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A reserve currency (or anchor currency) is a
foreign currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general de ...
that is held in significant quantities by
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central b ...
s or other monetary authorities as part of their
foreign exchange reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
. The reserve currency can be used in international transactions, international investments and all aspects of the global economy. It is often considered a
hard currency In macroeconomics, hard currency, safe-haven currency, or strong currency is any globally traded currency that serves as a reliable and stable store of value. Factors contributing to a currency's ''hard'' status might include the stability and ...
or safe-haven currency. The United Kingdom's
pound sterling Sterling (abbreviation: stg; Other spelling styles, such as STG and Stg, are also seen. ISO code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound ( sign: £) is the main unit of sterling, and ...
was the primary reserve currency of much of the world in the 19th century and first half of the 20th century. However, by the middle of the 20th century, the
United States dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
had become the world's dominant reserve currency. The world's need for dollars has allowed the United States government to borrow at lower costs, giving the United States an advantage in excess of US$100 billion per year.


History

Reserve currencies have come and gone with the evolution of the world’s geopolitical order. International currencies in the past have (excluding those discussed below) included the
Greek drachma The drachma ( el, δραχμή , ; pl. ''drachmae'' or ''drachmas'') was the currency used in Greece during several periods in its history: # An ancient Greek currency unit issued by many Greek city states during a period of ten centuries, f ...
, coined in the fifth century B.C.E., the Roman denari, the Byzantine
solidus Solidus (Latin for "solid") may refer to: * Solidus (coin), a Roman coin of nearly solid gold * Solidus (punctuation), or slash, a punctuation mark * Solidus (chemistry), the line on a phase diagram below which a substance is completely solid * ...
and Arab
dinar The dinar () is the principal currency unit in several countries near the Mediterranean Sea, and its historical use is even more widespread. The modern dinar's historical antecedents are the gold dinar and the silver dirham, the main coin of ...
of the middle-ages and the
French franc The franc (, ; sign: F or Fr), also commonly distinguished as the (FF), was a currency of France. Between 1360 and 1641, it was the name of coins worth 1 livre tournois and it remained in common parlance as a term for this amount of money. It w ...
. The Venetian ducat and the Florentine florin became the gold-based currency of choice between Europe and the Arab world from the 13th to 16th centuries, since gold was easier than silver to mint in standard sizes and transport over long distances. It was the Spanish silver dollar, however, which created the first true global reserve currency recognized in Europe, Asia and the Americas from the 16th to 19th centuries due to abundant silver supplies from
Spanish America Spanish America refers to the Spanish territories in the Americas during the Spanish colonization of the Americas. The term "Spanish America" was specifically used during the territories' Spanish Empire, imperial era between 15th century, 15th ...
. While the Dutch guilder was a reserve currency of somewhat lesser scope, used between Europe and the territories of the Dutch colonial empire from the 17th to 18th centuries, it was also a
silver standard The silver standard is a monetary system in which the standard economic unit of account is a fixed weight of silver. Silver was far more widespread than gold as the monetary standard worldwide, from the Sumerians 3000 BC until 1873. Following ...
currency fed with the output of Spanish-American mines flowing through the
Spanish Netherlands Spanish Netherlands (Spanish: Países Bajos Españoles; Dutch: Spaanse Nederlanden; French: Pays-Bas espagnols; German: Spanische Niederlande.) (historically in Spanish: ''Flandes'', the name "Flanders" was used as a ''pars pro toto'') was the H ...
. The Dutch, through the ''Amsterdam Wisselbank'' (the
Bank of Amsterdam The Bank of Amsterdam ( nl, Amsterdamsche Wisselbank, lit=Exchange Bank of Amsterdam) was an early bank, vouched for by the city of Amsterdam, and established in 1609. It was the first public bank to offer accounts not directly convertible to c ...
), were also the first to establish a reserve currency whose monetary unit was stabilized using practices familiar to modern
central banking A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
(as opposed to the
Spanish dollar The Spanish dollar, also known as the piece of eight ( es, Real de a ocho, , , or ), is a silver coin of approximately diameter worth eight Spanish reales. It was minted in the Spanish Empire following a monetary reform in 1497 with content ...
stabilized through American mine output and Spanish fiat) and which can be considered as the precursor to modern-day
monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often a ...
. It was therefore the Dutch which served as the model for bank money and reserve currencies stabilized by central banks, with the establishment of
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the English Government's banker, and still one of the bankers for the Government of ...
in 1694 and the Bank of France in the 19th century. The British
