G10 Currency

A G10 currency is one of ten currencies that the foreign exchange market treats as its core group: freely traded, widely held, issued by advanced economies and available in large size at low dealing cost. The label is a market convention. Banks organize their trading desks, research and pricing around it, and investors use it as shorthand for developed-market currencies as opposed to those of emerging markets.

The name is borrowed from the Group of Ten, a set of industrialized countries that agreed in 1962 to lend to the International Monetary Fund. The match between the two is loose. The group of countries has eleven members, several of which now share the euro, while the currency list includes Australia, New Zealand and Norway, none of which belongs to the country group.

• The United States dollar (USD)
• The euro (EUR)
• The Japanese yen (JPY)
• The pound sterling (GBP)
• The Swiss franc (CHF)
• The Canadian dollar (CAD)
• The Australian dollar (AUD)
• The New Zealand dollar (NZD)
• The Swedish krona (SEK)
• The Norwegian krone (NOK)

The list is not ranked by trading volume. In surveys of global turnover, the Chinese renminbi and the Hong Kong and Singapore dollars are traded more than several of the smaller members. They are excluded because the grouping reflects other characteristics as well, described below. Some banks add the Danish krone to their developed-market coverage, though its peg to the euro leaves it with little independent movement.

The G10 currencies share features that set them apart from most others. Each has a floating exchange rate set by the market, with central bank intervention the exception. Each is fully convertible, with no restrictions on moving capital in or out. Each is backed by an independent central bank with an inflation mandate, deep government bond and money markets, and a legal system that foreign investors trust. Each can be traded around the clock in spot, forward, swap and option markets, and the FX liquidity available in them far exceeds that of other currencies.

These qualities make G10 currencies the usual choice for invoicing international trade, for holding official reserves and for settling cross-border obligations.

Traders divide the ten further. The dollar, euro, yen and sterling, often with the Swiss franc, are the majors; pairs of each against the dollar account for most global turnover. The Australian, Canadian and New Zealand dollars and the Norwegian krone are called commodity currencies, because their economies export raw materials and their exchange rates tend to move with commodity prices. The Swedish and Norwegian currencies together are known as the Scandies.

The yen and Swiss franc, and in most episodes the dollar, are regarded as safe havens that tend to strengthen when markets are under stress. Historically low interest rates in Japan and Switzerland have also made their currencies the usual source of funding for the carry trade, in which investors borrow a low-yielding currency to buy a higher-yielding one, with the Australian and New Zealand dollars frequent destinations.

A currency pair made up of two G10 currencies is often called a G10 pair. A pair that excludes the dollar is a cross, and its price is a cross rate. Investment banks publish G10 strategy separately from emerging market strategy, and asset managers run G10 currency funds and benchmarks. Risk models typically assign G10 currencies lower volatility and narrower liquidity adjustments than others.

For businesses and payment providers the practical meaning is cost and convenience. Conversions between G10 currencies are available from almost any provider, at spreads much tighter than for other currencies, with forward cover obtainable years ahead. Multi-currency accounts and cards usually support all ten. Payments in them can be routed through well-established correspondent networks, and most are eligible for settlement through the Continuous Linked Settlement system, which removes the risk that one side of a trade is paid and the other is not.

The grouping is a convention with no official keeper, and its edges are debatable. It understates the importance of the renminbi, which has grown into one of the most traded currencies in the world while remaining subject to capital controls. It also suggests uniform quality where there is a wide range: the dollar's market dwarfs the others, and liquidity in the krona, krone or New Zealand dollar can thin considerably in stressed conditions or outside their home trading hours. Membership has not prevented sharp moves, as the Swiss franc showed when its central bank abandoned a cap against the euro in January 2015.