Fiat Currency Statistics — How It Works, The Strongest Currencies, and How It Differs from Crypto
Fiat has been the default currency model for less than a century, yet it shapes international trade, investment, and national financial strategies.This concept is clearly worth our attention, and these fiat currency statistics and facts are a great place tostart learningthe basics.
In this guide, you'll learn all about what it is, why it is, and how it relates to other concepts like reserve money and cryptocurrency. We'll also go over the oldest, most widely used, and most valuable fiat currencies today to better understand the international financial landscape.
Let's get started.
In This Guide- Key Fiat Currency Statistics for 2024
- What Is Fiat Currency and How Does It Work?
- Where Fiat Stands Today
- In Conclusion
- References
- Key Fiat Currency Statistics for 2024
- What Is Fiat Currency and How Does It Work?
- Where Fiat Stands Today
- In Conclusion
- References
Before we kick things off and start getting technical, we thought it would be best to list some of the more complex currency-based jargon that you might see. To help, we've created a useful glossary below of the more advanced terms you might see scattered throughout.
New to fiat terms? Check this glossary.
Key Fiat Currency Statistics for 2024Commodity A raw material or economic good that can be traded, bought, or sold, like gold, silver, or oil. Fiat A currency that's issued and backed by a government and which doesn't have its value tied to a commodity like gold. Floating currency A currency with a fluctuating value in relation to other currencies. Its value is determined by supply and demand in the foreign exchange market. Forex Short for foreign exchange market.' The largest financial market in the world and the place where currencies are traded. Gold standard A financial system where a currency is backed by gold. Under this system, one unit of a given currency is worth a certain amount of gold. Inflation A long-term increase in the price of goods and services relative to the purchasing power of a currency. Legal tender Any currency mandated by law is to be accepted as a payment for debt and other financial obligations. Liquidity How quickly a currency (or asset) can be bought or sold without affecting its price. M0 The most liquid form of money. It includes all the physical currency in circulation and in central bank reserves. M1 Includes M0, plus all the money in demand deposits, saving deposits, and other cash deposits held by central banks. M2 Includes M0, M1, and other deposits easily convertible into cash, including more long-term deposits like CDs. Pegged currency A currency whose trading value is fixed to another currency. The opposite of a floating currency. Reserve currency A strong foreign currency is held in a central bank's foreign exchange reserves. Strong currency A currency that has a higher trading value relative to other currencies. Currency supply The total amount of currency in circulation. Supply and demand An economic model where the price of goods and services is determined by the supply (total quantity available) relative to the consumer's desire to buy it (demand). SWIFT Short for Society for Worldwide Interbank Financial Telecommunication.' It's a world-leading network that ensures secure and standardized financial transactions. Trade pairs A pair of two currencies used in forex trading. EUR/USD is a trading pair in which euros are used to buy dollars. USDX The U.S. Dollar Index is a system in which the strength of foreign currencies is ranked in relation to the value of the USD. Weak currency A currency that has a lower value compared to others. The Chinese yuan is weaker than the US dollar because $1 can buy 7. - The British pound is the world's oldest fiat currency. It emerged in 1931, so it's nearly 100 years old.
- All of the world's 180 currencies today are fiat.
- Most fiat currencies are floating, but at least 66 out of 180 are pegged to the US dollar, and 11 are pegged to the euro.
- The M0 fiat supply across the world's 40 biggest economies is worth an estimated $8.3 trillion as of 2021. The US M0 supply is $5.65 as of July 2024.
- The global M2 supply is an estimated $82.6 trillion as of 2022.
- The US dollar is the most widely used and traded currency. It makes up 54.79% of the global foreign exchange reserve and 44.15% of all international trade.
- The USD makes 9 out of 10 most traded Forex pairs.
- The most traded fiat pair in the world is EUR/USD, accounting for 24% of daily trades.
- The USD, EUR, JPY, and GBP combined make up 75% of all trades and nearly 83% of global reserves.
- The Kuwaiti dinar is the strongest currency in the world, with 1 KWD being worth 3.27 USD.
- The Iranian rial is the weakest fiat currency; 1 IRR is worth a mere 0.000024 USD in 2024.