pound sterling Sterling (abbreviation: stg; Other spelling styles, such as STG and Stg, are also seen. ISO code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound ( sign: £) is the main unit of sterling, and ...
, in particular, was poised to dislodge the Spanish dollar's hegemony as the rest of the world transitioned to the
gold standard A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the la ...
in the last quarter of the 19th century. At that point, the UK was the primary exporter of manufactured goods and services, and over 60% of world trade was invoiced in pounds sterling. British banks were also expanding overseas; London was the world centre for
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
and
commodity market A commodity market is a market that trades in the primary economic sector rather than manufactured products, such as cocoa, fruit and sugar. Hard commodities are mined, such as gold and oil. Futures contracts are the oldest way of investin ...
s and British capital was the leading source of foreign investment around the world; sterling soon became the standard currency used for international commercial transactions. File:Fiorino_1347.jpg, Florentine florin, 1347 File:Utrecht_Ducaton_82001327.jpg, Silver
ducaton The ducaton, ducatone or ducatoon was a Crown (British coin), crown-sized silver coin of the 16th-18th centuries. The first ducaton-type coin was the Italian scudo, scudo known as the 'ducatone da soldi cento' (of 100 soldi), issued by Charles V, ...
worth 3-3.15 Dutch guilders, 1793 File:Sovereign_Victoria_1842_662015.jpg, Sovereign (£1 coin) of Queen Victoria, 1842 File:NNC-US-1907-G$20-Saint_Gaudens_(Roman,_high_relief).jpg, US
double eagle A double eagle is a gold coin of the United States with a denomination of $20. (Its gold content of 0.9675 troy oz (30.0926 grams) was worth $20 at the 1849 official price of $20.67/oz.) The coins are 34 mm x 2 mm and are made from ...
($20 gold coin), 1907
Attempts were made in the interwar period to restore the gold standard. The British
Gold Standard Act The Gold Standard Act was an Act of the United States Congress, signed by President William McKinley and effective on March 14, 1900, defining the United States dollar by gold weight and requiring the United States Treasury to redeem, on demand ...
reintroduced the gold bullion standard in 1925,Text of the Gold Standard Bill speech
by
Winston Churchill Sir Winston Leonard Spencer Churchill (30 November 187424 January 1965) was a British statesman, soldier, and writer who served as Prime Minister of the United Kingdom twice, from 1940 to 1945 Winston Churchill in the Second World War, dur ...
,
House of Commons The House of Commons is the name for the elected lower house of the bicameral parliaments of the United Kingdom and Canada. In both of these countries, the Commons holds much more legislative power than the nominally upper house of parliament. ...
, 4 May 1925
followed by many other countries. This led to relative stability, followed by
deflation In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but sudden deflatio ...
, but because the onset of the Great Depression and other factors, global trade greatly declined and the gold standard fell.
Speculative attack In economics, a speculative attack is a precipitous selling of untrustworthy assets by previously inactive speculators and the corresponding acquisition of some valuable assets ( currencies, gold). The first model of a speculative attack was contai ...
s on the pound forced Britain entirely off the gold standard in 1931. After
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...
, the international financial system was governed by a formal agreement, the Bretton Woods System. Under this system, the
United States dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
(USD) was placed deliberately as the anchor of the system, with the US government guaranteeing other central banks that they could sell their US dollar reserves at a fixed rate for gold. In the late 1960s and early 1970s, the system suffered setbacks ostensibly due to problems pointed out by the
Triffin dilemma The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. This dilemma was ident ...
—the conflict of economic interests that arises between short-term domestic objectives and long-term international objectives when a national currency also serves as a world reserve currency. Additionally, in 1971
President President most commonly refers to: *President (corporate title) * President (education), a leader of a college or university * President (government title) President may also refer to: Automobiles * Nissan President, a 1966–2010 Japanese ...
Richard Nixon Richard Milhous Nixon (January 9, 1913April 22, 1994) was the 37th president of the United States, serving from 1969 to 1974. A member of the Republican Party, he previously served as a representative and senator from California and was ...
suspended the convertibility of the USD to gold, thus creating a fully fiat global reserve currency system. However, gold has persisted as a significant reserve asset since the collapse of the classical gold standard. Following the
2020 economic recession The COVID-19 recession, also referred to as the Great Lockdown, is a global economic recession caused by the COVID-19 pandemic. The recession began in most countries in February 2020. After a year of global economic slowdown that saw stagnati ...
, the IMF opined about the emergence of "A New Bretton Woods Moment" which could imply the need for a new global reserve currency system. (see below: § Calls for an alternative reserve currency)


