What Are The World’s Strongest Currencies?

In December 2015, the International MonetaryFund welcomed the Chinese yuan into its elite club of global currencies.

This means thatthe yuan, also called the renminbi, will join the US dollar, the Euro, the British poundand the Japanese yen as the world’s most reliable and freely usable denominations.

So, What makes a strong currency? Well, the strength of a currency is generallymeasured by its purchasing power, which is the amount of goods or services that one unitof money can buy.

Since modern currencies are not backed by a collateral like gold,their value is entirely dependent on external factors.

This would include things like howmuch control a government has on the currency, whether or not it has a fair exchange rateand its long term stability.

All of these contribute to public faith in the value ofa currency.

For example, in 2005, the Turkish government eliminated six zeros from its Liraovernight.

This essentially converted 1 million lira to a single lira, and people acceptedthis immediately, because they had faith in the economy that was backing it.

The numberon the bills didn’t really matter.

Overall, people tend to have greater faith in currenciesthat are widely used and internationally accepted.

In that way, a currency’s value is not onlybased on what you can buy with it, but on how much of the world uses it.

Currencies that are internationally trustedare often referred to as Hard Currencies.

The US dollar, the Euro, the British poundand the Japanese yen all fall into this category because, again, the governments and economiesthat back them are seen as strong and stable.

In fact, many countries have abandoned theirdomestic currency in favor of hard currency.

Over one dozen countries and territories haveadopted the US dollar as their own, a process commonly known as “dollarizing”.

Moreover,both average citizens and investors tend to prefer hard currencies during times of politicalunrest or global economic instability.

When rapid inflation hit Latin America in the 1980’s,many people there temporarily switched to the dollar, fearing that their domestic currencieswould continue to go down in value.

Because of their consistency and reliability,currencies like the US dollar and the Euro are kept in huge reserves by nations withminor currencies.

These nations use their reserve currencies for international tradeor borrowing foreign money.

US dollars are the most popular reserve currency, countingfor roughly 60 percent of all global foreign exchange reserves.

What’s more, the dollaris included in roughly 90 percent of all international transactions.

So, how has the Chinese Yuan made its wayinto this elite group of currencies? Well, the Chinese government has recently loosenedsome control over its currency and built trading hubs in other countries.

As a result, marketforces will play a bigger role in setting the value of the Yuan, and the currency willbe more tradeable, and less susceptible to government manipulation.

The newly powerfulYuan is already gaining ground on the Euro, and China hopes that their currency will oneday rival the dollar as the number one reserve currency.

However that prospect remains inthe distant future.

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What Are The World's Strongest Currencies?

How Does China Manipulate Its Currency? http://bit.ly/1WEweMC
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There are only a few currencies that are members of the IMF's 'elite' global currency club. So what are these currencies and are they stronger than the rest?

Learn More:
China's Renminbi Is Approved by I.M.F. as a Main World Currency
http://www.nytimes.com/2015/12/01/business/international/china-renminbi-reserve-currency.html?_r=0
"The Chinese renminbi was anointed as one of the world's elite currencies on Monday, a milestone decision by the International Monetary Fund that underscores the country's rising financial and economic heft."

What Is Money?
http://www.imf.org/external/pubs/ft/fandd/2012/09/basics.htm
"Money may make the world go around, as the song says. "

International reserves
https://www.imf.org/external/pubs/ft/ar/2014/eng/pdf/a1.pdf
"Total international reserves, including gold, grew by 2.3 percent in 2013 and stood at SDR 8.60 trillion at the end of 2013."

IMF: China's currency reforms are a good thing
http://money.cnn.com/2015/08/12/news/economy/china-imf-yuan/?iid=EL
"China's unexpected move to allow the yuan to trade more freely is a step the right direction, but additional measures need to be taken, according to the International Monetary Fund."

Music Track Courtesy of APM Music: "Continuity"

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