Reserve Currency
A reserve currency is a type of currency held by central banks and other major financial institutions as part of their foreign exchange reserves. This currency is typically used for international transactions, such as buying and selling goods or services between countries. Reserve currencies are also known as “hard” currencies, because they tend to remain stable due to the large amounts being held by major financial institutions.
The most commonly used reserve currencies are the United States dollar (USD), the euro (EUR), the Japanese yen (JPY) and the British pound sterling (GBP). These four currencies make up more than 80% of global foreign exchange reserves in 2020. Other reserve currencies include the Swiss franc (CHF) and Canadian dollar (CAD).
The use of a particular country’s currency as a reserve can provide economic benefits to that nation, including increased demand for its exports, more access to capital markets, and lower borrowing costs for government debt. It can also help maintain stability in world markets since investors may view these types of investments as less risky during times of geopolitical or macroeconomic uncertainty.
Cryptocurrency has not yet been adopted widely enough to become an accepted form of reserve currency; however, some nations have begun experimenting with its use in certain cases. In 2019 Venezuela launched its own cryptocurrency called Petro which it hoped would serve both domestic and international monetary functions like providing payment options for citizens with limited access to banking services or protecting against inflationary pressures within their economy – although this project has yet to yield tangible results outside Venezuelan borders so far.