“Money makes the world go round” is a famous phrase and has even been a famous song (as Liza Minnelli sings in Cabaret). But to go a little deeper, a more interesting question may be, what money goes around the world the most? Even more specifically, what currencies are most important in the world of trading?
Thankfully, we can find out the answer to this question with the help of a global financial institution called the Bank of International Settlements or BIS for short. The BIS is an entity that is owned by many of the world’s central banks and provides information for monetary policy cooperation and financial stability as well as publications and statistics concerning the global financial system.
As macro and currency investors, the BIS’s foreign exchange turnover report is of keen interest and of importance as the BIS states that the report is “most comprehensive source of information on the size and structure of global foreign exchange (FX) and over-the-counter (OTC) derivatives markets.” Every three years, the BIS produces the report which can be compared to the past. The latest report was produced in April of 2019 (released in December) and provides us with a glimpse of the currency or forex markets in recent years.
Here are the most traded currencies in the world, according to the BIS report:
The Big One: US Dollar
The US dollar remains the undisputed king of international currency trading and derivative transactions. According to the BIS data, a total of 88 percent of all transactions include the American currency. Any which way you look at it, that is a striking number. The dollar is such an important fixture in the world that there is a gigantic financial market (Eurodollars) that deals with just US dollars outside the USA. The USD remains the world reserve currency and the largest commodities in the world such as crude oil and gold are primarily priced in dollars.
The dollar’s makeup of the currency markets has been steady through the years and also comprised 88 percent of total transactions in 2016 while coming in at a total of 87 percent in 2013 and 85 percent in 2010. The dollar share has been as high as 90 percent in both 1989 and 2001. The lowest share of currency trades the dollar took place in was in 1992 at a total of 82 percent.
The Next Three: Euro, Japanese Yen, British Pound
Coming in next as the second most traded currency is the Euro common currency. The Euro is the official currency of nineteen countries throughout the European Union and came in at a share of 32 percent of all currency transactions in 2019. This was a rise from 31 percent in 2016 but a decline from 33 percent in 2013. The Euro reached its highest share of currency trading transactions in 2010 with a total of 39 percent while notching a total of 37 percent in both 2004 and 2007. The lowest share of trading for the EUR was 31 percent in 2016.
The Japanese yen comes in third of the most traded currencies on earth. The 2019 share for the yen was 17 percent which was down 5 percentage points from the 22 percent total in 2016. The 2019 level (tied with 2007) marks the lowest level of currency trading transactions in the history of the report going back to 1989. The highest amount for the yen in the percentage of currency transactions was a total 25 percent in 1995 followed by a total of 24 percent in 2001.
The fourth most traded currency was the British pound sterling which totaled 13 percent of currency transactions in 2019. The pound also had a 13 percent share in 2016, up from a 12 percent share in 2013. The GBP saw its highest share of 16 percent in 2004 while the lowest amount was 9 percent in 1995.
Next in Line: Aussie, Loonie, Franc, Yuan, HKD & Kiwi
The fifth most traded currency in 2019 was the Australian dollar. This may come as a surprise to many as Australia only boasts a population of roughly 25 million people, but this country is a major market trading hub of Asia Pacific. The Aussie comprised 7% of the total currency trading transactions in 2019. This was the same number as in 2016 while 2013 saw a total of 9 percent of the trading volume. The lowest share of trading transactions for the Aussie was in 1989 and 1992 at just 2 percent while the highest trading share was the 9 percent in 2013.
The Canadian ‘Loonie” dollar comes in sixth with a 5 percent share of trading. The CAD has been consistently steady in its market share with 5 percent in 2010, 2013, 2016 and 2019 while comprising a total of 4 percent in the preceding years of 1998, 2001, 2004 and 2007.
The Swiss franc is next up with a 5 percent total share. This European country’s currency has had a 5 percent share from 2013 all the way to 2019, a total of the past three reports. This 5 percent mark is also the lowest level it is had since 1989 while highest market share for the Franc was 10 percent in 1989.
The Chinese renminbi (yuan) comes in next with a 4 percent market share of total currency trading transactions in 2019. This is the same amount from 2016 and up from 2 percent in 2013. The Chinese currency is not currently freely floating and is the most likely currency to increase in market share as time goes on, if and/or when this country of 1.4 billion people further liberalizes their economy.
Another Asian currency comes in next with the Hong Kong dollar at a 4 percent market share of currency trading transactions. This currency has doubled its market share from 2016 and is currently at its highest level in this report going back to 1989.
Rounding out the top 10 is the New Zealand ‘kiwi’ dollar which comes in next with a 2 percent market share. The 2 percent level has been the kiwi dollar’s market share consistently since 2007 and also marks the highest total amount for the NZD in the history of this report. The Asian-Pacific island of New Zealand punches well above its weight with a top 10 currency but with a population (4.8 million) that fails to crack the top 100 in the world.
Finally, the currencies that fell behind the kiwi in value of trading volume but also had a 2 percent share of foreign exchange trading were the Swedish krona, South Korean won, Singapore dollar, Norwegian krone, Mexican peso and the Indian rupee.
Article by Taylor Wilman – Data obtained from the Bank of International Settlements