We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Reserve Currency?

By Adam Hill
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Certain currencies of the world have been used throughout history as a means of international exchange. A currency that is held by many governments and institutions, and used by them to pay off international debts or influence their exchange rates, is known as a reserve currency. For many years, and especially since World War II, the U.S. Dollar has been the most widely used reserve currency, due to its reputation for stability, among other reasons. Many commodities which are used worldwide, such as gold and oil, are priced in U.S. Dollars, making it a good practice for countries to keep dollars on hand to purchase these commodities.

Any currency that is widely recognized and trusted can serve as a reserve currency. The idea of reserve currency has existed in one form or another for centuries. However, the modern international banking system has cemented the need for one much more so than older economic structures. Central banks around the world may hold funds in a variety of currencies in reserve, in addition to their own. They do this mainly to store value, as much as a backup for their own currency as for strategic reasons, should any contingency arise. Any of the foreign currencies used in such a manner could be thought of as a reserve currency.

Traditionally, the U.S. Dollar has been the preferred reserve currency of the world. Roughly two thirds of worldwide currency reserves are held in dollars. More recently, the Euro has seen increased use as a reserve currency. This is perhaps partly because many of the currencies of the countries that now make up the European Union were used as reserve currencies before the Euro was adopted for wide use. Because of the popularity of the Euro, there is considerable debate and speculation as to whether it will eventually replace the Dollar as the world's most preferred reserve currency.

After World War II, the global financial system was redesigned to place the U.S. Dollar at the center. The U.S. bought gold from participating nations, promising them that they could trade their dollars for gold at a fixed rate at any time they wished. The nations of Europe, as well as Japan, allowed their currencies to be devalued under this system in order to make their exports competitive in a world market. This universal gold standard was known as the Bretton Woods System, and lasted until the 1970s, when the U.S. effectively terminated the ability of other countries to convert their dollars into gold.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Discussion Comments
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.