What is a reserve currency?

Some currencies of the world have been used throughout history as a means of international exchange. The currency held by many governments and institutions and their used to repay international debts or influence their exchange courses is called a reserve currency. For many years, and especially since World War II, the US dollar has been, among other things, the most widely used reserve currency, because of its reputation of stability. Many commodities that are used worldwide, such as gold and oil, have prices in US dollars, which is a good practice for countries to keep dollars at hand to buy these commodities.

Any currency that is widely recognized and credible can serve as a reserve currency. The idea of ​​a reserve currency for centuries has existed in one form or another. However, the modern international banking system has strengthened the need for much more than older economic structures. Central banks around the world can have funds in various riders in reserve, except for their own. They do this mainly to store value as well as a PR backupAbout his own currency, as well as for strategic reasons if any unforeseen. Any of the foreign currencies used in such a way could be considered a reserve currency.

Traditionally, the US dollar was the preferred reserve currency of the world. About two -thirds of worldwide monetary reserves are held in dollars. Recently, the euro has seen increased use as a reserve currency. This is perhaps partly because many currencies now form the European Union have been used as reserve currencies before the euro acceptance for wide use. Given the popularity of the euro, there is a considerable debate and speculation about whether to eventually replace the dollar as the most advantageous reserve currency in the world.

After World War II, the Glofinance System Bal was redesigned to place the US dollar in the center. The US bought gold from the participating nations and promised them that they could exchange their dollars for gold for solidthe rate at any time they wished. The nations of Europe and Japan have allowed their currencies devalued in this system so that their exports are competitive on the world market. This universal gold standard was known as the Bretton Woods System and lasted up to 70 years when the US effectively ended the ability of other countries to turn their dollars into gold.