Did you know that the equivalent of 6600 billion US dollars is exchanged every day?. The foreign exchange market is the most traded market in the world, with the 10 most traded currencies accounting for almost 90% of all Forex transactions. Here we take a look at the 10 most traded currencies last year:
# 1 – US dollar (USD)
The most traded currency in the world belongs to the United States of America, where the world’s largest economy is located. The US dollar is also the world’s main reserve currency.
The first US dollar was printed in 1914 when the Federal Reserve Bank (United States Central Bank) was created . Less than six decades later, the dollar officially became the world reserve currency..
The US dollar is held by central and commercial banks around the world for international transactions. Many commodities are valued in USD, including gold, petroleum, copper and most other metals.
# 2 – Euro
The euro is the official currency of the European Union (EU) and is currently the second most traded currency in the world. It is used by 19 of the 27 EU countries in the so-called euro area. It is also the second largest reserve currency in the world.
# 3 – Japanese Yen
Japanese currency is by far the most traded currency on the Asian market. Oil is an important factor in determining the value of the yen. As a major importer, high oil prices can weigh heavily on the Japanese economy.
# 4 – Pound sterling
The pound sterling is the official currency of the United Kingdom and its territories. In recent years, its value has been affected by the development of the United Kingdom’s relations with Europe.
# 5 – Australian dollar
The Australian dollar was the fifth most traded currency in the world in 2020. Australia is a major exporter of coal, iron, copper and other mining products. It is also a major importer of petroleum. Changes in trading volumes and prices for these commodities can have a direct impact on the value of Australian currency.
# 6 – Canadian dollar
Like Australia, Canada is rich in natural resources and is also a major exporter of commodities. This means that prices can be a critical factor in determining the CAD value.
Canada’s main trading partner is the United States, which accounts for more than 75% of all exports and 50% of all imports. The Canadian economy and the value of the Canadian dollar tend to be sensitive to changes in the US economy and currency.
# 7 – Swiss franc
Switzerland has a reputation for financial services and bank secrecy. These, combined with the country’s sound monetary policies and low debt levels, have made CHF a “safe haven” currency.
# 8 – Chinese Renminbi
Sometimes called “yuan”, Chinese currency is the eighth most traded in the world. As China is a major exporter of manufactured goods, the value of the Renminbi is highly dependent on the terms of trade of the country. China’s main trading partners are the United States, Europe and Japan.
# 9 – Swedish crown
Unlike the above currencies on this list, the official currency of Sweden is not a major reserve currency. Sweden’s main exports include cars, engines and telecommunications equipment. This can lead to some volatility, as SEK demand decreases in times of global economic downturn.
# 10 – New Zealand dollar
New Zealand’s official currency is also not an important reserve currency. The strength of this currency largely depends on the balance of trade with major trading partners, China and Australia. New Zealand’s main exports are agricultural products (dairy and meat), and its main imports are petroleum and automobiles.
Forex trade is a lucrative business that involves the exchange of foreign exchange between millions of people, businesses and entities. Transactions can be as simple as exchanging a few dollars for local currency during travel. Likewise, the drill can be as complex as investing in large companies or depositing money in foreign bank accounts.
Trading forex is a profitable activity because many people, businesses and organizations engage in it every day.
Most of the world’s currencies were once linked to the value of gold, but that changed after the 1930s. In the 20th century, countries set their currencies at the gold standard. This meant that a country’s currency was directly linked to the value of gold. The system was popular because it meant that with gold-backed currency, there was less chance that incompetent people could speculate on exchange rates.
It is a vestige of the old gold standard system. The rules of this system required that all banks, including central banks, hold gold as an asset. In the gold standard system (explanations below), resulting from the Bretton Woods agreements (explanations below), countries had to hold gold to support their currencies. The requirement disappeared with the collapse of the Bretton Woods agreements in 1973, but central banks continue to hold gold stocks.
One reason is to protect the credibility of their currencies. Although the world has long since abandoned the gold standard, metal retains almost universal confidence. So if confidence in a country’s political or economic stability is shaken, gold can present itself as a trustee in its solvency.
A second reason is to balance the portfolios of central banks. For example, Asian central banks hold huge reserves in dollar-denominated assets. If the dollar drops in value, the value of their reserves falls in tandem. Better to diversify by spreading the reserves on other assets. Gold has been the advantage of choice for central bankers as an alternative to the dollar and today, when the dollar goes down, gold is rising (usually) .
The gold standard and the Bretton Woods system
In the old gold standard system, the value of a country’s currency is linked to the amount of gold it owns. Anyone with the currency of this country could present it to the government of that country and receive its gold equivalent (according to a determined value) from the gold reserves of that country. But in 1944, developed countries met in Bretton Woods, New Hampshire (a state of the United States) to peg the exchange rate of all currencies to the US dollar. At that time, the value of the US dollar was supported by its gold value, and the United States held the largest quantities of gold. This has allowed other countries to use the dollar as a benchmark for their currencies rather than gold. Why the dollar? The United States held three-quarters of the world’s gold production. The value of the dollar was set at 1 / 35 of a gold ounce, which was a bit of a way to use the gold standard. The Bretton Woods system therefore established the US dollar as a “world currency”, ending the gold standard system. He created the World Bank and the International Monetary Fund (IMF), two global organizations that have had the mandate to monitor the new system. Since the United States was the only country with the possibility of printing dollars, the system established the United States as a major power behind these two organizations, and the world economy. In the early 1970s, countries began to demand gold for the dollars they held to fight inflation. For fear of depleting all of their gold reserves, US President Nixon has decided to detach the dollar from gold. However, the dollar had already become the dominant reserve currency in the world.
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