Currencies may be grouped according to the nature of the economies issuing them in the following groups.
1. Exporter currencies: These nations prefer to dampen the value of their currencies in order to keep their exporters competitive. They maintain large surpluses in the current account, and are able to accumulate large forex reserves over time. Traders tend to sell these currencies in times of economic health, under crisis conditions, their reactions tend to be chaotic. Major exporter nations that do not possess the privilege of issuing reserve currencies include Singapore, Taiwan, and China.
2. Reserve currencies: The currencies of these nations are believed to be exceptionally stable, and are preferred by central banks as a store of value. The common quality of these nations is a strong and highly developed financial system. The U.S. dollar is the main reserve currency of the world by a large margin, followed by the Euro. The other important, but in comparison insignificant reserve currencies include the British Pound, the Japanese Yen, and the Swiss Frank.
3. Commodity Currencies: This group includes the currencies of nations such as Australia, Canada, Russia, or Brazil, which sometimes possess large surpluses in trade balance, but are not held to be highly reliable due to their strong dependence on the vagaries of the commodity market. These nations are rarely exporters of capital, and instead receive large amounts of foreign investment into their economies, which makes them responsive to turmoil in the forex and currency markets. Pairs that contain them tend to be highly risky.
4. Risk currency: These currencies have high deficits in both the budget and the current account (or a large one in just of them.) they are neither exporter nations nor do they possess large commodity deposits to sell to the world. They are run through borrowing and mostly depend on the nation’s consumer sector, sometimes with a contribution from the construction industry. These nations include many African countries, nations in the Baltics, and Balkans, and some larger ones such as Turkey. Clearly, the fate of these economies depends on the goodwill of creditors and rating agencies, and the performance of the currencies reflects this fact.
The groups are not unchangeable. Sometimes a currency may be a member of two groups at the same time, and economic changes may move a nation from one category to another. So the Swiss Franc, for example, is both a strong exporter currency, and also a reserve currency. The U.S. dollar, while possessing the benefits of a reserve currency, can also be termed a high risk currency.
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