What Is a World Currency?

The international reserve currency is commonly known as the world currency, which refers to currency that is generally accepted by countries and plays a general equivalent role in international commodity circulation. It is not only a measure of the value of a commodity, but also an international means of payment, a means of purchase, and a means of wealth transfer. In order for a currency issued by a country to become a "world currency", the following conditions must be met: the currency issuing country should have strong economic strength, the currency should have considerable stability, and the unanimous recognition of the country of use must be obtained through international agreements.

World reserve currency

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Synonym world currency generally refers to world reserve currency

The international reserve currency is commonly known as the world currency, which refers to currency that is generally accepted by countries and plays a general equivalent role in international commodity circulation. It is not only a measure of the value of a commodity, but also an international means of payment, a means of purchase, and a means of wealth transfer. In order for a currency issued by a country to become a "world currency", the following conditions must be met: the currency issuing country should have strong economic strength, the currency should have considerable stability, and the unanimous recognition of the country of use must be obtained through international agreements.

Chinese name

World reserve currency

Foreign name

The world reserve currency

Commonly known

World currency

Species

GBP, USD, EUR, RMB

definition

The earliest currency that became the world's reserve currency was the British pound, then the US dollar, then the euro, and then the yuan ^[1] .

The currency of any country can become a small or potential world reserve currency. But to become a worldwide world reserve currency, it needs to account for at least 5% of the world's foreign exchange reserves (other than gold).

When a country's currency exceeds its circulation, it becomes a certain foreign exchange for other countries, and it also becomes a world reserve currency.

After the gold coins were withdrawn from circulation, all the world's reserve currencies became paper money except for gold, and paper money was nothing more than paper issued by different countries.

If a country's banknotes flow into another country, it means that the country's banknotes have a direct international purchasing ability, that is, they can use the national currency to purchase goods (commodities) in other countries, so that the banknotes of that country have been stuck in the export of goods. Foreign currency (foreign exchange) income of the country of export.

If the total amount of banknotes issued in a country is Mz, the amount of banknotes in the home country is Mn, and the amount of banknotes in a foreign country is Mw, then:

Mz = Mn + Mw

There have been a series of "quasi-world currencies" in history, such as the Phoenician Phoenician Fund silver coins, the fiat currencies of Greece and Rome, and Chinese copper coins. They all have certain characteristics of "world currencies", but They do not have treaty guarantees and cannot be universally used. With the development of trade between countries, after the Middle Ages, gold gradually gained the monopoly position of world currencies. In the 19th century, the British pound became the first non-gold and silver world currency due to Britain's strong national strength and stable currency value.

The two world wars weakened Britain's strength, and the pound was forced to give up the status of world currency. The signing of the Bretton Woods Agreement after World War II established the international financial system with the US dollar as the international reserve currency. The US dollar has become an international reserve currency. In addition to the conditions mentioned above, the most important point is that the United States must maintain a long-term deficit in order to allow the US dollar to circulate around the world. The United States strong purchasing power and consumption levels ensure this, making the world currency Status has been maintained for a long time. After the 1950s, the purchasing power of the United States continued to decline, and the Bretton Woods system collapsed. However, due to the strength of the United States and its dominance in the global financial system, most of the international settlement and foreign exchange reserves are still US dollars.

As one of the economic powers, China, on April 1, 2017, ushered in one of the most important days since the currency (RMB) was issued!

IMF (International Monetary Fund) official announcement: "The RMB becomes a global reserve currency!"

The IMF lists the RMB data separately in the official global foreign exchange reserve data, not only for China, but also for developing countries around the world! It also indicates that China's global trade status is constantly improving and the prospects are huge.