Currency Strength: Overview
The U.S. dollar (USD) holds a unique position as the world’s reserve currency, a status earned by the economic and political dominance of the United States over the past decades and the dollar’s widespread use in global trade and finance.
As the reserve currency, the U.S. dollar is held in significant quantities by central banks around the world. It serves as the primary currency for international transactions and as a safe asset during times of economic uncertainty.
Despite the U.S. dollar’s central role, some countries have currencies that are valued at more than one U.S. dollar per unit. For example, the Swiss franc (CHF), Kuwaiti dinar (KWD), and Bahraini dinar (BHD) fall in this category. This higher nominal exchange rate means that it takes more than one U.S. dollar to equal one unit of these currencies.
However, a higher exchange rate does not necessarily indicate a stronger or more influential economy. Instead, it often reflects specific monetary policies, such as pegging the currency to the U.S. dollar at a fixed rate, or economic factors like limited currency circulation and high demand due to substantial natural resource exports (often oil).
In essence, while these currencies have a higher face value against the U.S. dollar, the underlying economic implications are more nuanced and relate to each country’s unique economic structure and monetary policy.
Below, we look at what factors may contribute to a currency’s strength and then list the most valuable currencies in terms of their USD exchange rate.
Key Takeaways
- The U.S. dollar is the world’s reserve currency, but there are some currencies that are stronger per their exchange rate.
- In other words, $1 is worth less than 1 unit of foreign currency in some countries.
- A more valuable foreign currency exchange rate does not necessarily mean that the foreign economy is larger or stronger.
- Currencies of stable Middle-Eastern countries that are pegged to the U.S. dollar are among the most valuable in the world.
What Makes a Currency Strong?
The value of a currency in the FX market can be influenced by various factors that may cause it to increase or decrease in value.
Some key factors include:
- Interest rates: If a country’s central bank raises interest rates, that country’s currency becomes more attractive because investors can earn more on their investments within that country. As demand for the currency increases, so does its value.
- Inflation rates: A country with lower inflation rates compared to others will see its currency appreciate. A lower inflation rate implies an increase in the purchasing power of the currency, which investors would find attractive.
- Economic performance: If a country’s economy is doing well, with strong growth and high productivity, its currency is likely to appreciate. Contrarily, if the economy is in a recession, the currency is likely to depreciate.
- Political stability: Countries that are stable, secure, and politically peaceful with transparent legal systems are considered safer investments, leading to currency appreciation.
- Natural resources: Countries with valuable natural resources (and which are often denominated in U.S. dollars), such as oil and gas, may have stronger currencies due to increased demand for their exports, leading to dollar surpluses.
- Balance of trade: This refers to the difference between a country’s exports and imports. If a country exports more than it imports, leading to a trade surplus, its currency is expected to appreciate due to a higher demand from foreign entities purchasing its goods and services.
- Public debt: Countries with high levels of public debt (high debt-to-GDP) appear to be less attractive to foreign investors due to the high risk of default and the possibility of inflation. This can cause the currency to depreciate.
- Speculative potential: If traders believe a currency will move in a certain direction, they will trade accordingly and may cause the currency’s value to go up or down.
- Proactive central banks: Central banks can intervene in the foreign exchange market to try to stabilize or devalue their currencies. They can do this by buying or selling their own currency or foreign currencies.
- Pegged exchange rate: Countries with currencies pegged to the USD are often strong because the stability of the dollar provides economic predictability, fosters investor confidence, and reduces currency risk in international trade. This can help stabilize inflation and attract foreign investment, enhancing economic resilience.
These factors work together to influence the supply and demand for a currency in the foreign exchange market, ultimately determining its strength relative to other currencies.
It should be noted that currencies are traded in pairs, and their values are relative. So, a currency goes up or down when compared to another currency. For instance, if the U.S. dollar depreciates against the Swiss Franc, it means that one U.S. dollar can buy fewer Swiss francs than before.
