Most-Traded Currencies

What are the most popular currencies?

There are around 180 currencies around the world, but not all of them are useful for trading purposes. Only a few of these currencies are used for executing foreign exchange transactions. Other currencies only carry a worth at a national level, but have a limited value outside a national boundary.

U.S. Dollar

No one can deny the fact that U.S. Dollar is a very popular currency and has a great demand across the globe. The stable governments over the year, historically strong economy, consistently controlled inflation over the years have made the U.S. dollar a universal currency in a foreign exchange market. This is the reason why it is considered as a primary reserve currency of the world. Foreign governments hold American dollars for international transactions, which is very beneficial for Americans who go abroad. The eminent status of the U.S. dollar has helped strengthen the economy. American institutions are saving on transaction cost when trading across border and are also in a position to borrow at a lower rate. Imports to the U.S. are very cheap due to the consistent value of the U.S. Dollar as compared to other currencies.

The U.S. Dollar is widely available in the international market. They are frequently paired and traded with other currencies. The economies of some nations are so dependent on and similar to the U.S. economy that they have adopted the U.S. dollar as their national currency.

Euro

The euro is one of the most traded currencies in the forex market after U.S. Dollar and is the official currency of countries like Portugal, Finland, Slovenia and Slovakia. It is used by millions of people across Africa and Europe, which caused a decline in the demand for the U.S. dollar. Latvia has become a part of Eurozone country this year and Lithuania will also join them by 2015. Therefore, the value of the euro will also strengthen in the forex market with the expansion of the euro zone.

Japanese Yen

During the late 80s, it was a widely spread fear across America that Japan would take over the global economy. The value of Japanese Yen increased three times as compared to the U.S. Dollar, which made them take advantage of the situation as they bought positions in different American institutions. The yen gained more popularity in the forex market because its economy was based on international trade market, but lately, central bank of Japan is decreasing the rate of interest close to zero. Apparently, the U.S. Federal Reserve Bank has also implemented the same policy, which has resulted in the one-fourth decline in the value of the Yen as compared to the United States Dollar over the past few years.

Pound Sterling

During the 50s, the pound sterling was the very famous medium of exchange for executing across transactions despite the decline of the British Empire. It kept the U.S. dollar to be claimed as an international reserve currency. Same as euro in today’s global economy, many countries and some commonwealth members used British pound along with their domestic currencies. In today’s forex market, pound represents almost 6 percent of all the forex transactions.

But the question here is what happened to pound? During the Second World War, British government fixed the value of the pound against dollar, and then the continuous financial catastrophes in the U.K. resulted in devaluation of the British pound in 1949 and 1967. It further destroyed the savings of the natives, which eventually helped the U.S. dollar to hold a strong position as reserve currency in international markets.

Australian Dollar

During 1966, Australian dollar was created because the Australian pound became obsolete and was no more functioning in the Australian financial market. In Oceania and Asia Pacific region, it is used as a reserve currency and is considered as a very popular currency for trading. It has significantly achieved its position in the forex market and currently, it is successfully traded in the market against the American Dollar.

Swiss Franc

Another currency that holds a strong position in the global economy is the Swiss Franc. It is ranked at 6^th position among the most traded currencies despite the fact that it is only used in Switzerland and Liechtenstein. The value of Swiss Franc has remained stable since 2012 due to the zero-inflation policy adopted by the Swiss Bank. Moreover, the strong economy and political structure of Switzerland has made this currency more valuable in the currency market.

Some people want to purchase foreign currencies to hedge the fluctuating value of their own currency and some want to hold it as a reasonable security so that no physical asset is involved. Regardless of all this, forex has become one of the most crucial parts of international financial market. Therefore, a currency will be frequently traded in the market if it is considered reliable and strong.