Significant Currencies in the World

Saturday July 4, 2009

There are around 192 currencies in circulation. These all act as the official currency for use in a particular locality. Some of these currencies, such as the Botswana pula or the Georgian lari are not particularly well known throughout the world.

So which currencies are the ‘ big boys’ in terms of currency? Which are the movers and shakers of the currency world? What makes some currencies more important than others?

US dollar

The US dollar has to be recognised as the most influential currency in the whole world. It is the currency against which most other currencies actually value their worth. The dollar is also used to assess the price of certain commodities such as wheat, oil, gold and a whole variety of other items.

It is one of the currencies that is bought by other countries, as part of their reserves. This makes it a very important currency and one that has significant influence throughout the world. One very interesting aspect to the dollar is that because it is used as a reserve currency, most of the US dollars that have been produced, are actually held by other countries: they are not held in the United States.

The US dollar is symbolised by the symbol $, which is possibly the most well recognised symbol for a currency in the entire world. There are very few people who do not recognise the $ symbol. In fact, most people on the planet will be able to recognise this symbol, which gives an indication of just how influential it really is.

Each dollar is divided into 100¢ and the dollar is produced by the United States Mint. Dollars in some form or another have been in circulation in the United States, since the late 18th century. Thus it is a currency that has quite a history and is very much entwined with American culture.

The euro

The euro has only been in circulation since the year 2002, which makes it a very young currency. It is the official currency of 15 member states of the European Union and it will be used in 9 other countries as well by around 2012 or 2015.

The euro is symbolised by the ? symbol, which was devised as a way of denoting the new currency and by linking this to the European Union, by a symbol that resembles a capital E. The E stands for Europe.

The euro has been a particularly successful currency since its launch in 2002 and other countries are increasingly buying it as a way of building up their reserves of foreign currency. Traditionally countries have always bought US dollars as their reserves, however since its inception, the euro is now becoming a very desirable currency to stockpile. As a result it is becoming more influential as a currency and many people feel that it may actually start to rival the US dollar in terms of influence.

Japan Yen

The yen is the official currency in Japan. Strategically, the yen is of immense importance, because it is actually the world's most traded currency after the dollar and the euro, so whilst many people may be unfamiliar with the symbol for the yen, ¥, it actually affects the lives of many people, not just those in Japan.

The yen was first introduced in 1872 and has been in use ever since.

It is seen as a relatively important currency to have as a reserve currency and for this reason it is traded extensively and bought by other countries as a way of increasing their stockpile of foreign currencies. Many other countries that stockpile the yen are located within Asia, it is not bought so much by Western countries.

The British pound

The British pound is the currency used throughout the United Kingdom as well as some locations such as the South Sandwich Islands and South Georgia. The British pound is symbolised by the symbol £.

The pound has a long history and it has been in continuous use since about the 8th Century.

Historically, the British pound was quite an influential currency, because it was used throughout the British Empire and although at times it was used alongside the local currency, it was still used extensively throughout Australia, New Zealand, South Africa, Jamaica and various other areas that were part of the British Empire.

Since the British Empire is no longer in existence, its use now is really only within the United Kingdom and some overseas territories.

Prior to the introduction of the euro, the pound was quite an influential currency, along with the German Marks. So it was used to denote strength against the dollar and various other currencies. However, since the introduction of the euro, this has replaced the pound as the standard against which other currencies are measured.

Interestingly, the United Kingdom is part of the European Union, but it chooses to use its existing currency rather than adopt the euro.

The full title of the British pound is British pound sterling, but it is usually just referred to as the British pound.

Chinese yuan renminbi

The Chinese use the yuan renminbi as their official currency. It is an important currency because over 1 billion people in China use it as their official currency. In addition the yuan is also used within Macau as well as Hong Kong. Macau and Hong Kong both have their own currencies but they choose to use the yuan as well.

The yuan is symbolised by the symbol ¥. The yuan renminbi has been in use, in some form or another since 1948, which as currencies go, is actually a relatively short time.

Internationally, the yuan is not perhaps the most influential of currencies, but the fact that it is used by over a billion people, makes it an important currency, because it affects the lives of so many people.

Another aspect of the yuan that makes it important is the fact that China is very much seen as one of the emerging countries, in economic terms and may present investment opportunities for people. The state of the yuan is also seen as some kind of indication as to how the Chinese economy is developing and as such it is keenly watched by many people outside of China. It is not however, a currency that is keenly bought by other countries to have as their reserves. But this situation may change if China does become an increasingly important economy, which it seems very likely it will be at some point soon.

India rupee

India also has over a billion residents and each of these uses the Indian rupee, which is the official currency in India. Bhutan also uses the Indian rupee as its official currency. In English the rupee is denote by R, so for example 10R would mean 10 rupees as written in English.

This is a very historic currency that has been around in some form or another since around about the 15th century.

Similar to China, the main importance associated with the Indian rupee is its domestic use, because it is used by over a billion people and so statistically, it is an important currency.

However on the international field, it is not regarded as being a desirable currency to acquire as a reserve and so other countries do not buy it. External investors and economists do not monitor its performance as closely as that of the Chinese yuan, because although India is an emerging economy, it is growing at a less steady rate than China and so is not seen as so strategically important.

