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Currency is a complicated thing. There are roughly 300 currencies in the world right now and with so much commerce now being done internationally and online, it’s never been more important to present a united front when it comes to how currencies are read and interpreted. That is where ISO currency codes come in.
What is an ISO currency code?
If you’ve ever used a currency exchange service to sort out your holiday money then you’ve been exposed to the three character country codes that make up the ISO 4217 standard. This is a system that gives every country and currency a unique three-character code known as the ISO3 country code or "SWIFT” currency codes, to simplify matters for currency trading and international trade.
Every alphabetic code will also have a corresponding three-digit numeric code, with both codes being identified by the International Organisation for Standardisation. This is the body that gives the code its name and is a non-governmental agency that provides standards for everything from manufacturing to communication.
It wasn’t until the 1970s that the ISO became involved in currency transactions, with the first standardised codes worked out initially over five years and being introduced in 1978.
Breaking down the ISO currency code
Every currency is denoted by three characters, with the first two characters typically representing the country and the final character representing the currency itself. For example, the three-character country code for the UK is GBP (Great Britain and pound) and the code for North America is USD (the United States and dollars).
There are exceptions, however, such as the Euro code (EUR) and the Russian rube code (RUB). There are also codes beginning with “X” that are reserved for special purposes such as when trading gold (XAU) and platinum (XPT).
The value of a currency is always going to be determined by how it compares to another currency. This is the underlying principle of the currency pair – the quote of the exchange rate for two currencies. In every currency pair, the base currency (first listed currency) is bought and the quote currency (second listed currency) is sold.
To quote the pound against the euro, for example, the currency pair would be GBP/EUR. If the quoted price for this pair was 1.1800 then one pound would be exchanged for 1.18 euros.
The convenience of the ISO currency code
While the ISO 4217 currency code is, of course, convenient for manual users, it is also useful for automated systems thanks to the numerical codes. These ensure that currency codes can be understood by computers and in countries that don’t use Latin scripts. Where possible, the numeric code is the same as the numeric ISO 3166 country code.
We can help
If you’re interested in finding out more about ISO currency codes, or any other aspect of your business finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.