Once upon a time, gold was the ultimate symbol of wealth and power. Ancient civilizations from the Egyptians to the Romans valued gold not just for its beauty, but as a universal currency that fueled trade and prosperity. However, as global commerce expanded and economies became more complex, the practicality of lugging around heavy gold bars diminished. Enter the modern era of currencies, where paper and digital money became the backbone of international trade.
Fast forward to the 21st century, and the landscape of global finance is dominated by a select group of currencies that facilitate the vast majority of cross-border transactions. These currencies not only represent the economic strength of their respective nations but also serve as safe havens during times of economic uncertainty. From the omnipresent US dollar to the rapidly growing Chinese yuan, these currencies are the lifeblood of global trade and investment.
In this blog, we’ll delve into the top 12 most traded currencies of the 21st century, exploring their historical evolution, the economic power they represent, and their impact on the global financial system.
Top 12 Most Traded Currencies of the World
The US remains the top traded currency in the world, however, with the rise of Brexit and China’s growing economy, trends are changing, and other currencies are gaining relevance. Here is everything you need to know about the top 12 traded currencies in the world.
- United States Dollar
- European Euro
- Japanese Yen
- Pound Sterling
- Chinese Yuan
- Australian Dollar
- Canadian Dollar
- Swiss Franc
- Hong Kong Dollar
- New Zealand Dollar
- South African Rand
- Polish Złoty
1. United States Dollar
The US dollar, often referred to as the world’s primary reserve currency, gained its prominence post-World War II. The Bretton Woods Agreement in 1944 established the dollar as the backbone of the global financial system, linking it to gold and setting the stage for its dominance.
When the US abandoned the gold standard in 1971, the dollar remained the cornerstone of global trade and finance due to the economic strength of the United States. The dollar is regularly used in international transactions, commodities pricing (like oil), and as the standard for central bank reserves. Its liquidity and stability make it the go-to currency for global trade. Furthermore, many countries peg their currencies to the dollar, reflecting its pivotal role in the global economy.
The dollar’s impact on the global system is profound. It is the most traded currency on the foreign exchange market, involved in approximately 88% of all forex trades. The US economy’s size, the depth of its financial markets, and the trust in its institutions contribute to this dominance. During economic uncertainties, investors flock to the dollar as a safe haven, reflecting its perceived stability.
Historically, several incidents have cemented the dollar’s dominance. The Marshall Plan post-WWII, which used American dollars to rebuild European economies, reinforced its central role. More recently, the 2008 financial crisis showcased the dollar’s safe-haven status. Despite originating in the US, the crisis led to a global rush for dollars, highlighting its indispensable role in global finance.
2. European Euro
The Euro, not just a currency but a symbol of European unity. Launched in 1999, it initially served as a common currency for 11 European nations. This bold move aimed to foster economic integration and stability within the European Union (EU).
The Euro’s rise to fame wasn’t instantaneous. Initially overshadowed by the long-standing dominance of the US dollar, it gradually gained traction. The combined economic might of the Eurozone was a major key driver in Euro’s success.
Encompassing some of the world’s strongest economies, the Euro benefitted from their collective strength. Additionally, the Eurozone fostered deep and liquid financial markets, offering investors a compelling alternative to dollar-denominated assets. Internally, the Euro revolutionized trade within the EU. By eliminating currency exchange risks, it boosted regional economic activity.
Businesses across the Eurozone enjoy the ease of conducting cross-border trade without currency fluctuations. This has led to a more integrated and efficient European market. Consumers benefit from greater price transparency and stability when shopping across borders.
However, the Eurozone isn’t without its challenges. The lack of a fully unified fiscal policy makes it harder to respond to economic crises compared to the US. Political differences among member states can also create hurdles.
3. Japanese Yen (JPY)
The Japanese yen is also one of the world’s most traded and stable currencies. Introduced in 1871, the yen quickly became a central component of Japan’s modernization and economic growth. Post-World War II, Japan’s rapid industrialization and economic boom during the 1960s and 70s solidified the yen’s position on the global stage.