Global currency reserves

The IMF regularly publishes the aggregated ''Currency Composition of Foreign Exchange Reserves'' (COFER). The reserves of the individual reporting countries and institutions are confidential. Thus the following table is a limited view about the global currency reserves that only deals with allocated reserves:


Theory

Economists debate whether a single reserve currency will always dominate the global economy. Many have recently argued that one currency will almost always dominate due to
network externalities In economics, a network effect (also called network externality or demand-side economies of scale) is the phenomenon by which the value or utility a user derives from a good or service depends on the number of users of compatible products. Netw ...
(sometimes called "the network effect"), especially in the field of invoicing trade and denominating foreign debt securities, meaning that there are strong incentives to conform to the choice that dominates the marketplace. The argument is that, in the absence of sufficiently large shocks, a currency that dominates the marketplace will not lose much ground to challengers. However, some economists, such as
Barry Eichengreen Barry Julian Eichengreen (born 1952) is an American economist and economic historian who holds the title of George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley, where he ha ...
, argue that this is not as true when it comes to the denomination of official reserves because the network externalities are not strong. As long as the currency's market is sufficiently liquid, the benefits of reserve diversification are strong, as it insures against large capital losses. The implication is that the world may well soon begin to move away from a financial system dominated uniquely by the US dollar. In the first half of the 20th century, multiple currencies did share the status as primary reserve currencies. Although the British Sterling was the largest currency, both the French franc and the German mark shared large portions of the market until the First World War, after which the mark was replaced by the dollar. Since the Second World War, the dollar has dominated official reserves, but this is likely a reflection of the unusual domination of the American economy during this period, as well as official discouragement of reserve status from the potential rivals, Germany and Japan. The top reserve currency is generally selected by the banking community for the strength and stability of the economy in which it is used. Thus, as a currency becomes less stable, or its economy becomes less dominant, bankers may over time abandon it for a currency issued by a larger or more stable economy. This can take a relatively long time, as recognition is important in determining a reserve currency. For example, it took many years after the United States overtook the United Kingdom as the world's largest economy before the dollar overtook the pound sterling as the dominant global reserve currency.The Retirement of Sterling as a Reserve Currency after 1945: Lessons for the US Dollar?
, Catherine R. Schenk, Canadian Network for Economic History conference, October 2009.
In 1944, when the US dollar was chosen as the world reference currency at Bretton Woods, it was only the second currency in global reserves. The G8 also frequently issues public statements as to
exchange rates In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...
. In the past due to the
Plaza Accord The Plaza Accord was a joint–agreement signed on September 22, 1985, at the Plaza Hotel in New York City, between France, West Germany, Japan, the United Kingdom, and the United States, to depreciate the U.S. dollar in relation to the French ...
, its predecessor bodies could directly manipulate rates to reverse large
trade deficit The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...
s.


Major reserve currencies


United States dollar

The
United States dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
is the most widely held currency in the allocated reserves, representing about 61% of international foreign currency reserves, which makes it somewhat easier for the United States to run higher trade deficits with greatly postponed economic impact or even postponing a
currency crisis A currency crisis is a type of financial crisis, and is often associated with a real economic crisis. A currency crisis raises the probability of a banking crisis or a default crisis. During a currency crisis the value of foreign denominated deb ...
. Central bank US dollar reserves, however, are small compared to private holdings of such debt. If non-United States holders of dollar-denominated assets decided to shift holdings to assets denominated in other currencies, then there could be serious consequences for the US economy. Changes of this kind are rare, and typically change takes place gradually over time, and markets involved adjust accordingly. However, the US dollar remains the preferred reserve currency because of its stability along with assets such as
United States Treasury security United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Since 2012, U.S. go ...
that have both scale and liquidity. The US dollar's position in global reserves is often questioned because of the growing share of unallocated reserves, and because of the doubt regarding dollar stability in the long term. However, in the aftermath of the financial crisis, the dollar's share in the world's foreign-exchange trades rose slightly from 85% in 2010 to 87% in 2013. The dollar's role as the undisputed reserve currency of the world allows the United States to impose unilateral sanctions against actions performed between other countries, for example the American fine against BNP Paribas for violations of U.S. sanctions that were not laws of France or the other countries involved in the transactions. In 2014 China and Russia signed a 150 billion yuan
central bank liquidity swap Central bank liquidity swap is a type of currency swap used by a country's central bank to provide liquidity of its currency to another country's central bank. In a liquidity swap, the lending central bank uses its currency to buy the currency of an ...
line agreement to get around European and American sanctions on their behaviors.