'Fiat currency' is any government-issued currency-typically in the form of banknotes and coins-that's not backed by an asset or commodity like gold or silver.Because fiat money isn't backed by any tangible asset, it has no intrinsic value. Instead, its value is determined by a few external factors, namely:
- Government backing through legal tender laws, which ensure ongoing demand
- Public confidence and widespread currency use
- Monetary policies and their impact on currency supply, interest rates, and inflation
- The country's economic performance and foreign exchange reserves
Virtually all national currencies today are fiat currencies. Examples include the US dollar, the euro, the British pound, and other major currencies worldwide.
A country's central bank controls the national fiat currency and can increase or decrease the supply, for example, by printing more money or through open market operations.
On the opposite end of fiat money, we have commodity currencies and asset-backed currencies, also known as representative money.' Here's how they differ:
Commodity currencies'Commodity currency' refers to any commodity that's also used as a means of trade. Think of silver or golden coins used during the Middle Ages.
The coins' value came from the precious metals themselves, as well as their demand and use for buying products. Keep in mind no country uses commodity money today.
Asset-backed currenciesThese are between fiat and commodity currencies. They're typically issued as banknotes and coins, but unlike fiat currency, they hold intrinsic value because they're backed by a real commodity or asset, like gold.
Because such currencies act as stand-ins for an asset, holders can redeem them for a quantity of said asset held in the country's national reserve.
An example of an asset-backed currency is the gold-backed US dollar used before WW2, before the country ceased the gold standard.
Nowadays, no country uses the gold standard anymore, although all countries hold ample quantities of gold in their national reserves.
However, BRICS recently announced an ambitious (if not overly optimistic) proposal to launch a new gold-backed currency set to challenge the US dollar.
Because of how fiat works, it has a few considerable advantages but also some notable drawbacks.
Pros and Cons of Fiat CurrenciesLike most things in life, there are some obvious pros and cons; and the same very much applies to fiat currencies. We've listed a few of the key strengths and weaknesses of the globally accepted system below.
Pros- Cost-effective to produce and replace
- Greater control over currency supply
- More flexibility in monetary policies
- Less stable than asset-backed currencies long term
- Higher risk of inflation
Unlike asset-backed alternatives, fiat currencies don't depend on the available amount of a given commodity. This allows for greater freedom in manipulating currency supply, for example, by printing more money when needed.
In turn, this leads to more flexible monetary policies to stimulate the economy. For example, increasing the currency supply to combat deflation or using flexible interest rate policies to encourage borrowing and spending.
This flexibility can be a double-edged sword, though.
Asset-backed currencies are generally more stable long-term because of the limited supply of commodities like gold. This acts as an anti-inflation failsafe. Fiat money, however, is more susceptible to inflation and tends to lose its value over time.
Inflation occurs when a country's central bank prints too much currency, but the economy doesn't grow to match the increasing money supply. As a result, people have more money, but the currency is worth less in terms of buying power.
When and How Fiat Currency EmergedUp until the early 20th century, most countries used paper money backed by precious metals like silver or gold.
The last example of a gold standard in use comes from 1944 when the Bretton Woods System was created to prevent competitive devaluation and trade wars seen during the Great Depression. This move would also fuel economic growth and recovery in Europe and the US after WW2.Under this system, the US dollar was pegged to gold at a fixed exchange rate of $35 an ounce, while other currencies were pegged to the dollar.
The US was to maintain a fixed price for gold and adjust the dollar supply accordingly. However, the foreign-held dollars eventually surpassed the value of the US gold stock.
Since the gold supply couldn't keep up with the rapidly expanding global economy, this posed a threat to global markets and commerce. This issue also weakened international confidence in the dollar's convertibility to gold.
To combat these growing problems, President Richard Nixon put forward the Nixon shock' - a 1971 economic policy that ended the Bretton Woods system and gold-backed currencies.
By mid-1973, the world had fully switched to fiat currencies. And that's where we are today.