Japan’s massive export economy, particularly in automobiles, electronics, and machinery, significantly drives the yen’s international use. The Tokyo Stock Exchange, one of the largest in the world, also shows the yen’s global significance.
Yen was influenced by some important historical events such as the Plaza Accord of 1985, an agreement among major economies to devalue the US dollar against the yen and other currencies, which significantly appreciated the yen.
More recently, the BOJ’s adoption of unconventional monetary policies, such as negative interest rates and massive asset purchases, has aimed to combat deflation and stimulate economic growth. This has significantly impacted global perceptions and use of the yen.
It is worth noting that during periods of economic uncertainty, investors flock to Asian’s strongest currencies like yen due to Japan’s stable economy and low-interest rates. The Bank of Japan (BOJ), with its significant influence on monetary policy, also plays a crucial role in the yen’s global position.
4. Pound Sterling
The pound sterling, symbolized as GBP, is one of the oldest currencies still in use today. It dates back over 1,200 years. Historically, the British Empire’s global reach in the 19th and early 20th centuries solidified the pound’s status as a dominant international currency.
Moreover, The City of London emerged as a financial hub, reinforcing the pound’s central role in global trade and finance. The relevance of the pound in trading terms is rooted in the UK’s significant economic influence and its financial sector’s strength.
A key historical event that affected the pound’s value and role was the 1992 Black Wednesday crisis. The UK was forced to withdraw from the European Exchange Rate Mechanism (ERM) after failing to keep the pound above its agreed lower limit, leading to a significant devaluation. This event highlighted the challenges of currency stability in the face of speculative attacks.
More recently, the 2016 Brexit referendum significantly impacted the pound’s value, causing it to fall sharply against major currencies due to uncertainty about the UK’s economic future outside the EU.
The London Stock Exchange, one of the world’s oldest and largest stock exchanges, further bolsters the pound’s significance. Additionally, the pound sterling impacts the global system through its role in international finance, investment, and trade.
The Bank of England, established in 1694, is also one of the world’s oldest central banks and plays a crucial role in global monetary policy. London’s status as a global financial center means that many international loans, investments, and transactions are conducted in pounds.
5. Chinese Yuan
The Chinese yuan, often referred to as the renminbi (RMB), has risen to prominence alongside China’s remarkable economic growth over the past few decades. The yuan’s relevance in trading terms has increased significantly as China has become the world’s second-largest economy and a global manufacturing powerhouse.
China’s strategic economic policies have facilitated the yuan’s ascent. The country’s integration into the World Trade Organization (WTO) in 2001 was a pivotal moment, opening its markets to international trade and investment. The Belt and Road Initiative, aimed at enhancing global trade links, further promotes the use of the yuan in international transactions.
Moreover, the yuan’s impact on the global financial system is growing. China has pushed for the yuan to play a larger role in global finance, leading to its inclusion in the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) basket in 2016, alongside the US dollar, euro, Japanese yen, and British pound. This move acknowledged the yuan’s importance in international trade and finance.
Additionally, the People’s Bank of China (PBOC) has gradually eased restrictions on the yuan’s convertibility, promoting its use in global markets. A significant historical event was the yuan’s devaluation in August 2015, which sent shockwaves through global financial markets. This move, aimed at boosting China’s exports, highlighted the yuan’s growing influence on global economic stability.
Moreover, the ongoing trade tensions between China and the United States have underscored the yuan’s strategic importance in international economic relations.
6. Australian Dollar
The Australian dollar is abbreviated as AUD. It is a relatively young currency that was introduced in 1966 to replace the Australian pound. Despite its youth, the AUD has rapidly grown in prominence, becoming the fifth most traded currency in the world, involved in about 7% of global forex transactions in 2022.
The AUD’s relevance in trading terms can be attributed to several factors. Australia’s rich natural resources, including coal, iron ore, gold, and natural gas, play a significant role. The country’s strong trade relationships with Asian economies, particularly China, further bolster the AUD’s importance.
