Content
Highlights
Currency value is defined by supply and demand – both domestic and international.
Economic and political strength, as well as trade deficits are factors that contribute to a currency’s strength.
The USD, GBP and EUR are popular currencies to trade globally, but there are also other interesting, minor currencies that may be noteworthy.
Many might expect the title of strongest currency in the world to go to the currency of one of the largest economies, such as the US or China. However, it is the Kuwaiti dinar that is currently the highest-valued currency.
With foreign exchange (forex) trading being the biggest financial market in the world, traders may be interested in what makes a currency strong and how major currencies from the world’s leading economies measure up against each other.
Read on for our guide to the strongest currencies in the world, what they are, and how they work.
What makes a currency strong?
Currency value is determined by supply and demand. Increased demand appreciates the currency value, meanwhile rising supply can decrease the value of currency.
A variety of factors may affect a currency’s supply and demand and therefore its strength, from economic and political stability, to trade, inflation, and growth. Here we will examine a few of these factors.
Economic strength: A strong currency generally correlates with a strong national economy. A country with a growing and stable economy will find it easier to attract foreign investment. This, in turn, could help increase the demand and value of the country’s currency.
Political stability: A strong government with a well-established rule of law and good economic policies, all help to strengthen economic policies and attract investment, thus creating a strong currency.
Trade deficit: A trade deficit means a country tends to import more than it exports, allowing it to buy more than it sells. Consuming more than what you produce can affect the strength of a country’s currency by helping increase activity and boost the living standards.
List of strongest currencies
Let’s look at the currencies that have historically been most valuable in the world.
1. Kuwaiti dinar (KWD)
Most people know Kuwait due to the Gulf War in 1990, but it is also home to the world’s most valuable currency. The Kuwaiti dinar remains the highest currency in the world, mainly due to Kuwait’s stable economy.
The dinar was established in 1960 and the demand for the KWD is very high, as the Kuwait economy is dependent on oil and its oil exports have strengthened its currency.
2. Bahrain dinar (BHD)
In 1965, the dinar replaced the Gulf rupee and in 1980 the dinar was pegged to International Monetary Fund’s (IMF) special drawing rights. The fixed USD rate is 0.376 dinar = 1 USD.
The Bahrain Agency became the country’s central bank in 2006, and in 2008 it launched a new group of notes that reflected the country’s changing landscape.
The Bahrain dinar is pegged to the USD and has been since 1980, which has no doubt contributed to the strength of the currency. Despite the US dollar’s kingpin status and it being one of the most valuable currencies in the world, the Kuwaiti dinar also holds some dominance.
3. Omani rial (OMR)
The Omani rial was first known as the Saidi rial and historically had a value equal to the British pound. In 1970, Qaboos bin Said staged a successful coup and dethroned his father to become the Sultan of Omaha. The new sultan renamed the Sultanate of Muscat and Oman to the Sultanate of Oman and the rial Saidi was renamed to the Omani rial.
The Omani strength comes from the fact it is pegged to the USD at a fixed rate and this keeps the Omani rial stable.
4. Jordanian dinar (JOD)
It began circulating in 1949 in Jordan. The central bank of Jordan was established in 1964 and the first series of banknotes were issued in denominations of 0.5, 1, 5 and 10 dinar. The dinar is strong because it is set at a fixed exchange rate and pegged to the USD, as opposed to depending on the Jordanian economy.
5. British pound (GBP)
The British pound, also known as the pound sterling is the fifth most valuable currency in the world and the oldest currency still in use.
According to 2019 data from the Bank for International Settlements the pound is the fourth most traded currency globally and accounts for 12.8% of daily trades on the foreign exchange market.
It is also part of one of the most popular currency pairs – also known as ‘the cable’. Cable is the nickname given to the GBP/USD currency pair and represents the British pound against the US dollar.
6. Gibraltar pound (GIP)
The Spanish real ‘real de plata’ was Gibraltar’s currency until 1825. In 1872 the Spanish peseta became the official currency but the 1896 Spanish American war caused it to be dropped, so the Gibraltar pound was introduced.
The Gibraltar pound is known for its stability due to its pegged exchange rate to the British pound at par value. The GIP also benefits from a sound fiscal policy and the support of the British government, which helps to maintain its stability.
7. Cayman dollar (CI$)
The Cayman dollar is the national currency in the Cayman Islands, located just south of Cuba. The Cayman Islands are made up of three major islands - Grand Cayman, Little Cayman, and Cayman Brac.
The islands are recognised as one of the great tax havens, and an ideal place for international companies, as they don’t impose a corporate income tax. This helps the Cayman dollar maintain its strength, along with being pegged to the US dollar.
8. Swiss franc (CHF)
Known for its neutrality, Switzerland is also famous for the Swiss franc, used throughout Switzerland and Liechtenstein. Switzerland is a very stable and wealthy country and acts as a haven for investors during times of economic and political turmoil.
The CHF is the seventh most traded in the world and its low debt levels and strict monetary policies make it a popular currency to trade.
9. Euro (EUR)
The euro is a relatively new currency, particularly in comparison to the pound and the dollar, having only come into existence in 1999.
The currency is used across 20 countries in Europe known as the Eurozone, including France, Germany and Spain. The euro is the world’s second reserve money and the second most traded globally after the USD.
The EUR/USD pair is nicknamed ‘Fiber’ and is the most traded forex pair in the world.
10. US dollar (USD)
The US dollar has been the world’s reserve currency since the 1940s, and has remained the dominant currency for a variety of reasons. Among them is the resilience of America as a continent and its ranking as the world's largest producer of oil.
The USD is held by most central and commercial banks worldwide and accounts for over 88% of daily global trades.
Final thoughts
The top currencies are the one most people would assume and align with some of the world’s strongest economies, e.g., the US dollar, euro and Japanese yen. But the most valued currency in the world right now may not be the one most people would assume.
The Kuwaiti dinar’s status as the strongest currency in the world is underpinned by a strong and growing economy, thanks in part to the country’s abundant oil reserves.
When considering trading currencies you should remember that past performance is not a guarantee of future results. Even the strongest currencies can have downward trends and face volatility. You should do your own research on the market and never invest money you can’t afford to lose.
FAQs
What are the most popularly traded currencies?
The most popular traded currencies have been euro, US dollar, Japanese yen and British pound.
Why is the Kuwaiti dinar so high?
The Kuwaiti dinar, which remains the strong currency in the world, mainly due to Kuwait’s stable economy, was established in 1960 and the demand for the KWD is very high, as the Kuwait economy – which is dependent on oil, also has strong oil exports, which has strengthened its currency.
What has been the world’s weakest currency?
Currently there are two contenders for this title. First is the Venezuelan Sovereign bolivar, caused by political and economic instability in Venezuela. The second is the Iranian rial, which has become weaker due to political conflicts and poor economic health.