Difference Between Fiat, Tender, and Reserve CurrencyThe US dollar and other major global currencies are simultaneously fiat currencies, legal tenders, and reserve currencies. Confused? Here's what each term means:
Fiat CurrencyLegal TenderReserve CurrencyA fiat currency is any currency backed by a government and not by a commodity or asset like gold. Examples include the US dollar and the British pound.
Because it's not tied to any tangible asset, fiat has no value in and of itself. Its value comes from the public's trust and willingness to use the currency as a means of exchange.
Government backing and public trust are both related to the concept of legal tender.' First, a currency has government backing when it's officially declared legal tender. Second, when a currency is legal tender, this fuels public demand and widespread use.
Legal tender refers to any form of payment validated by law for settling a legal debt or financial obligation. If a currency is made legal tender in a country, this means it must be widely accepted as a means of exchange.
A country's national currency is also its legal tender. For example, the US dollar is legal tender in the USA and the Japanese Yen is legal tender in Japan.
Declaring a currency as legal tender gives the country's central bank control over the money supply, but not always.
For example, Ecuador and El Salvador substituted their national currencies when they adopted the US dollar as legal tender. However, their central banks don't print the currency.
A reserve currency is a strong foreign currency widely used in international trade and part of a central bank's foreign exchange reserves in a given country.
Holding reserve currencies is useful for international trade, stabilizing exchange rates, and managing foreign debts.
The British pound became the first fiat reserve currency in 1931 and was the dominant international currency until the US dollar gained prominence following WW2 and the Bretton Woods system. Since 1971, the US dollar has been the #1 fiat reserve currency worldwide.
Because all currencies today are fiat, reserve currencies are also fiat and, therefore, at risk of devaluation following major political events.
For example, if the country behind the reserve currency defaults, this can weaken international confidence in said currency, leading to inflation and global economic instability.
Difference Between Fiat and CryptocurrencyThe widespread use of fiat currency is less than a century old. Cryptography's history is even newer, having only emerged in 2009 after the creation of Bitcoin (BTC), the first cryptocurrency.
Since then, crypto awareness and adoption have been increasing every year amid ever-evolving global cryptocurrency regulations.
The world's financial landscape is changing rapidly, so it's important to understand the similarities and differences between these essential concepts.
Fiat Currencies Cryptocurrencies Not backed by assets Typically not backed by assets Has no intrinsic value Has no intrinsic value Value is based on public trust, supply and demand, and economic stability Value is based on supply and demand and market sentiment Can exist in physical or digital form Is exclusively digital Full control over the currency supply Fixed supply with no option to create more coins after a currency hits the blockchain Issued and regulated by a country's government Fully decentralized and not subject to a regulating authority Recognized as legal tender Not recognized as legal tender (with some exceptions) Quite stable, especially in the short-term Highly volatile with potential 10% daily swings for major cryptos like BTC Widely accepted for all types of transactions Limited acceptance and use in traditional settings; Typically seen as speculative investments, a store of value, or a means of exchange for crypto projects like games In a nutshell, neither fiat nor crypto are backed by assets, so they have no inherent value. However, fiat currencies are backed and controlled by the government, while cryptocurrencies are generally decentralized and not recognized as legal tender (more on this later).
Unlike fiat, crypto has a limited supply, much like traditional commodities. While this makes crypto inflation-resistant in theory, cryptocurrencies are very sensitive to market sentiment and prone to large price fluctuations.
For these reasons, crypto is not widely accepted and used as a means of exchange.
We're just scratching the surface, though. Crypto is not so clear-cut, as you'll find exceptions to most of these rules.' For example:
- Some cryptocurrencies are supposedly backed by commodities (like PAXG and XAUT, two gold-backed cryptocurrencies).
- Not all cryptos fluctuate radically. Stablecoins have their value pegged to another asset or currency (typically fiat) to prevent this. Tether (USDT) is pegged 1:1 to the US dollar, for example.
- BTC already serves as a legal tender in two countries. In 2021, El Salvador became the first nation to approve crypto as legal tender, followed by the Central African Republic in 2022.
- Some cryptocurrencies are rapidly gaining acceptance and adoption. According to Bitdegree, over 15,000 businesses worldwide accept BTC, and over 15% of them operate in the US.
