A major currency is one that central banks hold in reserves, that dominates foreign exchange trading, and that is used to price global commodities. No single official list exists, but two institutions provide the most widely accepted classifications. The International Monetary Fund defines major reserve currencies through its Special Drawing Rights basket. The Bank for International Settlements ranks currencies by trading volume in its Triennial Central Bank Survey.
The most recent structural change to this system was the addition of the Chinese renminbi to the IMF's SDR basket on October 1, 2016. Since then, the hierarchy of major currencies has remained stable. The US dollar retains its dominant position as the world's primary reserve currency, a status it has held since the Bretton Woods Agreement of 1944.
What Defines a Major Currency
A major currency serves internationally as a medium of exchange for cross-border trade and a unit of account for pricing commodities such as oil and gold. It also functions as a store of value for central bank reserves. Currencies that fulfill all three roles are considered major reserve currencies. Those that fulfill only one or two, such as being heavily traded but not widely held in reserves, occupy a secondary tier.
The IMF's SDR basket is the most commonly cited official list of major reserve currencies. As of its last review, the basket includes the US dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling. These five are the only ones that the IMF considers sufficiently widely used and freely usable for inclusion. The BIS Triennial Survey, meanwhile, captures which currencies are most traded on forex markets. That list is broader and includes currencies such as the Swiss franc and commodity dollars that are heavily traded but not necessarily held in large reserve quantities.
The IMF Special Drawing Rights Basket
Origins and Purpose
The IMF created the Special Drawing Rights basket in 1969 to supplement member countries' official reserves. The basket is reweighted every five years based on two criteria: the value of exports of goods and services from the issuing country, and how freely the currency is used in international payments and traded in forex markets.
Why the Basket Matters
The SDR basket determines the value of the IMF's own reserve asset, the SDR, which is used for transactions between the IMF and its member states. Inclusion in the basket signals that a currency is considered a safe, liquid, and internationally accepted store of value. The US dollar has the largest weight, reflecting its dominant role in global reserves and trade. The euro, yen, pound, and renminbi make up the remainder. The exact weightings change with each quinquennial review, but the composition has remained at these five currencies since the renminbi was added.
The BIS Triennial Survey and Trading Volumes
What the Survey Measures
The Bank for International Settlements publishes its Triennial Central Bank Survey every three years, providing the definitive data on forex market turnover. The survey captures the daily trading volume of each currency against others, net of double counting. The US dollar is involved in the vast majority of all forex trades, appearing on one side of nearly every transaction.
Rankings Beyond the Dollar
The euro, Japanese yen, and British pound sterling are the next most traded currencies, followed by the Australian dollar, Canadian dollar, Swiss franc, and Chinese renminbi.
Activity Versus Holdings
The BIS list differs from the IMF list because it measures trading activity rather than reserve holdings. The Swiss franc, for example, is a major trading currency but is not in the SDR basket. The Chinese renminbi, by contrast, is in the SDR basket but its trading volume, while growing, still lags behind the traditional major currencies. The BIS survey is the source for precise market share percentages, though those figures change with each edition.
Why the US Dollar Dominates
The Bretton Woods Legacy
The US dollar became the world's dominant reserve currency at the Bretton Woods Conference in 1944, when allied nations pegged their currencies to the dollar and the dollar was convertible to gold at a fixed rate. That system collapsed in the early 1970s when President Nixon ended dollar gold convertibility, ushering in the floating exchange rate era. But the dollar's dominance did not decline. It persisted because the United States had the largest economy, the deepest and most liquid financial markets, and a stable political system.
Today's Dollar Footprint
Today, the dollar prices most global commodities, including oil, gold, and agricultural goods. Central banks hold roughly three fifths of their foreign exchange reserves in dollar denominated assets. The dollar is the primary currency for international debt issuance and cross border bank lending. No other currency comes close to matching the dollar's depth of use across all three functions of a major currency: medium of exchange, unit of account, and store of value.
The Euro, Yen, and Pound
The Euro
The euro was introduced as an accounting currency on January 1, 1999, and entered physical circulation on January 1, 2002. It is the second most held reserve currency and the second most traded currency in the world. The eurozone's combined economic output makes the euro a natural competitor to the dollar, but it lacks a single unified government bond market of comparable depth and liquidity, which limits its reserve appeal.
The Japanese Yen
The Japanese yen has traditionally been considered a major safe haven currency alongside the US dollar and Swiss franc. It is heavily traded in forex markets, particularly in carry trades where investors borrow yen at low interest rates to invest in higher yielding currencies.
The British Pound Sterling
The British pound sterling is the oldest currency still in use and was the world's dominant reserve currency before the US dollar. It remains a major trading currency, especially for forex and derivatives, though its share of global reserves has declined over time.
The Chinese Renminbi, Commodity Currencies, and the Swiss Franc
The Chinese Renminbi
The Chinese renminbi was added to the IMF SDR basket on October 1, 2016, a milestone in China's efforts to internationalize its currency. Inclusion meant that the IMF deemed the renminbi freely usable, though in practice China still maintains capital controls and manages its exchange rate. The renminbi is increasingly used in trade settlement and bilateral swap lines, but its share of global reserves and trading volume remains small relative to the dollar and euro.
Commodity Currencies
The Canadian dollar, Australian dollar, and New Zealand dollar are classified as commodity currencies because their values correlate with the prices of natural resources their economies export. They are heavily traded in forex markets, especially against the US dollar and yen, but are not held in significant quantities as central bank reserves.
The Swiss Franc
The Swiss franc, issued by the Swiss National Bank, is widely considered a safe haven asset due to Switzerland's political neutrality and fiscal stability. It is heavily traded but, like the commodity currencies, does not qualify for SDR inclusion.
