Currencies punching above their weight

I recently enjoyed lunch with a group of former colleagues. At one point, the conversation turned to the Australian dollar, a natural enough topic for a bunch of finance types. Someone observed that the Aussie is the 5th most actively traded currency in the world, which is impressive since Australia is certainly not the 5th largest economy in the world (that honour currently goes to France).

Thinking about Australian dollar punching above its weight led me to wonder which country had the most actively traded currency relative to the size of its economy. A quick vote around the lunch table came up with four candidates: the Australian dollar, the New Zealand dollar (which is much beloved by hedge funds), the Swiss franc and the Norwegian krone. The most popular choice among these was the Australian dollar. I was wavering between the New Zealand dollar and the Norwegian krone, but none of us knew the answer. That meant only one thing: a Stubborn Mule post would ensue to settle the bet.

Starting with turnover in the chart below, it is no surprise that the US dollar is by far the most actively traded currency. Not only is the United States the largest economy in the world, but an enormous amount of international trade is conducted in US dollars, and sellers and buyers have to transact in the currency markets to convert US dollars to and from their local currency.

Currency Turnover League Table

Top 10 Currencies by Turnover (2010)

There are a number of reasons the Australian dollar is traded as much as it is. Our higher interest rates attract many into the carry trade (borrowing in low interest rate currencies, investing in higher interest rate currencies and hoping that the currency you are buying does not collapse). As a very commodity-driven country, many international investors see investing in Australia as a proxy for investing in commodities and, more particularly, jumping onto the China growth band-wagon. For many investors, simply buying the Australian dollar is cheaper and easier than investing in our stock-market.

But back to our bet. Only one of the assembled diners picked the Swiss franc, but it turns out to be at the top of the league table. With a GDP in 2010 of US$500 billion, there was average of $253 billion traded in Swiss francs every day in April 2010!

I have never made a close study of the Swiss franc, so I would be very interested in hearing any theories people may have as to why it is so heavily traded.

Next in the list is New Zealand, so my instincts were right there (let’s not mention the fact that I also tipped the Norwegian krone which came in a disappointing 11th place). Interestingly, third and fourth place, the Hong Kong and Singapore dollar respectively, did not even make it into our short list. And it turns out that the Australian dollar ranks 5th not only in terms of outright turnover, but also in turnover relative to economy size.

Currency Turnover/GDP League Table

Top 10 Currencies by Daily Turnover relative to Annual GDP (2010)

If you are interested in exploring the league table further, the table below has all of the data.

CurrencyDaily Turnover (US$)Annual GDP (US$)Turnover/GDP (%)
Swiss franc253500.350.6
New Zealand dollar63128.449.1
Hong Kong dollar94215.443.6
Singapore dollar56181.930.8
Australian dollar302101329.8
US dollar33781444023.4
Pound sterling513268019.1
Swedish krona8747918.2
Japanese yen755491115.4
Canadian dollar210150014
Norwegian krone53451.811.7
Hungarian forint17155.910.9
South African rand29276.810.5
Danish krone233406.8
Korean won60929.16.5
Polish zloty32527.96.1
Malaysian ringgit11221.65
New Taiwan dollar19391.44.9
Mexican peso5010884.6
Philipine peso7166.94.2
Turkish new lira297304
Chilean peso7169.54.1
Czech koruna8216.43.7
Indian rupee3812073.1
Israeli new shekel6202.13
Thai baht8273.32.9
Russian Rouble3616772.1
Brazilian real2715731.7
Colombian peso4240.81.7
Indonesian rupiah6511.81.2
Chinese renminbi3443270.8
Saudi Riyal2469.40.4
Other currencies 190NANA


Data sources
Currency turnover: Bank for International Settlements (BIS)
GDP: CIA World Fact Book (official exchange rates)

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12 thoughts on “Currencies punching above their weight

  1. Dan

    this wasn’t an exercise to settle a bet, it was a an exercise by mule to show off his tabling skills.

  2. Ramanan

    I have never made a close study of the Swiss franc, so I would be very interested in hearing any theories people may have as to why it is so heavily traded.

    Sean, isn’t this because, the Swiss National Bank, their central bank used to peg the Franc to Gold till about 1999 ?

    Not sure of “peg” , maybe “linked” is the better world ?

  3. Ramanan


    The Swiss Franc seems to have some association with Gold and I haven’t yet been able to track this down exactly. The 2000 annual report talks of a law which “severs” the link between the Franc and Gold.

    talks of flight to safety to the Franc based on three factors – low inflation, low public debt/gdp ratio and a twin surplus! – I didn’t write the article ;-)

  4. Mark L

    The Economist’s Buttonwood has more to say on the same theme:

    However, these are mostly (temporally fixed) arguments for the rise in the value of the Swiss Franc rather than the relative size of its trading volumes. The latter is connected to the Swiss Franc’s status as a safe haven, and the small, open, finance-heavy nature of the Swiss economy.

    As always, nice work, Mule.

    Mark L

  5. Ramanan

    I think you can find it in the Swiss National Banks’ annual reports from their website. I checked a few reports, but don’t remember what I read now.

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