Euro

The
euro The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
is currently the second most commonly held reserve currency, representing about 21% of international foreign currency reserves. After World War II and the rebuilding of the German economy, the German
Deutsche Mark The Deutsche Mark (; English: ''German mark''), abbreviated "DM" or "D-Mark" (), was the official currency of West Germany from 1948 until 1990 and later the unified Germany from 1990 until the adoption of the euro in 2002. In English, it was ...
gained the status of the second most important reserve currency after the US dollar. When the euro was introduced on 1 January 1999, replacing the Mark,
French franc The franc (, ; sign: F or Fr), also commonly distinguished as the (FF), was a currency of France. Between 1360 and 1641, it was the name of coins worth 1 livre tournois and it remained in common parlance as a term for this amount of money. It w ...
and ten other European currencies, it inherited the status of a major reserve currency from the Mark. Since then, its contribution to official reserves has risen continually as banks seek to diversify their reserves, and trade in the
eurozone The euro area, commonly called eurozone (EZ), is a currency union of 19 member states of the European Union (EU) that have adopted the euro (€) as their primary currency and sole legal tender, and have thus fully implemented EMU policies ...
continues to expand. After the
euro The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
's share of global official foreign exchange reserves approached 25% as of year-end 2006 (vs 65% for the
U.S. dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
; see table above), some experts have predicted that the euro could replace the dollar as the world's primary reserve currency. See
Alan Greenspan Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. ...
, 2007; and Frankel, Chinn (2006) who explained how it could happen by 2020. However, as of 2022 none of this has come to fruition due to the
European debt crisis The European debt crisis, often also referred to as the eurozone crisis or the European sovereign debt crisis, is a multi-year debt crisis that took place in the European Union (EU) from 2009 until the mid to late 2010s. Several eurozone membe ...
which engulfed the PIIGS countries from 2009 to 2014. Instead the euro's stability and future existence was put into doubt, and its share of global reserves was cut to 19% by year-end 2015 (vs 66% for the USD). As of year-end 2020 these figures stand at 21% for EUR and 59% for USD.


Other reserve currencies


Dutch guilder

The Dutch guilder was the ''de facto'' reserve currency in Europe in 17th and 18th centuries.


Pound sterling

The United Kingdom's
pound sterling Sterling (abbreviation: stg; Other spelling styles, such as STG and Stg, are also seen. ISO code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound ( sign: £) is the main unit of sterling, and ...
was the primary reserve currency of much of the world in the 19th century and first half of the 20th century. That status ended when the UK almost bankrupted itself fighting
World War I World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, the United States, and the Ottoman Empire, with fightin ...
and
World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...
and its place was taken by the United States dollar. In the 1950s, 55% of global reserves were still held in sterling; but the share was 10% lower within 20 years. The establishment of the U.S.
Federal Reserve System The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
in 1913 and the economic vacuum following the World Wars facilitated the emergence of the United States as an economic superpower. , the pound sterling represented the fourth largest proportion (by USD equivalent value) of foreign currency reserves and 4.78% of those reserves.


Japanese yen

Japan's
yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the e ...
is part of the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
's (IMF)
special drawing rights Special drawing rights (SDRs, code ) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). SDRs are units of account for the IMF, and not a currency ''per se''. They represent a claim ...
(SDR) valuation. The SDR currency value is determined daily by the IMF, based on the exchange rates of the currencies making up the basket, as quoted at noon at the London market. The valuation basket is reviewed and adjusted every five years."SDR Valuation"
International Monetary Fund website: "The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of a basket of major currencies (the U.S. dollar, Euro, Japanese yen, and pound sterling). The SDR currency value is calculated daily (except on IMF holidays or whenever the IMF is closed for business) and the valuation basket is reviewed and adjusted every five years."
The SDR Values and yen conversion for government procurement are used by the
Japan External Trade Organization is an Independent Administrative Institution established by Japan Export Trade Research Organization as a nonprofit corporation in Osaka in February 1952, reorganized under the Ministry of International Trade and Industry (MITI) in 1958 (later the ...
for Japan's official procurement in
international trade International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy) In most countries, such trade represents a significant ...
.Japanese Government Procurement
Japan External Trade Organization is an Independent Administrative Institution established by Japan Export Trade Research Organization as a nonprofit corporation in Osaka in February 1952, reorganized under the Ministry of International Trade and Industry (MITI) in 1958 (later the ...
website (accessed: 6 January 2015)


