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The Most Stable International Currencies in Terms of Exchange Rate

December 27th, 2019

Movement in international currency exchange rates is an implicit feature of a floating exchange rate system that affects most global economies. The foreign currency market is a dynamic market that operates 24×7, and various factors influence the exchange value of one currency when compared to another.

What makes a currency stable?
A stable currency is one that can successfully hold its unit of account or purchasing power over some time. At a basic level, a currency is stable when the international currency exchange rates do not fluctuate too much as against the Consumer Price Index (CPI). However, many domestic and global factors have an impact on how international currency performs. Economic policies, inflation, interest rate differentials, international trade, current account balance and capital flows have a direct effect on the value of the currency.

In a way, you could say that the performance of a currency is a good indicator of the economic health of a nation. Among the hundreds of currencies in the world, only a handful have been consistently stable. 

Also read: How To Read Global Currency Exchange Rates

Here’s a quick look at some currencies that have held their own through a relatively tumultuous 2019.

United States Dollar (USD)
The USD is the world’s most traded international currency and accounts for about 88% of all international transactions. The greenback has been among the top-performing currencies for several years. Over the last year, the US Federal Reserve has hiked interest rates four times. The expanding interest rate differential puts the USD in a stronger position compared to its European counterparts. A slowing Chinese economy also works in favour of the USD. 

Over the past year, the USD has moved from 96.344 to 97.047 on the currency stability index, a variation of only 0.73%.

Norwegian Krone (NOK)
The unassuming krone is one of the world’s most stable currencies for several reasons. It is not pegged to any other currency, nor is it a part of a supranational body like the EU and thereby insulates Norway from the economic liabilities of its neighbours. The Norwegian government has financial assets that far exceed its debt, making it an extremely low-risk sovereign. Additionally, at 23.3% the Norway Central Bank has among the highest capital ratios of any central bank in the world.

The NOK has moved from an exchange rate of 8.78 per USD in January 2019 to 9.03 as on 15 December 2019, representing a minor depreciation of 2.84%.

Singapore Dollar (SGD)
Despite being one of the youngest currencies, the Singapore dollar can be rated as one of the most stable currencies of 2019. Singapore is the hub of financial activity in Asia and has a broad-based economic momentum that fuels growth, with subdued inflation and a current account surplus as a share of GDP. The stability of the SGD is no accident either. The Monetary Authority of Singapore keeps a close watch on the international currency exchange rates vis-à-vis its peers and trading partner, and periodically intervene to steer the course when required.

The SGD barely moved from 1.37 on 1 January 2019 against the USD to 1.35 on 15 December 2019, appreciating by 1.46%.

So, which is the most stable currency in the world?

Japanese Yen (JPY)
According to a Morgan Stanley report, the Japanese yen may rule the roost among the most stable currencies for 2019. Despite a sluggish domestic performance, Japan attracts massive capital inflows and holds a positive current account balance.

The yen has been a haven for risk-averse investors, and this has worked in its favour in the last few years. A slowing global economy and growing trade war concerns have fuelled the appreciation of the JPY.

The JPY started the year at 109.63 against the USD and appreciated to 104.87 in August, and stands even at 109.55 as on 15 December 2019. Some other currencies that deserve an honourable mention are the New Zealand dollar, Danish krone, Swiss franc, the euro, pound sterling, and the Canadian dollar.

Impact on remittance trends
Expats who regularly remit funds back home tend to keep a keen eye on currency movement as they stand to benefit or lose from any significant fluctuation. When the value of the home currency weakens, expats get more value for their international remittance.

The USD, for example, has outperformed the currencies of most emerging economies this year and this has given an impetus to remittances across various South East Asian countries. India alone saw a spike of 15–20% in remittances in 2018. A similar trend was visible between 2012 and 2014 when the Indian rupee saw a sustained depreciation.

Conversely, when the value of the currency depreciates, expats tend to hold on to their earnings rather than remit to their country, unless they have a significant investment opportunity back home. At the macro level, a weakened currency can help boost exports for the home country. For instance, China consistently keeps the renminbi (RMB) in check to propel its exports.

Regular inflow of remittance also has a stabilising effect on exchange rate volatility. A steady flow of private funds helps boost domestic consumption and offset macroeconomic volatility. As per a World Bank study, countries that are at the receiving end of remittances tend to display lower correlation between output and consumption growth over some time, indicating that the consistent and acyclical nature of remittances has the potential to enhance welfare during economic downturns.

As we usher in a new decade, improved financial technology will enable competitive and transparent money transfer services such as Xpress Money to connect millions of people with their loved ones while working towards bringing down the cost of remittances in line with the UN’s Sustainable Development Goals (SDG).

Also, Read our article on: The Best Performing Currencies of the World In 2019