Calculating Currency Exchange Rates
An exchange rate is the value of one country’s currency in relation to another currency. For example, if the USD/CHF exchange rate is 1.17, it means that 1 Swiss franc is worth $1.17 U.S. dollars. In other words, an exchange rate is the rate at which one currency can be exchanged for another.
There are two basic types of exchange rates: a fixed exchange rate and a floating exchange rate.
- A fixed exchange rate is set and maintained by a country’s government or central bank. The rate is pegged to some value, such as gold or another currency, such as the U.S. dollar. This system aims to keep the value of a country’s currency stable.
- A floating exchange rate is determined by the foreign exchange market through supply and demand. Floating exchange rates fluctuate based on economic factors such as inflation, interest rates, and geopolitical events. These factors will increase or decrease the supply and demand for a particular country’s currency and thus influence the exchange rate.
These Are the Strongest Currencies in the World
The table below lists the five strongest currencies in the world against the U.S. dollar, reflecting exchange rates as of Oct. 11, 2024.
Interest rate, GDP per capita, and unemployment figures below reflect annual data through 2023.
| 5 Strongest Currencies as of October 2024 | ||
|---|---|---|
| Name | Symbol | $USD Exchange Rate |
| Kuwaiti Dinar | KWD | 3.26 |
| Bahraini Dinar | BHD | 2.65 |
| Omani Rial | OMR | 2.60 |
| Jordanian Dinar | JOD | 1.41 |
| British Pound | GBP | 1.31 |
1. Kuwaiti Dinar: 1 KWD = $3.26
- Interest rate: 4.0%
- GDP per capita: $27,100
- Unemployment: 2.1%
The Kuwaiti dinar (KWD) to USD exchange rate has fluctuated between $3.10 to $3.30 over the past several years, and exchanges for $3.26 as of Oct. 11, 2024.
Kuwait’s economy continues to be heavily reliant on oil and energy exports, which account for a significant portion of its GDP and government revenue.
The country’s strategic management of its oil wealth through its sovereign wealth fund, the Kuwait Investment Authority (KIA), has contributed to the dinar’s sustained strength. The Central Bank of Kuwait also implemented policy rate hikes to contain inflation and maintain financial stability, which have stabilized the dinar’s value.
The country’s approach to fiscal policy, monetary policy, and structural reforms, as well as its response to global decarbonization trends, could play a role in future movements of the Kuwaiti dinar.
2. Bahraini Dinar: 1 BHD = $2.65
- Interest rate: 6.0%
- GDP per capita: $24,750
- Unemployment: 5.0%
The Bahraini dinar (BHD) is officially pegged to the U.S. dollar at a rate of 2.659:1, but can fluctuate in a narrow band, with an average exchange rate of around $2.63 over the past several years.
Bahrain’s high-income economy is diversified, with a strong focus on banking, financial services, and tourism sectors in addition to its oil and gas exports. The country’s ongoing economic reforms and its status as a regional financial hub have continued to attract international capital, supporting the dinar’s high value
Given the strong economic performance and fiscal stability, it is likely that Bahrain’s peg will remain for the foreseeable future.
3. Omani Rial: 1 OMR = $2.60
- Interest rate: 5.5%
- GDP per capita: $18,800
- Unemployment: 1.5%
Oman is another oil-rich country that pegs its currency to the U.S. dollar at a fixed exchange rate (1 OMR to 2.60 USD). The Omani rial (OMR) has maintained its value against the dollar due to Oman’s oil production and its historically tight monetary policy and financial restrictions.
Oman’s economy, while still heavily dependent on oil and gas exports, has been diversifying through its Vision 2040 program.
Its political stability, coupled with the country’s efforts in developing non-oil sectors such as tourism, logistics, and manufacturing have contributed to economic growth. The rial’s strength is also supported by Oman’s prudent fiscal policies and its strategic location for global trade.
Most major capitalist countries pegged their currencies to the U.S. dollar under the Bretton Woods System in the mid-20th century. Subsequently, many changed to a market-driven floating exchange rate. By the early 21st century, most nations in the Caribbean and the Middle East still tied their exchange rates to the U.S. dollar while the rest of the world floated freely.
