US Dollar Reserve Currency Status
The US dollar has been the world’s primary reserve currency since the Bretton Woods agreement in 1944. This means that most countries and international businesses hold large amounts of dollars as their primary foreign exchange reserves, rather than their own domestic currencies. The status of a reserve currency gives the US an economic advantage, allowing it to borrow at lower interest rates, engage in more efficient global trade and accumulate debt with relative ease.
Over time, other currencies such as the euro and yen have made significant gains on the US dollar’s supremacy as a global reserve currency. In fact, according to estimates from 2019 by IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER), 61% of official foreign exchange reserves were held in US dollars while 20% were held in euros and 4% were held in Japanese yen. Despite this competition from other major currencies however, it is clear that the USD remains king when it comes to its role as a global reserve currency.
The advantages offered by having a strong position primarily stem from being able to borrow money at low interest rates due to investors’ confidence in its stability and liquidity; engaging in more efficient cross-border trade because payments are easier between two parties who use different home currencies; accumulating debts due to access to cheaper credit lines; among others
As such, despite growing competition for its status over recent decades, the dominance of US dollar looks likely continue into future years thanks largely owing its continuing strength within international markets through 2020 so far .
