The vast majority of currencies have limited use outside their home country. Even if there are more than 180 currencies in circulation around the world, most of the world's foreign exchange transactions include only half a dozen of them. Let's take a look at these select, most traded Forex currencies and how they came to dominate the markets.
U. S. dollar
The demand for United States dollars around the world is huge and does not have much competition. With a robust political environment, a historically dynamic economy, and consistent price (below inflation) over the long term, the US dollar has served as the de facto universal medium of exchange. It is also the world's primary reserve currency. The US dollar is dominant in the hands of many governments in international transactions.
When the US dollar (or any other currency) is traded, it is most often paired with a currency that did not even exist in physical form before this century - the euro. The second most traded Forex currency, used daily by more than 1.5 billion people around the world, is the euro, popular in Europe and Africa, where it outshines even the US dollar in this regard. The Eurozone continues to expand and therefore the importance of the Euro will only increase.
Japanese yen
It became the third most traded currency in the world. Thanks to both the Japanese economy and the yen's turnover in international trade, this unit is gradually becoming more and more important in the foreign exchange markets. But in recent years, Japan's central bank has kept interest rates as low as possible. While the US Federal Reserve Bank allegedly adopted a similar policy, one of the results is that the yen has lost about 25% of its value against the US dollar over the past two years.
British pound
Today, the pound is the fourth most traded Forex currency in the world, accounting for about 6% of all foreign exchange transactions. Why did the pound fall out of favor, as it used to be much more popular? The short answer is that nature abhors a vacuum. During World War II, the British government set the value of the pound in terms of US dollars at a fixed rate. A series of British financial disasters led to the depreciation of the pound in 1949, and again in 1967, which wiped out the savings of the prudent British and, as a result, strengthened the status of the US dollar as a globally demanded reserve currency.
Australian dollar
It was created in 1966 to replace the Australian pound and has since served as a kind of reserve currency for much of the Asia-Pacific region and Oceania, trading at a level disproportionate to the size of the Australian economy. The Australian dollar has gained significant traction against other major currencies in recent years and is currently trading at near record highs against the US dollar.
Swiss frank
Another country whose currency carries more global significance than one would expect is Switzerland. The Swiss franc is the sixth most traded Forex currency in the world, despite serving as legal tender in only two countries (the second being Liechtenstein). The franc's value has remained remarkably stable in terms of US dollars since 2012. Switzerland's own internal stability and decentralized political structure have made the franc desirable in world currency markets.