The Swiss franc

A billion people may not use the Swiss franc, but none the less it is very important currency. The Swiss franc is denoted by the letters Fr, which obviously stand for franc. Switzerland does not use the euro, which makes the Swiss franc, the only franc left in current circulation.

The Swiss franc is important on the international monetary scene because it is one of the top 10 currencies to be traded on the foreign exchange. This gives the Swiss franc an importance that is simply not afforded to other currencies. It remains strong as a currency and the Swiss financial market is extremely buoyant, which all helps the franc retain its position as a strategically important currency. Indeed, the fact that the Swiss franc has consistently remained stable and strong for a considerable length of time is the nature of its appeal on the international foreign exchange markets.

It is also a relatively historic currency, having been in use since the late 18th century and it has always remained very constant, which in itself is quite unusual for a currency.

Due to the fact that Switzerland has four different languages, it is often referred to by different names in different parts of the country, which can be slightly confusing for travelers.

The Hong Kong dollar

Hong Kong may only have around 7 million residents or so, but the Hong Kong dollar is regarded as a very important unit of currency, because it is traded quite extensively on the international foreign exchange.
The Hong Kong dollar is usually symbolised as HK$, because this differentiates it from the US dollar.

Hong Kong is recognised as one of the leading financial centres in the world and that is why its currency is seen as important.

The Hong Kong dollar is relatively newcomer to the world of currency and it was only established in the early part of the 20th century and it calls only in 1937 that Hong Kong and managed to achieve a unified currency.

Due to its international significance, the Hong Kong dollar is often taken as the yardstick as to how the rest of the world's economy is progressing.

The Russian rouble

The Russian rouble, which may be spelt as ruble, was historically, during the 20th century a very dominant currency, due to Russia’s influence over its socialist and communist neighbors. However, since the demise of Soviet Union the Russian rouble has ceased to be so influential, but recently Russia has indicated that it would like it its rouble to be used as a reserve currency.

Each rouble can be subdivided into 100 kopecks. The rouble is also used in Abkhazia as well as South Ossetia.

The rouble in some form has actually been in existence for around 500 years. It may have changed and it may have been subject to Bolshevik control, as well as other influences, but in essence, it has been around for some time and given a 500-year history, it may be reasonable to assume that it will be around for some time to come.

What makes a currency important?

There does seem to be some discrepancy over what makes an important currency. To give this some context, the Hong Kong dollar, which is used by around 7 million people is seen as more important than the Chinese yuan that is used by over a billion people. How does that actually make sense?

Well, in economic terms a currency is important if it can show that it is a desirable currency. It can do this in several ways. First of all it has to demonstrate that it is a stable currency. It has to demonstrate as well that it is a relatively strong currency and that it will be around for some time to come.

If one country buys the currency of another, as part of its reserves, then it will have a desire for that currency. This desire is based on how stable and strong the currency is and, how politically stable that country is as well.

For example, very few countries currently would wish to purchase Zimbabwean dollars or Algerian dinars. This is because these two countries are not seen as stable and so their currency is not a safe bet.

No one would wish to buy something and find out the next day that it is actually worthless and it is the same with foreign reserves. Countries only want to stockpile currencies that they know will still be valuable in a few years' time. For them to remain a valuable commodity, the country from where the reserves originate, must therefore be politically stable and have strong economy.

Thus it is always a good sign for any currency or a country, when their currency is bought as a foreign reserve, this is why Russia is so keen for other countries to buy her roubles as part of their reserves. Even the fact that the currency is being bought by other countries can significantly help a currency to grow even stronger and thus stabilise the economy even more. This activity, in economic terms, sends out a very strong signal that this currency is indeed a very attractive one.

So this is why some currencies such as the Hong Kong dollar or the Swiss franc are seen as such strategically important currencies, despite the fact that they are not used by a great many people.

The Chinese yuan and the Indian rupee on the other hand, are used by billions of people every day and yet are not viewed as being so important, in terms of global financial markets. There is, therefore, a difference between a currency being important to people and it being important on a financial basis, particularly with regard to global markets.

This is why sometimes currencies that are only used by a relatively few people are seen as vitally important to the world as a whole.

However, any currency that is an important currency on the global financial markets, does actually affect everyone, even though we may not be aware of it.

This is because, currencies such as US dollars, euros and the Japanese yen are all traded extensively against the currencies of other countries. This means that what is happening with the Japanese yen, can actually affect people who use the Indian rupee as their currency.

In financial terms the ‘ big boys’ (namely the US dollar, euro and yen) all exact an influence over other currencies. In a sense it is how well or how bad they are doing that can give a value and worth to other currencies.

It is an exciting world and one that is constantly changing and evolving, although the US dollar remains the most influential currency in the world the euro is closing the gap.

No one knows how this picture will look in 50 years' time. The fact that OPEC countries in the Middle East are developing their own united currency may well mean that they start to rival the US dollar and euro in terms of world dominance. Or will we start to see the Chinese yuan or the Indian rupee taking over as the preferred currencies for financial reserves.? Who indeed can tell, but one thing is for sure and that is that there will be changes as the world becomes ever more like a global village.