Swiss franc

The
Swiss franc The Swiss franc is the currency and legal tender of Switzerland and Liechtenstein. It is also legal tender in the Italian exclave of Campione d'Italia which is surrounded by Swiss territory. The Swiss National Bank (SNB) issues banknotes and the f ...
, despite gaining ground among the world's foreign-currency reserves and being often used in denominating foreign loans, cannot be considered as a world reserve currency, since the share of all foreign exchange reserves held in Swiss francs has historically been well below 0.5%. The daily trading market turnover of the franc, however, ranked fifth, or about 3.4%, among all currencies in a 2007 survey by the
Bank for International Settlements The Bank for International Settlements (BIS) is an international financial institution owned by central banks that "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work thr ...
.


Canadian dollar

A number of central banks (and commercial banks) keep
Canadian dollars The Canadian dollar ( symbol: $; code: CAD; french: dollar canadien) is the currency of Canada. It is abbreviated with the dollar sign $, there is no standard disambiguating form, but the abbreviation Can$ is often suggested by notable style ...
as a reserve currency. In the economy of the Americas, the Canadian dollar plays a similar role to that played by the
Australian dollar The Australian dollar ( sign: $; code: AUD) is the currency of Australia, including its external territories: Christmas Island, Cocos (Keeling) Islands, and Norfolk Island. It is officially used as currency by three independent Pacific Isl ...
(AUD) in the Asia-Pacific region. The Canadian dollar (as a regional reserve currency for banking) has been an important part of the British, French and Dutch Caribbean states' economies and finance systems since the 1950s."The Canadian Dollar as a Reserve Currency"
by Lukasz Pomorski, Francisco Rivadeneyra and Eric Wolfe, Funds Management and Banking Department, The Bank of Canada Review, Spring 2014
The Canadian dollar is also held by many central banks in Central America and South America. It is held in Latin America because of remittances and international trade in the region. Because Canada's primary foreign-trade relationship is with the United States, Canadian consumers, economists, and many businesses primarily define and value the Canadian dollar in terms of the United States dollar. Thus, by observing how the Canadian dollar floats in terms of the US dollar, foreign-exchange economists can indirectly observe internal behaviours and patterns in the US economy that could not be seen by direct observation. Also, because it is considered a
petrodollar Petrodollar recycling is the international spending or investment of a country's revenues from petroleum exports ("petrodollars"). It generally refers to the phenomenon of major petroleum-exporting states, mainly the OPEC members plus Russi ...
, the Canadian dollar has only fully evolved into a global reserve currency since the 1970s, when it was floated against all other world currencies. The Canadian dollar, from 2013 to 2017, was ranked fifth among foreign currency reserves in the world, overtaking Australian Dollar, but is then being overtaken by Chinese Yuan.


Calls for an alternative reserve currency

John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
proposed the
bancor The bancor was a supranational currency that John Maynard Keynes and E. F. Schumacher conceptualised in the years 1940–1942 and which the United Kingdom proposed to introduce after World War II. The name was inspired by the French ''banque ...
, a supranational currency to be used as unit of account in international trade, as reserve currency under the
Bretton Woods Conference The Bretton Woods Conference, formally known as the United Nations Monetary and Financial Conference, was the gathering of 730 delegates from all 44 Allied nations at the Mount Washington Hotel, situated in Bretton Woods, New Hampshire, Unite ...
of 1945. The bancor was rejected in favor of the
U.S. dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
. A report released by the
United Nations Conference on Trade and Development The United Nations Conference on Trade and Development (UNCTAD) is an intergovernmental organization within the United Nations Secretariat that promotes the interests of developing countries in world trade. It was established in 1964 by the ...
in 2010, called for abandoning the U.S. dollar as the single major reserve currency. The report states that the new reserve system should not be based on a single currency or even multiple national currencies but instead permit the emission of international liquidity to create a more stable global financial system. Countries such as Russia and the China, central banks, and economic analysts and groups, such as the
Gulf Cooperation Council The Cooperation Council for the Arab States of the Gulf ( ar, مجلس التعاون لدول العربية الخليج ), also known as the Gulf Cooperation Council (GCC; ar, مجلس التعاون الخليجي), is a regional, interg ...
, have expressed a desire to see an independent new currency replace the dollar as the reserve currency. However, it is recognized that the US dollar remains the strongest reserve currency. On 10 July 2009, Russian President Medvedev proposed a new '
World currency In international finance, a world currency, supranational currency, or global currency is a currency that would be transacted internationally, with no set borders. History First European Banknotes (17th century) The first European banknotes we ...
' at the G8 meeting in London as an alternative reserve currency to replace the dollar. At the beginning of the 21st century, gold and
crude oil Petroleum, also known as crude oil, or simply oil, is a naturally occurring yellowish-black liquid mixture of mainly hydrocarbons, and is found in geological formations. The name ''petroleum'' covers both naturally occurring unprocessed crude ...
were still priced in dollars, which helps export inflation and has brought complaints about
OPEC The Organization of the Petroleum Exporting Countries (OPEC, ) is a cartel of countries. Founded on 14 September 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela), it has, since 1965, been headquart ...
's policies of managing oil quotas to maintain dollar
price stability Price stability is a goal of monetary and fiscal policy aiming to support sustainable rates of economic activity. Policy is set to maintain a very low rate of inflation or deflation. For example, the European Central Bank (ECB) describes price s ...
.


