Eye Crosser #4: What is a Reserve Currency?

The U.S. dollar is currently the dominant reserve currency in the world. There are other currencies considered reserve currencies, e.g. the Euro, Japanese Yen and Pound Sterling.

Crude oil is priced in U.S. Dollars. Other commodities are priced in U.S. dollars. Countries of the world buy and sell to each other and the currency used for exchange is U.S. dollars.  The following article published on the International Monetary Fund website discusses the U.S. dollar as reserve currency. The Dollar Reigns Supreme, by Default, FINANCE & DEVELOPMENT, March 2014, Vol. 51, No. 1, Eswar Prasad, author.  http://www.imf.org/external/pubs/ft/fandd/2014/03/prasad.htm

Using a reserve currency allows world commerce to flow easier. Many countries hold financial instruments in reserve currencies because these currencies are more stable and reliable than other currencies. Two countries doing import/export business with each other can “pay” each other in a reserve currency to finalize their transactions.

Below are two (2) more reference sites.

U.S. Treasury website

http://search.treasury.gov/search?affiliate=treasury&commit=Search&query=reserve%20currency

Appendix 1: An historical perspective on the reserve currency status of the U.S. Dollar

http://www.treasury.gov/resource-center/international/exchange-rate-policies/Documents/Appendix%201%20Final%20October%2015%202009.pdf

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Carry
Perplexed

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9 thoughts on “Eye Crosser #4: What is a Reserve Currency?

    1. Thanks for your note. Scroll down to the bottom of the page and click on the ” select category” to see and choose the following categories: currency, US dollar, reserve currency. These postings are comments about currencies in general and obviously the relationship of the U.S. dollar to other currencies and economies in the world.

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