what are the Five Types of Currencies in the World?
There are numerous currencies across the globe. In fact, the number of official national currencies goes up to about 189 currencies. But all these currencies also have different types of categorization apart from the fact that they are often categorized according to their official jurisdictional area of use, which is often a nation or region. Currencies can be classified based on their characteristics in the currency market or according to the economic characteristics of the nations in which these currencies are used. Read on to understand five of the most common currency types.
The term commodity currency denotes any type of a currency from a nation whose economy mainly relies on the export of commodities. The currencies of such nations are known as commodity currencies because their currencies have a close relation between the currency’s value and the value and amount of exports that they make to other nations. The commodities referred to in this case include items of high demand and value across most nations such as coal, oil, and grains. These are items that are either harvested or produced, but not manufactured. Examples of commodity currencies include the Canadian Dollar, The Norwegian Krone, and the Australian dollar.
In the recent past, the prices of crude oil and petroleum products have declined significantly. The decline has negatively affected economies that heavily rely on the export of oil, gas, and petroleum products. Such declines or appreciations in value significantly affect the exchange rate of currencies and their values in nations that whose budgets heavily rely on oil revenue. The currencies of such nations are thus known as Petro-currencies because of the economic link for their value and exchange rates to the production, trade, export, and pricing of oil. Examples of Petro-currencies include the Russian Ruble, The Norwegian Krone, the Columbian Peso, and the Canadian dollar.
Reserve currencies are currencies, which are widely used in international trade and the settling of debts and evaluation of value. Mostly, these are currencies with a high value and great stability. Most governments hold reserve currencies in their central bank reserves to facilitate high-level international business transactions. The US dollar and the Euro are the two most held reserve currencies in the world at the moment.
The Euro is a regional currency, which is used in the wider region of Europe by many European nations. It is also a unique currency because it is used across borders of nations in a wide region consisting of many nations with a financial tie. The Euro is thus known as a regional currency because it is used in a wide regional area consisting of many nations.
High and Low Yield Currencies
Low yield currencies are the types of currencies that are characterized by low-interest rates whereas; the high yield currencies have high rates of interest. In global foreign currency trading, traders often take credit in low yield currencies and use the loans to purchase high yield currencies in anticipation for a rise in rates and a final sell at a profit. Such loans are often exchanged to the low yield currencies and the change retained as profit after some time.