The “commodity currency” status of the AUD means its value often fluctuates with global commodity prices, making it attractive to traders and investors. Moreover, the Australian dollar’s impact on the global system is complex.
Australia’s stable political environment, strong economy, and well-regulated financial system make the AUD a reliable currency for international trade and investment. Additionally, Australia’s close economic ties with Asia position the AUD as a proxy for Asian economic health, particularly for China. The Reserve Bank of Australia (RBA) also plays a crucial role in maintaining monetary stability and fostering economic growth, influencing global perceptions of the AUD.
AUD became one of the most traded currencies in the world due to some historical events as well. One of them was the floatation of the AUD in 1983, which allowed its value to be determined by the open market rather than being pegged to another currency. This move increased the currency’s flexibility and appeal to global investors.
Another key event was the Global Financial Crisis of 2008, during which the AUD initially fell sharply due to reduced risk appetite but rebounded strongly as Australia was less affected by the crisis compared to other developed economies.
7. Canadian Dollar
The Canadian dollar known as the CAD is often referred to as the “loonie” due to the loon bird on its one-dollar coin. It has grown in prominence since its inception in 1858. Canada’s abundant natural resources and stable political environment have been key factors in the currency’s rise.
The CAD’s relevance in trading terms is impacted by Canada’s substantial exports of natural resources, including oil, natural gas, minerals, and lumber. Canada’s strong economic ties with the United States, its largest trading partner, also enhance the CAD’s significance in global trade.
There are two important events that impacted Canada’s rise. A notable historical event was the Canadian dollar’s floatation in 1970, allowing its value to be determined by market forces rather than being pegged to the US dollar. This change increased the currency’s flexibility and attractiveness to international investors.
Another key event was the Global Financial Crisis of 2008, where Canada’s banking system showed resilience, enhancing the CAD’s reputation as a stable and reliable currency.
The impact of the Canadian dollar on the global financial system is significant, particularly within the commodities market. As a major oil exporter, the CAD often tracks global oil price movements, earning it the nickname “petro-currency.” The stability of Canada’s banking system and its sound fiscal policies make the CAD a reliable currency for international trade and investment.
8. Swiss Franc
The swiss franc is one of the most stable and reliable currencies out there. It is rooted in Switzerland’s longstanding political neutrality and stable governance. Due to this, the currency has earned a reputation as a safe haven during times of global economic uncertainty.
This reputation is bolstered by the conservative monetary policies of the Swiss National Bank (SNB), which prioritize price stability and low inflation. These policies instill confidence among investors and maintain the Swiss Franc’s status as a reliable store of value.
Historical events have also played a crucial role in shaping the Swiss Franc’s position. During the European debt crisis of the 2010s, the currency saw significant appreciation as investors sought refuge from instability in the Eurozone. The influx of capital into Swiss Franc-denominated assets prompted the SNB to intervene to prevent excessive strengthening, highlighting both the currency’s attractiveness and the challenges of maintaining export competitiveness in a strong currency environment.
Switzerland’s economy, characterized by its highly developed finance sector, pharmaceutical industry, and precision manufacturing, further supports the strength of the Swiss Franc. These sectors contribute to a robust export base, driving global demand for the currency.
Moreover, while Switzerland is not a primary global reserve currency, the Swiss Franc holds significant reserves in central banks worldwide, underscoring its importance in international finance.
9. Hong Kong Dollar (HKD)
The Hong Kong dollar, symbolized as HKD, has been a critical player in global finance since its establishment in 1935. Hong Kong’s strategic position as a gateway between East and West has made the HKD a vital currency in international trade and investment.
Historically, the Hong Kong Dollar was impacted by the 1997 Asian Financial Crisis, during which Hong Kong successfully defended the HKD’s peg to the US dollar despite massive speculative attacks. This event showcased the resilience of Hong Kong’s financial system and the HKMA’s effective management.
Another critical moment was the 1997 handover of Hong Kong from the United Kingdom to China, which introduced the “one country, two systems” framework, allowing Hong Kong to maintain its distinct economic and financial systems.
