What is the strongest currency in the world?
The strongest currency can be measured in different ways. During times of crisis, many of us turn to the US dollar.
The strongest currency in the world is difficult to quantify. It can mean:
- Which currency is best at holding its own against the mighty US dollar?
- Which currency offers the most stability?
- Which currency can withstand financial turmoil most effectively?
Here, we’re going to give you a list of the strongest currencies in the world across all of these categories. It’s a time of major upheaval in the global economy, with many of us looking for safe places to store our capital.
The strongest currency in the world today
Generally speaking, the US dollar is regarded as the strongest currency in the world on multiple fronts. It’s also the most powerful currency.
Several factors, and a lot of history, are behind this. By and large, the US offers plenty of stability when it comes to economic policies and political climate. A sizeable proportion of foreign bank reserves have been denominated in dollars, and bonds from the US Treasury – a form of government debt – are seen as trustworthy because of how the country has a reputation of paying them back in full and on time. The dollar is also relied upon as a means of exchange around the world, namely in parts of Russia and Latin America.
Countries with the strongest currencies have to deal with some pros and cons. A strong dollar means that you get more pounds and euros for your money. Because of this, importing goods from the UK and the EU gets a lot, lot cheaper for American businesses and consumers – and holidays abroad are much more affordable.
It isn’t all good news. Having the strongest currency in the world can mean that it’s simply too expensive for international tourists to pay a visit. This is often pretty bad news for tourism. It’s also tough for US businesses who are hoping to export their products around the world, because the strong dollar will make their items much more expensive. That’s why some countries use deliberate measures to keep their currencies weak.
Let’s look at an example that illustrates this problem. Kevin and Amanda are British and they want to go on holiday in the US for two weeks. They book a trip a week in advance, when £1 gets them $1.42. When the holiday arrives, their £1 is worth just $1.16. For every £100 they exchange, they’re getting $28 less. If they had a budget of £5,000 for their holiday, this means they’d have $1,400 less spending money. Ouch.
The second strongest currency in the world is the euro. We’re basing this on two main factors. Approximately 20 per cent of foreign bank reserves are denominated in euros – the next biggest after the dollar on 61 per cent. The other metric comes in terms of trading volumes on the forex markets. Figures from 2018 show the dollar has a daily market share of 90 per cent, with the euro on 31 per cent. The Japanese yen and the British pound were in third and fourth place respectively.
Most valuable currency in the world
This is difficult to quantify. It partially depends on how cheap goods and services can be purchased in the territories where the currency is used. However, a good barometer can be how it has appreciated against the US dollar, widely regarded as the world’s reserve currency.
At the start of February, Bloomberg analysis shows that Ghana’s cedi had assumed the title of the world’s best-performing currency. It had appreciated against the dollar by 3.9 per cent since 2020 began – far more than the other 140 currencies that it constantly monitors. By contrast, the cedi had weakened 13 per cent in 2019.
Of course, all of this has been thrown into disarray by the coronavirus – the issue that seems to be making its way into all of our features at the moment. It has changed the list of the strongest currencies in the world indelibly. Why? The reason is simple: because money is now flowing out of emerging economies and back into dollars, where investors are seeking safety. Because the dollar is in such high demand, its value has strengthened to an extraordinary degree.
Just look at how the dollar has soared against the pound. Back in 2007 and 2008 it was easy to buy $2 for every pound in your wallet. Sterling suffered several body blows as a result of the financial crisis and the vote to leave the European Union. The uncertainty surrounding Covid-19 has now taken the pound to just $1.16 at the time of writing – lows that haven’t been seen in 35 years. Some analysts are openly wondering whether the pound will soon achieve parity with the greenback, meaning £1 equals $1.
It seems like the pound has been disproportionately hit compared with how the Australian dollar and the South Korean won have fared against the US dollar.
Unsurprisingly, the US Federal Reserve is nervous about its reputation for being the strongest currency in the world. High demand creates a lot of headaches for American businesses that operate around the world. Earnings made in pounds and euros are now going to be worth a lot less when they make their way back to the US – making it look like a company is generating less revenue and profit. (That said, it’s good news for oil companies based on the who report in dollars.)
For the foreseeable future, it’s going to be worth keeping an eye on the US Dollar Index. This measures the value of the dollar against a series of currencies that are usually traded against the greenback. Its base level is 100. Anything over this amount means that the dollar is appreciating against other currencies. At the time of writing, it had reached 52-week highs of 102.99.
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