Last update: July 2021
There are currently seven major currencies:
- USD
- EUR
- JPY
- GBP
- CHF
- CAD
- AUD
These are listed in order of most widely used in international trade as reserve currencies. Let’s take a look at a few of the currencies a little closer.
Video: Major Currencies in Forex Trading
USD: United States Dollar
The USD is the home currency of the United States and is also the world’s largest reserve currency thanks to it being the most widely used currency in international trade. The USD was created along with the United States Central Bank, known as the FED, in 1913. It was named the world’s reserve currency in 1944 during the Bretton Woods agreement along with the IMF and World Bank. At that point, it was pegged to the value of gold, known as the Gold Standard. In 1971 the Nixon Administration (primarily Henry Kissinger) removed the gold standard and replaced it with the petrodollar in a deal first created with Saudi Arabia in 1973 followed by the rest of OPEC in 1975. This pegged the sale of oil, the world’s largest commodity, in USD; which meant 90% of the world’s oil market was sold in USD. In 1999, led by Russia and China, nations started making separate international agreements with the Middle Eastern countries to sell oil in non-USD transactions. Currently, the USD has no complete commodity backing. However, as the world’s reserve currency, the USD has substantial value in the international trade market. The USD is directly exchanged with other currencies in what is known as major pairs, examples are the USD/JPY and the EUR/USD.
EUR: Euro
The EUR was established in 1995 and accepted as a traded currency in international markets in 1999. Currencies that are pegged to their value are the GBP and the CHF. It’s the currency of the 17 member nation European Union, or Eurozone, and is used by over 550 million people worldwide in the local communities (including millions in Africa). For years, many in the world, including China, wanted the EUR to replace the USD as the world’s leading reserve currency. However, due to the economic problems, debt problems, and disagreements between member nations in the EU, this belief has lost favor. The European Central Bank (ECB) is very similar to the United States Central Bank (FED) in that it is responsible for monetary policy in the issuing of banknotes as well as the determination of interest rates.
JPY: Japanese Yen
The JPY was established far back in 1885 and is widely used for international trade in Asian nations. Japan is home to the world’s second-largest economy and third most liquid currency. However, due to three decades of economic stagnation, the JPY and the Japanese economy are under tremendous pressure. The JPY is widely used in carry trades as it traditionally has very low-interest rates in an attempt to spark inflation. This allows banks, institutions, and professional traders the ability to sell the JPY and buy other currencies in emerging markets or the AUD as they will have higher interest rates. This allows market participants to make money on the declining JPY as well as carry the positive interest rate. The carry trade is by far the most popular trade in the world due to the ability to carry positive interest rates.
GBP: British Pound | Pound Sterling
The British Pound or Pound Sterling (GBP) holds the title of the world’s longest utilized currency dating back to the 8th century. From the 8th century to the early 19th century the pound was backed by silver in some capacity. However, in the early 1900s, the GBP adopted the gold standard. This lasted until 1914 when the United Kingdom suspended the gold standard due to wartime necessities. As the USD became increasingly more popular post World War I, the pound suffered. In 1944 the USD replaced the GBP as the reserve currency of the world through the Bretton Woods agreement.
CHF: Swiss Franc
Prior to 1848, there were no fewer than 75 different entities creating Swiss currency. In 1848, the new Swiss Federal Constitution made it that the only entity that could create Swiss money was the federal government. The Frank was back by a 40% gold standard, meaning the Swiss must maintain 40% gold reserves for the supply of the currency in the system. In 200, the Swiss removed the gold reserve requirement. They did maintain a 20% reserve, but this wasn’t required by law. The CHF has long been considered a safe haven currency. This is due to two factors: Swiss political & military neutrality and international purchasing of the CHF during times of economic crisis.
AUD: Australian Dollar
The Australian Dollar (AUD) was first established in 1966. It’s a commodity-back currency in some aspects due to the value of the AUD being highly correlated with the value of gold thanks to gold mining operations being a big part of the national economy of Australia. The AUD is also very popular amongst currency traders using carry trades due to higher interest rates of it fellow fiat currencies in the USD, EUR, GBP, and the JPY. The AUD is also highly sensitive to the economy of China, as 30% of all Australian trade is conducted with China. Currently the AUD is the 6th most utilized currency in the world.
CAD: Canadian Dollar
The Canadian Dollar (CAD) is the 6th largest reserve currency in the world and the 7th most utilized currency. It’s similar to the AUD in that it’s considered a commodity-backed currency due to Canada’s mining operations. The currency has a rich history dating back to the 17th century, with the CAD being adopted in 1867 when Nova Scotia, New Brunswick, and Canada merged to form the Canadian Dollar. From 1854 to 1914, the CAD, much like the GBP was under the gold standard.
Chinese Renminbi (RMB) | Chinese Yuan (CNY)
The Chinese Renminbi (RMB) or Chinese Yuan (CNY) is also known as the people’s currency. It was first established in 1948 and has gone through several different printings. The RMB has also undergone a historical change in the past decade. From its creation until 2009, the RMB was only utilized as a currency of value in China; meaning it wasn’t used in international trade. However, from 2009 until 2015, the RMB is now utilized as a reserve currency (5th leading) and the second most utilized currency in the world next to the USD. In 2015, the RMB will also be utilized within the SDR system the IMF uses to funnel money throughout the world market.
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2 Replies to “Forex Trading 101: Major Currencies”
Very informative. This is my first FOREX video. Wi have to review it a few times before I get it.
Matt! Thanks for the great classes!
I do one burning question I can’t seem to turn loose of and that is with the October 15 IMF meeting coming up, what will change if the USD looses its reserve status?
Susie “Rock Star” Sanford
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