- Not all crypto is decentralized and unregulated. CBDCs, meaning Central Bank Digital Currencies, are issued by a country's central bank and, therefore, subject to government regulations.
Check out our 2024 crypto glossary to learn more about key cryptocurrency concepts.
Where Fiat Stands TodayToday, the UN recognizes 180 currencies worldwide. All of the world's currencies are fiat, and the majority are floating. Some currencies are fixed, like the Hong Kong dollar and Saudi riyal, which are pegged to the US dollar at 7.83 and 3.75 rates, respectively.
Most fixed currencies worldwide are pegged to USD, although 11 are pegged to EUR. The Bulgarian lev, for example, is pegged to EUR at a rate of 1.9558.
The Amount of Fiat Currency in SupplyNot accounting for stock exchange capitalization, the total global value of the currency supply is an estimated $82.6 trillion as of 2022. According to GOBankingRates, this is the equivalent of roughly $2,576 per person.
This figure includes the M2 supply-all the money currently in circulation and the global currency reserve, plus the money in checkable deposits, mutual funds, and securities.
For the fully liquid money supply (M0), the figure is closer to $8.3 trillion, as per the same source. This includes only the physical money in circulation and in bank reserves.
Note this figure is from 2021, and only accounts for 40 countries worldwide. It's a far cry from the 200 countries total, so it's hardly representative. July 2024 figures put just the M0 supply in the US at $5.65 trillion.
The Most Widely Used and Traded Fiat Currencies GloballyThe USD is the most widely used and traded currency worldwide, as seen from these recent fiat currency statistics:
The US dollar accounted for 54.79% of the global foreign exchange reserve in 2024, nearly twice more than EUR, JPY, and GBP combined. The USD has been the most used currency for international SWIFT payments throughout 2019-2024 based on total transaction value. In August 2024, USD made up 60% of payments. USD is the most traded currency globally, making up 44.15% of worldwide trades and having a daily average trading volume of $2.9 trillion. The US dollar makes up 9 of the 10 most traded pairs, including the top 5 forex pairs worldwide: EUR/USD (making up 24% of daily forex trades), USD/JPY (13.2%), GBP/USD (9.6%), AUD/USD (5/4%), and USD/CAD (4.4%). Of the 180 currencies worldwide, at least 66 are pegged to the dollar, including the Hong Kong dollar, the Saudi riyal, and the UAE dirham.No other currency comes close today. However, several competitors also play significant roles in international trade, most notably:
The Euro (EUR)The euro is the official currency in 20 EU countries and the second most-traded currency in the world. EUR accounts for 16.14% of international trades and has an average daily volume of $1.1 trillion.
Throughout 1999-2024, the euro was the second most common currency held in global reserves. In Q1 2024, it made up 18.33% of the foreign exchange reserves and it's been gaining ground over the USD since Q1 2015, when it accounted for 11.8%.
Source: StatistaIt's also the second most-used currency for international payments, although its usage has been declining relative to the USD since 2023.
Throughout 2019-2023, the euro accounted for over 30% of international SWIFT payments. It nearly equaled the dollar in May 2021, when EUR accounted for 40.16% of payments (USD accounted for 40.94%). Since July 2023, the EUR made up 12-13% of payments.
The Japanese Yen (JPY)The JPY is the third most traded currency and the third most commonly held reserve. Itaccounts for8.4% of international trades andan average daily volume of $554 billion.
Like this infographic? Feel free to use it on your website or blog, but please remember to give us credit by linking back to this article. Info source: IGSince 2017, the yen has consistently outperformed the pound sterling in foreign reserves. In Q2 2019, it surpassed 5% of the global share, and as of Q1 2024, the yen accounts for 5.3% of global foreign exchange reserves.
As for international payments, Japan has consistently been ranked in the top 4 most-used currencies throughout 2019-2024.
At its peak in March 2023, the JPY accounted for 8% of the total transaction value in international SWIFT payments. In August 2024, it ranked third worldwide with a 5.69% share.
The Pound Sterling (GBP)The GBP makes up 6.4% of international trades, with an estimated daily trading volume nearing $422 billion.