The HKD’s relevance in trading terms is underscored by Hong Kong’s status as a leading global financial center. The HKD is pegged to the US dollar, providing stability and confidence in its value, which is crucial for Hong Kong’s export-driven economy.
Moreover, Hong Kong’s free-market policies, low taxes, and robust legal framework attract international businesses and investors. The Hong Kong Monetary Authority (HKMA) manages the currency peg and ensures financial stability, further enhancing the HKD’s global role.
10. New Zealand Dollar
The New Zealand dollar, symbolized as NZD and often called the “kiwi,” has gained prominence in global trading since its introduction in 1967, replacing the New Zealand pound. New Zealand’s stable economy, significant agricultural exports, and strong trade relationships have contributed to the NZD’s relevance.
New Zealand’s currency is so strong because it has a robust agricultural sector, which includes dairy, meat, and wine exports. The country’s free-market policies and strategic trade agreements, particularly with Australia, China, and other Asia-Pacific nations, enhance the NZD’s role in international trade.
The impact of the New Zealand dollar on the global financial system is notable, especially within the Pacific region. The Reserve Bank of New Zealand (RBNZ) plays a crucial role in maintaining monetary stability, which supports the NZD’s attractiveness to investors.
The currency’s relatively high interest rates compared to other developed nations have historically made it appealing for carry trades, where investors borrow in low-yielding currencies to invest in higher-yielding ones.
NZD’s floatation in 1985 was a significant event which allowed its value to be determined by the open market. This move increased the currency’s flexibility and integration into global financial markets.
Additionally, the Canterbury earthquakes of 2010 and 2011 had a substantial economic impact, leading to significant rebuilding efforts and affecting the NZD’s value due to the economic uncertainty and financial costs involved.
11. South African Rand
The South African rand, symbolized as ZAR, is named after the Witwatersrand. This is the ridge upon which Johannesburg is built and where most of South Africa’s gold deposits were found. It was Introduced in 1961 and the Rand has played a central role in Africa’s most industrialized economy.
South Africa’s strategic position as a gateway to the African continent enhances the Rand’s importance in regional trade and investment. The ZAR’s relevance in trading terms stems from South Africa’s rich natural resources, including gold, platinum, and diamonds. These commodities drive significant export revenues.
Moreover, the currency is often used as a proxy for investment in Africa due to South Africa’s relatively developed financial markets and infrastructure. The South African Reserve Bank (SARB) plays a crucial role in maintaining monetary stability and managing inflation, which supports Rand’s credibility.
The end of apartheid in 1994 was an important event for the Rand. It marked South Africa’s reintegration into the global economy. The subsequent lifting of economic sanctions and the establishment of democratic governance attracted substantial foreign investment, boosting the rand’s value.
However, political instability and economic challenges, such as corruption and policy uncertainty, have periodically undermined the Rand’s stability. For instance, the firing of finance ministers and allegations of state capture under President Jacob Zuma’s administration led to sharp depreciations in the rand.
12. Polish Złoty (PLN)
The Polish Złoty has a rich history dating back to the Middle Ages. Although the modern złoty was introduced in 1924 to stabilize the economy after World War I, Poland’s economic reforms and integration into the European Union have been crucial in enhancing the Złoty’s prominence.
The impact of the Polish Złoty on the global financial system is evident through its role as a gateway to Central and Eastern Europe. The National Bank of Poland (NBP) has played a crucial role in maintaining monetary stability and fostering economic growth, which supports the Złoty’s attractiveness. Poland’s diverse economy, with strong industrial, agricultural, and service sectors, also underpins the currency’s stability.
Złoty’s relevance in trading terms has grown significantly due to Poland’s economic transformation and strong growth rates. As one of the largest economies in Central and Eastern Europe, Poland attracts substantial foreign investment. Moreover, Poland’s membership in the EU since 2004 has facilitated trade and investment flows, further boosting Złoty’s significance.
Additionally, Poland’s transition from a centrally planned economy to a market economy in the early 1990s was a significant event that impacted the currency. The implementation of the Balcerowicz Plan, named after Finance Minister Leszek Balcerowicz, introduced rapid economic reforms that stabilized the economy and paved the way for growth.
