Reserve Currency

AAA

DEFINITION of 'Reserve Currency'

A foreign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate. A large percentage of commodities, such as gold and oil, are usually priced in the reserve currency, causing other countries to hold this currency to pay for these goods. Holding currency reserves, therefore, minimizes exchange rate risk, as the purchasing nation will not have to exchange their currency for the current reserve currency in order to make the purchase.

INVESTOPEDIA EXPLAINS 'Reserve Currency'

In 2011, the U.S. dollar was the primary reserve currency used by other countries. As a result, foreign nations closely monitored the monetary policy of the United States in order to ensure that the value of their reserves is not adversely affected by inflation.

RELATED TERMS
  1. Strategic Investment Fund

    The Strategic Investment Fund is a government-owned sovereign ...
  2. Khazanah Nasional Berhad

    The Khazanah Nasional is a government-owned investment organization ...
  3. Central Bank

    The entity responsible for overseeing the monetary system for ...
  4. Eurocurrency

    Currency deposited by national governments or corporations in ...
  5. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
  6. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
Related Articles
  1. Personal Finance

    What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  2. Forex Education

    Make The Currency Cross Your Boss

    Tap into a world of possibilities by going beyond the simple pro- or anti-dollar trade.
  3. Personal Finance

    What Is The Bank For International Settlements?

    Get the scoop on the structure and functions of the oldest global financial institution.
  4. Forex

    How do central banks acquire currency reserves and how much are they required to hold?

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign exchange reserves. Reserve currencies usually also become the international ...
  5. Forex

    Is there a world currency? If so, what is it?

    There is no such thing as a world currency. However, since World War II, the dominant or reserve currency of the world has been the U.S. dollar. At one time, all currencies were backed by gold, ...
  6. Economics

    What is the difference between monetary policy and fiscal policy?

    Examine some of the important and understated differences between how fiscal policy and monetary policy impact a nation's economy.
  7. Economics

    Under what circumstances will a government change its monetary policy?

    Learn about the kind of variables, including political and theoretical factors, that can bring about change in a government's monetary policy.
  8. Economics

    How does monetary policy influence inflation?

    Take a deeper look at how contemporary central banks attempt to target and control the level of inflation through monetary policy tools.
  9. There are many ways to rank the word's most powerful companies. Looking at market value, brand value or sales revenue are all methods used to rank the biggest companies in the world.
    Economics

    Most Powerful And Influential Public Companies In 3 Metrics

    There are many ways to rank the word's most powerful companies. Looking at market value, brand value or sales revenue are all methods used to rank the biggest companies in the world.
  10. A look at China's plan to control population growth and how it could change going forward.
    Economics

    China's One-Child Policy Explained

    A look at China's plan to control population growth and how it could change going forward.

You May Also Like

Hot Definitions
  1. Christmas Tree

    An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at ...
  2. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
  3. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year. For ...
  4. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  5. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  6. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
Trading Center