. The value of GBP stands on the UK’s economy performance its inflation rates and the national bank’s policies. The United Kingdom Was a country in the European Union which was supposed to take on EURO as a national currency due to the well-organized economy and EUs policies about the economy but preferred their national currency the pound sterling.
With a long history starting from old English kingdoms till today the pound sterling has said its world on the world’s trading market. GBP takes its place on top of USD and EUR the most expensive currencies in 2020.
The Australian dollar is the official currency of Australia and the fifth most traded currency for a daily average volume of 174$ (USD). The Australian dollar is strongly influenced by Australia’s export of coal, iron, and copper alongside other valuable commodities. The country is also an importer of oil that’s why AUD has gained the upper hand on some foreign currencies.
The Australian dollar is affected by other major trading powers of the region, for example, China and other Asian import markets. Due to its value, AUD is mostly used to carry trades with the Japanese Yen.
Prior to 1983, the Australian dollar maintained a fixed exchange rate. The AUD was in close touch with the UK’s pound sterling due to historical ties as a view about the stability of the British pound.
After 1871 when the Bretton Woods system broke down Australia converted peg to a rate against the US dollar. Since then AUD started to gain monopoly alongside European currencies.
The foreign exchange market is where currencies are traded it’s important for most of the people around the world. whether you realize or nat most of the foreign currency exchange is needed to buy and sell from other countries. than includes commodities and resources.
A unique aspect of this market is that it has no central marketplace. There is no centralization in this exchange system. Major financial centers are in London, New York, Tokyo and in other European and Asian metropolises. This Currency exchange market determines which currencies are the world’s most traded ones.