Definition of Reserve currency:
A strong currency widely used in international trade that a central bank is prepared to hold as part of its foreign exchange reserves.
Holding a reserve currency minimizes exchange rate risk, as the purchasing nation will not have to exchange its currency for the current reserve currency to make the purchase. Since 1944, the U.S. dollar has been the primary reserve currency used by other countries. As a result, foreign nations closely monitor the monetary policy of the United States to ensure that the value of their reserves is not adversely affected by inflation or rising prices.
One of the national currencies (dollar, euro, yen, etc.) or IMFs special drawing rights (SDR) used by a country to hold its foreign currency reserves and gold for settling international trade transactions and other obligations.
A reserve currency is a large quantity of currency maintained by central banks and other major financial institutions to prepare for investments, transactions, and international debt obligations, or to influence their domestic exchange rate. A large percentage of commodities, such as gold and oil, are priced in the reserve currency, causing other countries to hold this currency to pay for these goods.
How to use Reserve currency in a sentence?
- A reserve currency is a large amount of currency held by central banks and major financial institutions to use for international transactions.
- Reserve currency helps facilitate global transactions, including investments and international debt obligations.
- The dollar itself became an international reserve currency, which central banks were prepared to accept as payment in external dealings rather than insisting on payment in their own national currencies.
- A reserve currency reduces exchange rate risk since there's no need for a country to exchange its currency for the reserve currency to do trade.
- A large percentage of commodities are priced in the reserve currency, causing countries to hold this currency to pay for these goods.
Meaning of Reserve currency & Reserve currency Definition