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This article delves into the Top 10 Strongest Currencies in the World 2023 by assessing their strength through their exchange rates with the U.S. dollar (USD). It also delves into the factors influencing their strength.
What Is Currency Strength?
Currency strength refers to a currency’s relative purchasing power compared to other currencies.
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The U.S. dollar was selected as the benchmark due to its position as the primary global reserve currency. According to the Triennial Central Bank Survey by the Bank for International Settlements (BIS), the U.S. dollar was involved in 88% of all foreign exchange (forex) trades conducted from 2019 to 2022.
What Constitutes Currency Strength?
Several factors influence the strength of a currency, including inflation rates, political stability, and economic prospects.
Here, we concentrate on the three primary determinants of foreign exchange rates, encompassing other relevant factors.
Trade Terms
Trade terms refer to the ratio of a nation’s export prices to import prices. Typically, an increase in a nation’s trade terms leads to a strengthening of its currency, while a decrease results in a depreciation of the exchange rate.
Consider a country like Australia, which primarily exports commodities. A surge in demand for its main export, such as iron ore, due to booming property markets in Asia, leads to a situation where the value of Australia’s exports significantly surpasses the value of its imports.
This influx of capital into Australia fosters a positive economic outlook for the nation. Consequently, the Australian dollar experiences heightened demand from money market investors and traders, leading to its appreciation.
Commodity prices significantly impact trade terms.
Interest Rate Disparities
Central banks’ interest rate policies impact currency demand, thereby affecting forex rates.
However, it’s the variance in interest rates between different economies, known as interest rate differentials, that dictates the flow of capital. For instance, if interest rates decrease in India while other global economies raise their rates, investments in Indian assets become less appealing to investors. Investors opt to sell Indian assets in favor of alternative sovereign assets that offer higher returns.
Interest rates are influenced by multiple factors, with inflation rates being a chief determinant. Higher inflation rates in a nation usually prompt its central bank to raise interest rates.
Capital Regulation
Central banks exert significant influence over a currency’s performance. Some central banks exercise greater control over forex rates than others. For instance, the Bank of Japan is known for actively intervening in the forex market to maintain a favorable exchange rate for its trade.
Governments in Middle Eastern countries like Kuwait peg their currencies to the U.S. dollar or a basket of global currencies, imposing strict regulations on foreign exchange to minimize currency speculation and volatility.
Top 10 Strongest Currencies in the World 2023
10. Brunei Dollar (BND)
Brunei’s currency, the Brunei dollar (BND), ranked tenth on the list of the world’s strongest currencies in 2023. As of October 2023, the BND/USD exchange rate was 0.72.
Brunei, a high-income nation in Southeast Asia, recorded exports of $11.3 billion in 2021 compared to imports of $7.93 billion. At the time of writing, BND/USD rates had declined approximately 2.3% year-to-date in 2023.
9. Singapore Dollar (SGD)
The Singapore dollar (SGD) was the first Southeast Asian currency on the list. The SGD/USD rate was 0.72 as of October 2023.
Singapore, known for its business-friendly regulations, is a high-income economy with exports totaling $351 billion in 2021 and imports of $362 billion. As of the time of writing, SGD/USD rates had fallen about 2.3% year-to-date in 2023.
8. Euro (EUR)
The Euro (EUR) ranked eighth among the world’s strongest currencies in the strongest currencies in the world 2023 list. EUR/USD rates were at 1.05 as of October 2023.
Introduced in 1999, the Euro is used in all European Union states except Denmark. Between 2019 and 2022, EUR was the second most traded currency globally, as per BIS. Currently, EUR/USD rates have decreased by nearly 2% year-to-date in 2023.
7. Swiss Franc (CHF)
The Swiss Franc (CHF) ranked as the seventh most valuable currency against the USD in the strongest currencies in the world 2023. The CHF/USD rate was 1.11 as of October 2023.
Switzerland’s dominance in the financial services sector makes the Swiss Franc highly desirable. With exports worth $371 billion and imports of $328 billion in 2021, Switzerland is home to one of the world’s largest private banks, UBS Bank. CHF/USD rates had gained 2.8% year-to-date in 2023 at the time of writing.
6. Cayman Islands Dollar (KYD)
The Cayman Islands dollar (KYD) followed, with a KYD/USD rate of 1.2 as of October 2023.
The Cayman Islands, a self-governing British Overseas Territory in the Caribbean Sea, maintained a stable exchange rate against the U.S. dollar throughout 2023.
5. British Pound (GBP)
The British Pound (GBP) broke the Middle East’s dominance on the list of the Strongest Currencies in the World 2023. As of October 2023, GBP/USD stood at 1.209.
The GBP remained highly liquid, with only the U.S. dollar, Euro, and Japanese Yen surpassing it in forex markets between 2019 and 2022. The UK’s exports were valued at $420 billion in 2021, with imports totaling $681 billion. At the time of writing, GBP/USD rates remained relatively stable in 2023, although GBP did reach a high of 1.314 during the year.
4. Jordan Dinar (JOD)
The Jordan dinar (JOD) claimed the fourth spot among the world’s strongest currencies in the Strongest Currencies in the World 2023. As of October 2023, the JOD/USD rate was 1.4.
Jordan’s primary export, fertilizers, set it apart from its neighbors. In 2021, Jordan recorded exports of $12 billion compared to imports of $24.6 billion. Throughout 2023, the Jordan Dinar remained relatively steady against the U.S. dollar.
3. Omani Rial (OMR)
Oman’s national currency, the Omani rial (OMR), ranked third among the world’s strongest currencies in the Strongest Currencies in the World 2023. The OMR/USD stood at 2.59 as of October 2023.
Oman’s chief export, crude products, played a significant role in its economy. In 2021, Oman’s exports amounted to $56.9 billion, while imports were valued at $34 billion. OMR/USD exchange rates remained stable throughout 2023.
2. Bahrain Dinar (BHD)
The Bahrain dinar (BHD) secured the second-highest position against the U.S. dollar in 2023 in the Strongest Currencies in the World 2023. As of October 2023, the BHD/USD rate was 2.65.
Similar to Kuwait, Bahrain’s primary exports included petroleum products. Additionally, the Middle Eastern nation exported aluminum and iron ore. In 2021, Bahrain recorded exports of $15 billion and imports of $15.5 billion. BHD/USD exchange rates remained steady throughout 2023.
1. Kuwaiti Dinar (KWD)
The Kuwaiti dinar (KWD) claimed the top spot as the most valuable currency against the U.S. dollar in the Strongest Currencies in the World 2023. The KWD/USD rate was 3.23 as of October 2023.
Kuwait’s wealth primarily derives from crude oil exports, with exports valued at $58.2 billion in 2021 compared to imports of $33.8 billion. KWD/USD remained relatively stable, experiencing a slight decline of 1.3% at the time of writing in 2023.
NOTE
In conclusion, it’s crucial to understand that this compilation of the strongest currencies in the world 2023 ranks currencies based on their strong exchange rates against the U.S. dollar. Nonetheless, it’s important to recognize that a high valuation alone doesn’t necessarily make a currency widely favored by investors. Some of the currencies listed in the Strongest Currencies in the World 2023, may not enjoy popularity among investors due to the stringent capital controls and government regulations they are subject to.
