Reserve Currency

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Reserve Currency


a currency accumulated by the central bank of a country for making international payments. Usually, a convertible currency is used as the reserve.

In the late 1960’s and early 1970’s the US dollar, the British pound sterling, and the West German mark were the most widely used reserve currencies, accounting for more than half the international payments turnover of the capitalist countries. The French franc, the Japanese yen, the Dutch guilder, and the Swiss franc are far less extensively used as reserve currencies.

The use of a currency as a reserve currency depends on the extent of a country’s participation in the international division of labor and on its role in international trade. As a rule, a reserve currency is either a “trade currency” that accounts for a significant volume of the turnover in international trade or a currency that is associated with a country characterized by high economic potential (that is, a country that supplies the world market with a broad range of high-quality goods). The position of a currency on the international loan capital market is very important. For example, although the Swiss franc is not a trade currency, it is used as a reserve currency because Swiss banks, which have a high international reputation, offer tremendous possibilities for quickly mobilizing considerable monetary assets. Moreover, deposits in Swiss banks are considered a reliable investment of capital.

The choice of a country’s currency as a reserve currency is also related to the technical feasibility of making international payments and, in particular, to the presence in the country of a well-developed network of banking institutions with an international reputation. Thus, despite the substantial decline of Great Britain’s role in the world market and despite the drop in the value of the pound sterling, British currency is still used as a reserve currency because Great Britain has a worldwide network of banks (seeFOREIGN-EXCHANGE RESERVES).


References in periodicals archive ?
The average is used as a measure of value for the IMF's "special drawing rights," which quantify how much reserve currency each of the 188 member countries can call on.
Reserve currency status would imply abandoning the current RMB-dollar peg.
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The dollar remains the world's main international reserve currency.
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International Monetary Fund data shows the decrease continued in the first quarter of this year, although the euro remains the world's second-most important reserve currency after the dollar.
It is used not just by Americans, but is used in other countries, in the global black market, by importers and exporters, and is the primary reserve currency for central banks.
Perng, governor of the central bank, said that bilateral financial authorities started to negotiate the issue of cross-strait currency swap soon after the inking of MOU of cross-strait currency settlement pact at the end of August, aiming to make RMB another forex reserve currency within one year once the said swap talks are finalized.
JEDDAH: The US dollar will unlikely to lose its status as the main reserve currency in the near future despite the current challenges facing the US economy, regional economists said yesterday.
always demand for assets denominated in the reserve currency.

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