Most powerful currencies

Most people know that top on the list of the world’s most powerful currencies is the US dollar. But just how elevated is King dollar’s throne from the other world’s most powerful currencies?

A recent IMF press release, entitled Currency Composition of Official Foreign Exchange Reserves (COFER) reveals the answer to the above question.

The world’s most powerful currencies can be listed in terms of their importance and global standing by determining the percentage of the currency’s holding in COFER

Most powerful currencies

So the currency most held in COFER is the most valuable and powerful because it is the currency which is in the highest demand with the world’s reserve banks.

Here is the latest IMF data which shows the world’s most powerful currencies in terms of allocated exchange reserves by currency in US dollars to date (2019).

The US dollar is way at the top of the list with $6.47T or 61.8% held in reserves. A distant second comes the Euro with $2.2T or 20.24%. A distant third comes the Japanese Yen $572B or 5.25%, then not far behind is the Pound sterling $495B or 4.5%. The Chinese Renminbi just makes the list at $213B or 1.95% of foreign reserves held in 2019.

The US dollar reigns on top of the list of the world’s most powerful currencies by a huge margin, despite the rapid industrialization of China from agrarian to superpower, according to IMF data

The US dollar is still the most trusted and frequently used currency to transact globally. There is not much you can’t buy anywhere in the world with a fist full of US dollars.

Let’s take a look at the COFER data (2004-2019) so that we can gauge how the world’s most powerful currencies have evolved in importance.

Capital flows have been relatively constant.

In 2004 COFER consisted of US dollars 65.5% , Euro 24.7%, Japanese Yen 4.3%, Pound Sterling 3.5% and others 2.0%

In 2009 COFER consisted of US dollars 62.1% , Euro 27.7% , Japanese Yen 2.9% , Pound Sterling 4.3% and others 3.0% 

In 2014 COFER consisted of US dollars 65.1% , Euro 21.2% , Japanese Yen 3.5% , Pound Sterling 3.7% and others 6.5% 

In 2019 COFER consisted of US dollars 61.8% , Euro 20.2% , Japanese Yen 5.3% , Pound Sterling 4.5% and others 8.2% 

So the world’s most powerful currencies reserves have been dominated by the US dollars, which also experienced a fall of 3.3% US dollars reserves kept by the banks since 2014.

But the largest decline kept in reserves has been the Euro which experienced a fall of 7.5% kept in reserves from its 2009 high. No doubt the Eurozone debt crisis, which started in 2009 when the world realized that Greece could default from its debt, which then escalated into fears of a sovereign debt default in Portugal, Italy, Ireland, and Spain all undermined the Euro.

Meanwhile, despite Brexit, the banks have been increasing their reserves of Pound Sterling, albeit by a tiny 1.8% since 2014.

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