When it comes to the world of foreign exchange (forex), some fiat currencies are more popular to buy and sell than others. The Bank for International Settlements states there are 180 national currencies in circulation in 2023. Interestingly, just ten of these comprise more than 90% of all traded volumes in the forex market.
Given that the forex market sees $6.6 trillion worth of currencies traded daily, that means almost $6 trillion is traded in only ten of the world’s 180 fiat currencies. You can therefore gauge just how influential the top ten fiat currencies are to global commerce.
Within this article, we’re going to explore the top five most traded fiat currencies in 2023 and discuss why these currencies are so popular to forex traders.
US Dollar (USD)
The US dollar is far and away the most liquid fiat currency on the planet. So valuable is the USD that all the so-called ‘Major’ forex pairs involve the US dollar, also nicknamed the greenback. The US dollar is the currency issued by the Federal Reserve, the central bank of the United States of America. More than two-fifths of trades placed daily in the forex markets involve the US dollar.
Since the end of World War II, America has been one of the most prosperous economies on the planet. In fact, shortly after World War II, America’s gross domestic product (GDP) accounted for half of the world’s total economic output. Hence why the USD became the ‘gold standard’ for currencies, with most precious, hard, and soft commodities also priced in USD today.
Because of this, the US dollar is often benchmarked against other fiat currencies as a measure of their value and performance. There is an index known as the DXY which plots the strength of the USD against a cluster of other leading fiat currencies. The DXY chart moves up when the USD is strong against other major currencies and down when the greenback weakens in the market against the same currencies. The other currencies used to compare the USD in the DXY include the Euro, the Japanese yen and the British pound, all of which feature in this list.
The Euro is the second most popular fiat currency traded on the forex markets. It’s little surprise when you consider that the Euro is the official currency used by all European countries within the Eurozone. This now includes 19 of the member states of the European Union (EU). The Euro is overseen by the European Central Bank (ECB), which acts as its gatekeeper for issues such as inflation and interest rates.
The Euro’s strong influence in several African economies means the EUR is often pegged to certain African currencies, especially those that frequently export goods to the EU. Although the concept of having a unified fiat currency across dozens of member states in the EU is designed to offer strength and stability, it can pose issues when one member state experiences economic strife, with other nations duty-bound to bail out their neighbors or face the threat of escalating economic instability.
Japanese Yen (JPY)
The Japanese yen is the most traded fiat currency in Asia right now. Its daily trading volumes are said to total $554 billion, due largely to its robust economy. The Japanese yen is controlled by the Bank of Japan (BoJ), which has a notoriously firm grip on inflation in the national economy. Even so, the BoJ is also well-known for its use of negative interest rates to stimulate consumer spending.
Japan is one of Asia’s most influential producers of goods such as automotive vehicles and parts, integrated circuits and chips, as well as photography equipment and accessories. The JPY is often used as a barometer for the health of the Pan-Pacific economy, given that the likes of South Korea, Thailand, and Singapore trade regularly with their Japanese counterparts.
British Pound (GBP)
The British pound (sterling) ranks as the fourth most traded fiat currency in the world today. With approximately $422 billion of GBP traded daily on the forex markets, the British pound remains an influential currency in global commerce. It’s also one of the oldest fiat currencies too, predating the Anglo-Saxon era.
The GBP is also the world’s fourth largest reserve currency, with sterling said to equate to almost 5% of all global reserves by value. The strength of the pound is, unsurprisingly, intrinsically linked to the performance of the UK economy. One of the most profound impacts on the value of GBP in recent years was the UK’s decision to leave the EU, with the uncertainty surrounding its future trading relationship causing significant volatility for the pound.
Australian dollar (AUD)
The Australian dollar is the fifth most traded fiat currency on the planet, scooping approximately $223 billion of daily traded volumes in the forex markets. The AUD is issued and controlled by the Reserve Bank of Australia (RBA) which maintains its monetary policy surrounding interest rates and inflation.
The AUD fluctuates depending on the value of precious and hard commodities, given that Australia is one of the world’s leading exporters of iron, copper, and coal. It’s also one of the biggest importers of oil, which can affect the value of AUD when oil becomes more expensive.
Trading currencies on the forex markets is no problem at all. You’ll always find high levels of liquidity day or night.