Currencies of the World

Instructor: Christopher Muscato

Chris has a master's degree in history and teaches at the University of Northern Colorado.

Every country has some form of money it uses. In this lesson, we are going to explore some of the most powerful currencies in the world and see how they relate to each other.

World Currencies

If you're about to travel abroad, what's one of the most important things to do? Yes, you need to learn the language, book hotels, and of course search for the best restaurants, but you also need to be able to pay for things. That means exchanging your money for whatever money is used in that country. Across the world, every nation has its own form of currency, or money. In olden times, every piece of money was made of a precious metal, and had value equal to that metal.

Today, our currencies are based on one of two things. Representative money is that which has value because it represents a certain amount of a valuable commodity. If your money is based on gold, then each note is worth a certain amount of gold. There's also fiat money, in which money is valuable because other people accept that it is valuable. This sounds strange, but it's actually how many of the world's top currencies work. Every currency holds value within its own nation, but also has value on the international scale relative to other currencies. The value of currencies compared to each other is called the exchange rate. That's what lets us trade in some forms of money for others. Let's take a look at some of the top currencies in the world and see what makes each so valuable.

The Canadian Dollar

When we think about major economic powers of North America, Canada isn't always the first nation that comes to mind. In reality, this is unfair because the Canadian Dollar is one of the most powerful currencies in the world. Also called the loonie because the $1 coin contains a picture of a loon, the Canadian currency is seen as one of the best indicators of the value of tradable goods. In particular, the loonie is an excellent representative of the value of crude oil. Many traders watch the value of the loonie on the global market to predict changes in the value of oil.

The Swiss Franc

Next on our tour of powerful currencies is the Swiss franc, the money of Switzerland. Switzerland is home to Europe's oldest banking culture, and maintains some of the world's most reputable banks to this day. As a result, their currency is seen as a safe bet and as one of the most consistent in the world. While trading in Swiss francs may not turn an immediate profit, it's also less volatile and less subject to changes in market demands. For example, if everybody suddenly stopped buying crude oil, Canada's dollar would lose value while the Swiss franc would stay strong. For this reason, it is sometimes used to correct violent shifts in global currency rates.

The Swiss franc is a generally consistent currency
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The Japanese Yen

Moving over to Asia, we find the yen, the currency of Japan. Japan plays a major role in the global economy as a technology producer and exporter, so the yen is closely watched by people around the world. In fact, the yen's value really comes from Japan's reputation as a powerful manufacturing nation. Japan also tends to offer loans in yen for little to no interest rates, and as a result many international trades are made using yen.

The Japanese yen
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The Euro

Most currencies are printed by a specific nation, and their value correlates to that nation's economy. However, there is one major exception. The euro is the money used collectively by all the nations of the Eurozone, a group of European nations that joined economies for mutual strength. The euro first formally appeared in 1999 and is currently the second most traded currency in the world. Due to the euro's immense impact on the global economy, many nations define their currencies by their relation to the euro.

The US Dollar

Finally, we arrive at the most traded currency in the world. The US dollar (USD) is the currency of the United States. Once based on the gold standard, it is currently a fiat money, retaining value because it is so widely used. In fact, the USD is held by most central banks and reserves around the world and is therefore one of the most standard forms of currency used to negotiate international trade.

Percentage of global currency reserves by currency type
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