A currency code is a three-letter code that identifies a specific currency.

These codes are defined by the International Organization for Standardization (ISO), and the system is referred to as “ISO 4217”.

ISO 4217 currency codes are used globally in banking and business and are often used in financial databases to reduce the chance of confusing different currencies.

What Are Currency Codes?

Currency codes are unique three-letter identifiers that denote a specific currency.

From the US Dollar (USD) and British Pound (GBP) to the Euro (EUR) and Japanese Yen (JPY), every currency recognized by the United Nations has a code associated with it.

They are used not just in the foreign exchange market but across banking, business, travel, and more.

The system is specifically designed to bring clarity and uniformity, eliminating any ambiguity. This is especially crucial in the financial world, where clarity in transactions is paramount.

Structure of Currency Codes

Each currency code consists of two parts:

  1. The first two letters are the ISO 3166-1 alpha-2 code of the issuing country or entity, which is also used as the basis for national domain suffixes on the internet. For instance, ‘US’ for the United States and ‘GB’ for Great Britain.
  2. The third letter is usually the initial of the currency itself. For example, the US Dollar is represented as USD, where ‘US’ is the country code and ‘D’ stands for Dollar.

So, for instance, the currency code for the Japanese yen is JPY (JP for Japan, Y for yen), for the British pound is GBP (GB for Great Britain, P for pound), for the Euro is EUR (EU for European Union, R for euro), and for the Indian rupee is INR (IN for India, R for rupee).

In the foreign exchange market, these codes allow traders to eliminate potential confusion caused by names designating more of one currency such as with dollar, peso, pound, or krona.

Exceptions to the Rule

It’s worth noting that not all currency codes strictly follow this structure, particularly when the currency does not have a clear initial letter or in cases where a single currency is used by multiple countries, such as the euro.

While most currency codes adhere to this structure, there are notable exceptions.

Some of these are:

  • Supranational currencies: The Euro, used by many countries within the European Union, uses the code EUR (‘EU’ for European Union, ‘R’ for euro) rather than a specific country code.
  • Non-Standard Initials: In some cases, the third letter does not correspond to the initial of the currency. For instance, the Swiss Franc uses the code CHF, with ‘CH’ representing Switzerland as per the ISO 3166-1 alpha-2 code and ‘F’ for Franc.

Importance of Currency Codes

The standardized use of currency codes carries significant benefits:

  • Elimination of Confusion: Currency codes remove ambiguity, especially for currencies with common names. For example, the dollar is used in the US, Australia, Canada, and many other countries. Using codes like USD, AUD, and CAD makes clear which currency is being referred to.
  • Ease in Electronic Processing: Electronic financial systems are designed around these codes, making it easy to process international transactions.
  • Harmonization of Currency Identification: Regardless of language barriers, the currency codes remain consistent, which helps facilitate global trade and financial transactions.