The United Nations recognizes 180 currencies in the world as legal tender. But while currencies such as the US dollar and the euro are popular and widely used, they do not hold the highest values, and they are not the strongest currencies. When we talk about the strength of a currency, this refers to the relative purchasing power of a national currency when it is traded for products or against other currencies.
That is, currency strength is measured by the number of services and goods purchased and the sum of foreign currency received in exchange for one unit of the national currency. To determine the strength of a currency or if it is the most valuable currency in the world or the most expensive currency, we need to consider the interaction of a variety of local and international factors. This includes the supply and demand in the forex markets, inflation, growth in the domestic economy, the interest rates of the relevant central bank, and the country’s trade balance.
Here are the top 10 currencies in the world in the order of their strengths (as of March 2022):
- Kuwaiti Dinar (KWD). The Kuwaiti Dinar is the official currency of the state of Kuwait and is currently the strongest currency in the world. Kuwait is a small nation located between Saudi Arabia and Iraq on the Persian Gulf. Kuwait is considered one of the wealthiest nations on earth. It has rich oil reserves, with the commodity responsible for over 80% of the country’s GDP. Kuwait is also a tax-free nation and features one of the lowest unemployment rates in the world. The KWD was first introduced in circulation in 1961, replacing the Gulf rupee that was pegged at parity with the Indian rupee. KWD has been pegged to different currencies throughout its history, but it is currently pegged to an undisclosed basket of currencies. KWD is worth about $3.29.
- Bahraini Dinar (BHD). The Bahraini Dinar is the official currency of Bahrain. It is pegged to the US dollar at the conversion rate of 1 BHD = $2.659. Like Kuwait, Bahrain is also located in the Persian Gulf, and its economy is heavily reliant on oil and gas. This industry supports over 85% of the kingdom’s revenues. The BHD was first introduced in 1965, replacing the Gulf rupee at 1 BHD = 10 rupees. Since 1980, Bahrain has pegged its currency to the IMF SDR. As a result, the BHD has maintained a relatively stable rate against the US dollar. It is important to note that Saudi Arabian Riyals are considered legal tender in Bahrain. The exchange rate is fixed at 1 BHD = 10 Riyals.
- Omani Rial (OMR). The Omani Rial is the official currency of the Sultanate of Oman, a nation situated on the southeastern coast of the Arabian Peninsula. OMR was first introduced in 1970 as Saidi Rial (in honour of the ruling House of al-Said), and it replaced the Gulf rupee. The name was changed to Omani Rial in 1972. The OMR is pegged to the US dollar at $2.60. Oman first pegged its currency to the USD in 1973 at $2.895 but changed it to the current rate in 1986. As a small nation dependent on natural resources, the USD peg helps avoid severe currency fluctuations that may devastate the Oman economy.
- Jordanian Dinar (JOD). The Jordanian Dinar is the official currency of Jordan. The JOD is also circulated in West Bank, a region located in Israel. The JOD was introduced in 1950, replacing the Palestinian pound, the official currency of the Emirate of Transjordan and Mandatory Palestine. The JOD is pegged to the US dollar at a fixed rate of $1.41. Unlike the above strong currencies, Jordan lacks natural resources. It is only classified as an emerging market economy dependent on fertilizer components, overseas remittances, foreign aid, and favourable trade agreements with regions like the USA, Canada, European Union, North Africa, and Southeast Asia. The JOD is only strong because of the USD peg rather than Jordan’s own economic power.
- Pound Sterling (GBP). The pound sterling is the official currency of the United Kingdom, the British Overseas Territories, and the UK Crown Dependencies. GBP is the oldest currency in the world that is still in circulation today. The GBP is not only strong but also very influential in global trade and finance. It is the 4th most used currency globally, both in reserve and circulation, and it also forms part of the basket of IMF Special Drawing Rights. The GBP has a history as rich as the iconic British Empire, and it was once the most powerful currency in the world. It only lost that luxurious title in the 20th century when Britain became involved in two World wars, and the USA became a superpower.
- Cayman Islands Dollar (KYD). The Cayman Islands dollar is the official currency of the Cayman Islands, which consists of Grand Cayman, Little Cayman, and Cayman Brac. Located in the western Caribbean Sea, the Cayman Islands is a ‘tax haven’ that has become a major global financial centre. The KYD has been pegged to the US dollar at the fixed rate of $1.2. Favourable or no taxes at all and the USD-peg have made the Cayman Islands a prestigious attraction for corporations and wealthy individuals. Furthermore, no taxes are applied on any income stored or earned within the jurisdiction.
- Euro (EUR). The euro is the official currency of 19 states of the European Union. Introduced in 1999, the euro is one of the world’s youngest currencies. Nonetheless, the euro is now the 2nd most used currency globally, both in reserve and circulation. There are also about 25 countries that have pegged their national currencies to the common currency. As a region, the European Union is an influential political and economic player globally. The euro is not pegged to any other currency and freely floats in the market. As of March 2022, the euro exchanges for the US dollar at around the rate of $1.10
- Swiss Franc (CHF). The Swiss franc is the official currency of Switzerland. It was introduced in 1850, replacing multiple differentiated currencies produced by the 13 Swiss confederates at the time. A robust and stable currency, the CHF has earned the title of a ‘safe haven’ currency. Switzerland is a politically stable country that has historically maintained a neutral stance in major military confrontations. The country also promotes sound fiscal and monetary policies and has witnessed stable economic growth over the years. The CHF is the 7th most traded currency globally, and at the time of writing, exchanges for the US dollar around at the rate of $0.93.
- US Dollar (USD). The US dollar is the official currency of the United States of America and its territories. It was first introduced in 1792 and has risen to become the most powerful currency globally. The USD is the most used currency in the world, both in reserve and circulation. It is the ‘reserve currency of the world’ and dominates global trade and finance. Of all USD in circulation, only 30% is within the United States of America. To put the power of the US dollar into context, the top 4 strongest currencies in this list are USD-peg and 6 of the top 10.
- Bahamian Dollar (BSD). The Bahamian dollar is the official of the Commonwealth of The Bahamas. The Bahamas dollar was introduced in 1966, replacing the Bahamas pound. The BSD is pegged to the USD on a par-to-par basis. The economy of The Bahamas is heavily reliant on international financial services and tourism. The country is also considered a ‘tax haven’ as it charges no tax on income stored and earned.
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