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. Eurocurrency

    Currency deposited by national governments or corporations in ...
  4. Central Bank

    The entity responsible for overseeing the monetary system for ...
  5. Sovereign Wealth Fund - SWF

    Pools of money derived from a country's reserves, which are set ...
  6. Linked Exchange Rate System

    A system of managing a nation's currency and exchange rate by ...
RELATED FAQS
  1. How do changes in national interest rates affect a currency's value and exchange ...

    All other factors being equal, higher interest rates in a country increase the value of that country's currency relative ... Read Full Answer >>
  2. Is there a world currency? If so, what is it?

    T here is no such thing as a world currency. However, since World War II, the dominant or reserve currency of the world has ... Read Full Answer >>
  3. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Full Answer >>
  4. What is the difference between consumer surplus and economic surplus?

    The consumer surplus is the difference between the highest price a consumer is willing to pay and the actual market price ... Read Full Answer >>
  5. What does it signify about a given product if the consumer surplus figure for that ...

    High consumer surplus for a particular product signifies a high level of utility for consumers and may carry some implications ... Read Full Answer >>
  6. Is credit a form of fiat money?

    To understand why credit is a form of fiat money, one must first understand what money is. At its most basic level, money ... Read Full Answer >>
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. Economics

    What is a Capital Account?

    Capital account is an economic term that refers to the net change in investment and asset ownership for a nation.
  5. Economics

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.
  6. Investing

    The Labor Market Recovery’s Missing Ingredient

    Job creation is running at the fastest pace since the 90s, and there is some evidence that wage growth is finally starting to accelerate, albeit modestly.
  7. Economics

    Gambling on Macau: Too Risky?

    Macau was once heralded as the new Las Vegas for casino investors. Is it too late?
  8. Economics

    When To Expect Fed Liftoff Now

    “When will the Fed raise interest rates?” That has been the question of many investors since the Fed indicated it was prepared to end its zero rate policy.
  9. Economics

    Why Is The Federal Reserve Independent?

    An overview of the independent status of the Federal Reserve and arguments for and against it.
  10. Investing

    When Will The Bull Market End?

    A few weeks ago, the current bull market celebrated its sixth anniversary, making it one of the longest in history.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center