Special drawing rights

Some have proposed the use of the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
's (IMF)
special drawing rights Special drawing rights (SDRs, code ) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). SDRs are units of account for the IMF, and not a currency ''per se''. They represent a claim ...
(SDRs) as a reserve. The value of SDRs are calculated from a basket determined by the IMF of key international currencies, which as of 2016 consisted of the
United States dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
,
euro The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
, renminbi,
yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the e ...
, and
pound sterling Sterling (abbreviation: stg; Other spelling styles, such as STG and Stg, are also seen. ISO code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound ( sign: £) is the main unit of sterling, and ...
. Ahead of a
G20 The G20 or Group of Twenty is an intergovernmental forum comprising 19 countries and the European Union (EU). It works to address major issues related to the global economy, such as international financial stability, climate change mitigatio ...
summit in 2009, China distributed a paper that proposed using SDRs for clearing international payments and eventually as a reserve currency to replace the U.S. dollar. On 3 September 2009, the
United Nations Conference on Trade and Development The United Nations Conference on Trade and Development (UNCTAD) is an intergovernmental organization within the United Nations Secretariat that promotes the interests of developing countries in world trade. It was established in 1964 by the ...
(UNCTAD) issued a report calling for a new reserve currency based on the SDR, managed by a new global reserve bank. The IMF released a report in February 2011, stating that using SDRs "could help stabilize the global financial system."


Chinese yuan

Chinese yuan officially became a supplementary forex reserve asset on 1 October 2016. It represents 10.92% of the IMF's SDR currency basket. The Chinese yuan is the third reserve currency after the U.S. dollar and euro within the basket of currencies in the SDR. The SDR itself is only a minuscule fraction of global currency reserves.


Further reading


Ethan Ilzetzki, Carmen M Reinhart, Kenneth S Rogoff. 2019. "Exchange Arrangements Entering the 21st Century: Which Anchor Will Hold?" ''The Quarterly Journal of Economics''.
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See also

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Commodity currency A commodity currency is a currency that co-moves with the world prices of primary commodity products, due to these countries' heavy dependency on the export of certain raw materials for income. Commodity currencies are most prevalent in developin ...
* Cryptocurrency * Exorbitant privilege *
Floating currency In macroeconomics and economic policy, a floating exchange rate (also known as a fluctuating or flexible exchange rate) is a type of exchange rate regime in which a currency's value is allowed to fluctuate in response to foreign exchange ma ...
*
Foreign exchange reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
* Fiat currency *
Hard currency In macroeconomics, hard currency, safe-haven currency, or strong currency is any globally traded currency that serves as a reliable and stable store of value. Factors contributing to a currency's ''hard'' status might include the stability and ...
*
Krugerrand The Krugerrand (; ) is a South African coin, first minted on 3 July 1967 to help market South African gold and produced by Rand Refinery and the South African Mint. The name is a compound of ''Paul Kruger'', the former President of the South A ...
*
Seigniorage Seigniorage , also spelled seignorage or seigneurage (from the Old French ''seigneuriage'', "right of the lord (''seigneur'') to mint money"), is the difference between the value of money and the cost to produce and distribute it. The term can be ...
*
Special drawing rights Special drawing rights (SDRs, code ) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). SDRs are units of account for the IMF, and not a currency ''per se''. They represent a claim ...


References

{{DEFAULTSORT:Reserve Currency Currency Foreign exchange reserves International finance Monetary hegemony fr:Réserves de change