Reserve Currency


Also found in: Dictionary, Financial, Wikipedia.

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).

O. M. SHELKOV

References in periodicals archive ?
Chairman Powell: Being the reserve currency does confer benefits and costs.
Only six countries have held the world's reserve currency going back to the mid-15th century.
A different aspect of a currency's role in international finance is its status as a reserve currency, one that is held by foreign central banks as protection against balance of payments crises.
Perhaps, but the United States surpassed Britain as the world's largest economy in the late 19th century, and the dollar did not fully displace British sterling as the leading reserve currency until after the World Wars, which left British finances shattered.
Treasury Secretary Jack Lew said on Thursday the yuan was "quite a ways" from true global reserve currency status.
Given both countries' sizeable net external debt , the adoption of a reserve currency would strengthen external finances in both.
It is the reserve currency status of the dollar that allows the US to fund its endless wars and topple governments with impunity.
This study employs methods of quantitative analysis, vector error correction, and variables specification to examine the economic and security impact of the US dollar as the worldAEs leading reserve currency. oExorbitant burdeno is defined here as the quantitative and qualitative costs of the dollarAEs reserve status as it provides the liquidity that fuels the global financial system.
Summary: According to ADS Securities, the Chinese yuan is now a global reserve currency
China, which has grown rapidly in recent decades to become the world's second-largest economy, has long sought to make the renminbi into a global reserve currency, including the IMF designation.
Under this system, world leaders agreed to have the US dollar as the global reserve currency and linked it to gold at the rate of US$35 per ounce.

Full browser ?