Major currencies

Major currencies are the most widely traded and held currencies in global foreign exchange markets, typically including the US dollar, euro, Japanese yen, British pound, Swiss franc, and sometimes the Canadian and Australian dollars, which together account for the vast majority of international transactions (BIS 2022, p.12)^[1]. These aren't simply the currencies of large economies—they're the currencies that oil the machinery of international trade, finance, and investment. When a Brazilian company pays a Chinese supplier, they probably settle in dollars. When a pension fund diversifies internationally, it holds positions in these handful of currencies.

The foreign exchange market trades over $7.5 trillion daily—the world's largest financial market by far. Major currencies dominate this flow. The US dollar alone appears on one side of 88% of all forex transactions. Understanding major currencies means understanding how global commerce actually works.

The US dollar

The dominant global currency:

Reserve currency status

Unmatched position. The US dollar comprises approximately 58% of allocated foreign exchange reserves held by central banks worldwide—more than all other currencies combined^[2].

Historical roots. The dollar's dominance traces to Bretton Woods (1944), when it became the anchor of the international monetary system, convertible to gold at $35 per ounce. Even after Nixon ended convertibility in 1971, the dollar's central role persisted.

Network effects. Because so many transactions occur in dollars, holding and transacting in dollars reduces friction. The dominance is self-reinforcing.

Trade invoicing

Commodities. Oil, gold, copper, wheat—major commodities are priced and traded in dollars globally, regardless of where they're produced or consumed.

Cross-border trade. Even trade not involving the United States often invoices in dollars. A South Korean company selling to Germany may quote prices in USD^[3].

Safe haven

Flight to quality. During global crises, investors rush to dollar assets despite the US often being part of the problem. The 2008 financial crisis began in America, yet the dollar strengthened as panic spread.

Treasury market depth. US Treasury securities provide the world's deepest, most liquid safe asset market—over $25 trillion outstanding.

The euro

The world's second currency:

Creation and adoption

Monetary union. Launched in 1999 as an accounting currency and 2002 as physical cash, the euro replaced national currencies across what is now 20 European Union member states.

Eurozone economy. The combined eurozone economy rivals the United States in size, giving the euro substantial economic backing^[4].

Reserve and trading role

Second place. The euro comprises roughly 20% of global foreign exchange reserves and appears in about 31% of forex transactions—a distant second to the dollar.

Regional strength. In Europe and neighboring regions, the euro functions as the primary trading and reserve currency, challenging dollar dominance locally.

Structural challenges

No fiscal union. Unlike the dollar, the euro lacks unified fiscal backing. Individual nations retain fiscal authority, creating stress during debt crises.

Fragmented markets. European capital markets remain nationally segmented, limiting the euro's appeal as a reserve asset compared to unified US markets.

Japanese yen

Asia's major reserve currency:

Third position

Trading volume. The yen ranks third in forex trading, appearing in roughly 17% of transactions. Japan's economy—the world's fourth largest—supports substantial international financial activity^[5].

Carry trade vehicle. For decades, Japan's near-zero interest rates made the yen a funding currency for carry trades—borrowing yen cheaply to invest in higher-yielding currencies.

Safe haven paradox

Crisis appreciation. Despite Japan's massive government debt (over 250% of GDP), the yen often strengthens during global crises as Japanese investors repatriate foreign holdings and global investors seek safety.

Domestic creditor base. Japan's debt is overwhelmingly held domestically, reducing vulnerability to foreign capital flight.

British pound sterling

The original reserve currency:

Historical legacy

Former dominance. Before the dollar, the pound was the world's primary reserve currency, backed by the British Empire's global trade networks.

Enduring role. Despite Britain's relative economic decline, the pound remains a major currency, comprising about 5% of global reserves and 13% of forex transactions^[6].

London's financial center

Trading hub. London remains the world's largest forex trading center, handling about 38% of global turnover. This sustains the pound's prominence beyond what Britain's GDP alone would support.

Swiss franc

The neutral safe haven:

Stability premium

Safe haven demand. Switzerland's political neutrality, financial stability, and conservative monetary policy make the franc a premier safe haven currency.

Appreciation pressure. Safe haven flows sometimes push the franc uncomfortably strong, prompting Swiss National Bank intervention^[7].

Disproportionate role

Beyond GDP share. Switzerland's economy is modest (less than 1% of global GDP), yet the franc appears in roughly 5% of forex transactions—far exceeding its economic weight.

Other major currencies

Additional currencies merit inclusion:

Canadian dollar

Commodity currency. Canada's resource exports (oil, minerals, lumber) tie the "loonie" to commodity prices. It's the sixth most traded currency.

Australian dollar

Another commodity play. Australia's mining exports create similar commodity sensitivity. The "Aussie" is the fifth most traded currency despite Australia's relatively small economy.

Chinese renminbi

Rising but controlled. China's economic size suggests its currency should rank higher. However, capital controls and limited convertibility constrain the yuan's international role. It comprises about 2.5% of forex reserves—growing but still minor^[8].

De-dollarization debate

The dollar's dominance faces questions:

Geopolitical tensions. US sanctions leverage the dollar's centrality, prompting targeted countries to seek alternatives.

Chinese ambitions. China promotes yuan internationalization through bilateral agreements, the Belt and Road Initiative, and alternative payment systems.

Gradual shift. The dollar's reserve share has declined from 71% in 1999 to 58% today. However, no alternative has captured the lost share—diversification has spread across multiple currencies.

Inertia power. Network effects and the absence of viable alternatives suggest dollar dominance will persist for the foreseeable future, even as marginal diversification continues.

Major currencies — recommended articles

Foreign exchange market — International trade — Monetary policy — Financial markets

References

• BIS (2022), Triennial Central Bank Survey of Foreign Exchange and Over-the-counter Derivatives Markets, Bank for International Settlements.
• IMF (2023), Currency Composition of Official Foreign Exchange Reserves, International Monetary Fund.
• Eichengreen B. (2011), Exorbitant Privilege: The Rise and Fall of the Dollar, Oxford University Press.
• CFR (2023), The Dollar: The World's Reserve Currency, Council on Foreign Relations.

Footnotes

1. ↑ BIS (2022), Triennial Survey, p.12
2. ↑ IMF (2023), Currency Composition of Official Foreign Exchange Reserves
3. ↑ Eichengreen B. (2011), Exorbitant Privilege, pp.34-56
4. ↑ CFR (2023), The Dollar: World's Reserve Currency
5. ↑ BIS (2022), Triennial Survey, pp.18-24
6. ↑ IMF (2023), Currency Composition Data Tables
7. ↑ Eichengreen B. (2011), Exorbitant Privilege, pp.89-104
8. ↑ CFR (2023), Reserve Currency Analysis

Author: Sławomir Wawak