In 2024, it will be the fourth most traded currency, the fourth biggest reserve, and the fourth most used currency for international SWIFT payments by total transaction value.
Today, the pound sterling accounts for 4.55% of the global foreign exchange reserves by value, a share which has been slowly increasing since 1999. It also made up 4.71% of international SWIFT payments in August 2024.
The #5 place is a toss between CAD, AUD, and CNY, depending on the metrics observed:
The Australian dollar is the fifth most traded currency worldwide, accounting for 3.38% of trades.
The Canadian dollar takes fifth spot in global reserves, making up 2.39% by value.
The Chinese yuan is the fifth most used currency globally, accounting for 3.16% of international SWIFT payments by total transaction value as of August 2024.
The USD, EUR, JPY, and GBP combined make up 75% of all trades and nearly 83% of global reserves. But despite being the four most widely used currencies worldwide, they're not actually the four strongest.
Currency strength' refers to one currency's value relative to another. Currencies are traded in pairs-for example, you can buy or sell USD for EUR-and the currency with higher purchasing power is stronger. EUR is stronger than USD because 1 EUR buys 1.11 USD.Using the US Dollar Index (USDX) as a reference point, the USD is the tenth strongest currency globally. This means 9 other currencies are stronger (worth more), and all the remaining 170 currencies worldwide are weaker than the dollar.
Here are the 10 strongest currencies right now, relative to the USD (as of Oct 2, 2024):
10.
US Dollar: It goes without saying, but $1 USD is worth, well, $1 USD
9. Euro: 1 EUR buys 1.11 USD
8.
Swiss Franc: 1 CHF buys 1.18 USD
7.
Cayman Islands Dollar: 1 KYD buys 1.20 USD
6.
Gibraltar Pound: 1 GIP buys 1.33 USD
5. British Pound: 1 GBP buys 1.33 USD
4.
Jordanian Dinar: 1 JOD buys 1.41 USD
3.
Omani Rial: 1 OMR buys 2.60 USD
2.
Bahraini Dinar: 1 BHD buys 2.65 USD
1.
Kuwaiti Dinar: 1 KWD buys 3.27 USDA strong currency points to a robust and stable economy. For example, the Kuwaiti dinar is the most valuable currency in the world thanks, in large part, to the country's strong export economy and booming oil industry.
The world's first and longest-standing fiat currency is still going strong, too. The UK is the world's sixth biggest economy, and the British pound is the fifth strongest currency globally, still ahead of the dollar and euro.
Like this infographic? Feel free to use it on your website or blog, but please remember to give us credit by linking back to this article.Then we have the weakest currencies, many of which have been severely devalued due to surging inflation rates, geopolitical conflicts, and economic instability.
Today, the Iranian rial (IRR) is the least valuable currency in the world, with 1 riyal being worth 0.000024 USD (or 1 USD buying 42,087 IRR).
The currency has been on the decline since the 1979 Islamic Revolution, which sparked ongoing political unrest and economic sanctions. The current Gaza conflict added more fuel to the fire, with the IRR hitting a record low after Iran's recent attack on Israel.
In ConclusionFiat first emerged during the interwar period and became the backbone of the global economy in less than a century. According to 2021 fiat currency statistics, the liquid fiat supply across the world's 40 biggest economies is worth $8.3 trillion, with the US supply reaching $5.65 trillion in 2024.
Fiat's advantages over commodity-backed money undoubtedly contributed to its unanimous adoption. However, fiat also has its challenges, namely long-term depreciation and stability concerns, both exacerbated by geopolitical and economic tensions.
In addition, crypto has also emerged as a potential disruptive force over the past few years. Although acceptance is increasing slowly, early adopters point to crypto's inflation resistance as a solution to fiat's shortcomings.
Could crypto give fiat a run for its money? The jury's still out, but the financial landscape is clearly evolving rapidly.
ReferencesClick to expand and view sources- Fiat Money (CFI)
- Fiat Money Explained: Definition, History, Pros and Cons, and More (Business Insider)
- Legal Tender (Cornell Law School)
- Putin COnfirms BRICS Developing Independent Payment System (The Jerusalem Post)
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