A Table Compariosn of the Most Traded Currencies in the World
| Currency | Country/Region | ISO Code | Established | Peg/Reserve Currency | Focus |
| US Dollar | United States | USD | 1792 | Yes (primary) | Global trade, reserve currency |
| Euro | European Union | EUR | 1999 | Yes (secondary) | Regional trade, integration |
| Japanese Yen | Japan | JPY | 1871 | No | Domestic trade, limited reserve |
| Pound Sterling | United Kingdom | GBP | ~700 AD | No | Domestic trade, financial center |
| Chinese Yuan | China | CNY | 1949 | Managed Float | Domestic trade, potential reserve |
| Australian Dollar | Australia | AUD | 1966 | Float | Domestic trade, commodity pricing |
| Canadian Dollar | Canada | CAD | 1858 | Float | Domestic trade, commodity pricing |
| Swiss Franc | Switzerland | CHF | 1850 | Float | Safe-haven asset, financial center |
| Hong Kong Dollar | Hong Kong (China) | HKD | 1841 | Peg (to USD) | Regional trade, financial center |
| New Zealand Dollar | New Zealand | NZD | 1840 | Float | Domestic trade, commodity pricing |
| South African Rand | South Africa | ZAR | 1961 | Float | Domestic trade, commodity pricing |
| Polish Złoty | Poland | PLN | 1919 | Float | Domestic trade |
How Did the US Become the Global Reserve Currency?
The US dollar became the global reserve currency through a series of historical events, strategic decisions, and economic developments. According to the International Monetary Fund (IMF), as of Q4 2023, the USD share was around 59%. But was the US always the global reserve currency?
In the early 20th century, the US emerged as a major economic power. The turning point came during World War I (1914-1918), when European nations heavily borrowed from the US to finance the war. This shifted significant amounts of gold to the US, strengthening its financial position.
By the end of World War II in 1945, the US had the world’s largest gold reserves and a booming economy. In 1944, the Bretton Woods Conference established the US dollar as the central currency of the international monetary system, pegging other currencies to the dollar, which was in turn pegged to gold at $35 per ounce. This solidified the dollar’s status as the global reserve currency.
In 1971, President Richard Nixon ended the gold standard, allowing the dollar to float freely. Despite this change, the dollar maintained its dominant position due to the strength of the US economy, its stable political system, and the trust in US financial institutions.
Today, the US dollar accounts for about 60% of global foreign exchange reserves. Despite the efforts of other countries at dedollarization, it will be a few years or even decades before the US leaves its dominant position.
Conclusion
In conclusion, the most traded currencies in the world are vital cogs in the global financial system, each playing a unique role in facilitating international trade, investment, and economic stability.
From the dominance of the US dollar to the rising influence of the Chinese yuan, these currencies reflect the economic strengths and geopolitical importance of their respective nations. They drive global commerce, influence monetary policies, and provide safety during times of uncertainty.
FAQs
Is the US Dollar Still the King of Currency Trading?
Yes, the US dollar is still the most traded currency globally in 2024. However, its dominance might be slightly waning. Estimates suggest the USD makes up around 57-58% of daily foreign exchange (forex) trading volume, down from around 60% in previous years.
Why Is the Euro Less Traded Than the USD Despite the Economic Strength of the European Union?
The Eurozone operates under a single currency, limiting the need for internal currency exchange. Additionally, the Eurozone has a smaller population compared to the US, leading to less overall trade activity.
Will the Yuan (Renminbi) Dethrone the USD Soon?
The Yuan’s internationalization is on the rise, but it’s unlikely to dethrone the USD in the immediate future. Capital controls in China restrict the free flow of the Yuan, limiting its widespread use in global trade.
How Do Political Events Impact Currency Trading?
Political instability, trade wars, and economic sanctions can create significant volatility in currency markets. For example, the ongoing conflict between Russia and Ukraine in 2024 could lead to increased trading of the US dollar as a safe-haven asset, while the Ruble (RUB) might experience depreciation.