4. Jordanian Dinar: 1 JOD = $1.41
- Interest rate: 7.5%
- GDP per capita: $4,000
- Unemployment: 21.4%
The Jordanian dinar (JOD) is the currency of Jordan, another Middle Eastern country that pegs its currency to the U.S. dollar, at a rate of 1.41:1.
Despite limited natural resources, Jordan has developed a relatively stable economy by focusing on services, tourism, and emerging as a knowledge economy.
The country’s strategic location and political stability in a volatile region have attracted foreign investment. Jordan’s monetary policy, including the dinar’s peg to the U.S. dollar, has helped maintain currency stability and strength.
5. British Pound: 1 GBP = $1.31
- Interest rate: 5.0%
- GDP per capita: $47,000
- Unemployment: 4.1%
The British pound (GBP) rounds out the top five strongest currencies. As one of the world’s oldest currencies still in use, the pound’s strength reflects the UK’s position as the sixth-largest economy globally.
Despite challenges such as Brexit and global economic uncertainties, the UK’s diverse economy, strong financial sector, and the pound’s status as a major reserve currency have helped maintain its value. The Bank of England’s monetary policies and the country’s economic fundamentals continue to support the pound’s strength in the global currency market.
What Affects a Currency Exchange Rate?
Broadly speaking, the exchange rate for countries with free floating currencies is usually affected by the strength of a country’s economy. In addition, though, exchange rates are relative, meaning they depend on the country they’re being compared with at any given time. Economic conditions and policies concerning inflation, interest rates, and debt, for example, can affect the exchange rate.
What Is the Exchange Rate for the Canadian Dollar and U.S. Dollar?
As of Oct. 11, 2024, one Canadian dollar (CAD) would get you about 0.73 U.S. dollars, making it weaker than the USD. Looking at it the other way around, if you traveled to Canada and needed some local currency, you’d be able to get 1.38 Canadian dollars for just 1 U.S. dollar.
What Is the Most Powerful Currency in the World?
The U.S. dollar arguably is considered to be the most powerful or strongest currency in the world. There are a variety of reasons for this. The U.S. economy and government are consistently stable and strong. The U.S. dollar makes up the majority of the world’s currency reserves. It’s a trusted currency and is accepted across the globe.
That said, if we are talking about the currency with the best exchange rate against the U.S. dollar, the Kuwaiti dinar holds the top place at $3.26 per KWD.
What Is a Commodity Currency?
A commodity currency refers to the currency of a country whose money is intrinsically linked to a valuable commodity like gold or silver. Since the late 1970s, however, nearly all countries have moved to a fiat currency system that is not directly connected to the value of a metal.
Today, a commodity currency may instead refer to the currency belonging to an economy that depends heavily on the export of certain raw materials or commodities. The value of a commodity currency is closely linked with the price of the particular commodity. Some examples of a commodity currency include the Canadian dollar, the Australian dollar (AUD), and the New Zealand dollar (NZD).
What Is the Impact of Having a Strong Currency?
A strong currency can make imports cheaper, reducing the cost of goods and services for consumers, but it can also make exports more expensive, potentially hurting domestic industries that rely on selling goods abroad. Additionally, a strong currency may attract foreign investment due to the stability and purchasing power it represents, though it can also lead to slower economic growth if exports decline significantly.
The Bottom Line
As of Oct. 11, 2024, the world’s strongest currencies against the U.S. dollar are the Kuwaiti dinar, Bahraini dinar, Omani rial, Jordanian dinar, and British pound.
These currencies surpass the U.S. dollar in value due to factors like strong economic performance, low inflation rates, high interest rates, political stability, and, in some cases, pegged exchange rates to the dollar.
Understanding what makes a currency strong—such as the balance of trade, public debt, natural resources, and proactive central bank policies—provides valuable insights into global economic dynamics and the relative value of different currencies.
