Reserve currency

A reserve currency (or anchor currency) is a currency which is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. It also tends to be the international pricing currency for products traded on a global market, such as oil, gold, etc.

This permits the issuing country to purchase the commodities at a marginally lower rate than other nations, which must exchange their currency with each purchase and pay a transaction cost. (For major currencies, this transaction cost is negligible with respect to the price of the commodity.) It also permits the government issuing the currency to borrow money at a better rate, as there will always be a larger market for that currency than others.

Contents [hide]
1 Global currency reserves
2 History
3 Theory
4 United States dollar
5 Euro
6 Pound sterling
7 Other notable reserve currencies
8 See also
9 References



[edit] Global currency reserves
Currency composition of official foreign exchange reserves '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
US dollar 59.0% 62.1% 65.2% 69.3% 70.9% 70.5% 70.7% 66.5% 65.8% 65.9% 66.4% 65.7% 64.1% 64.0%
Euro 17.9% 18.8% 19.8% 24.2% 25.3% 24.9% 24.3% 25.2% 26.3% 26.5%
German mark 15.8% 14.7% 14.5% 13.8%
Pound sterling 2.1% 2.7% 2.6% 2.7% 2.9% 2.8% 2.7% 2.9% 2.6% 3.3% 3.6% 4.2% 4.7% 4.1%
Japanese yen 6.8% 6.7% 5.8% 6.2% 6.4% 6.3% 5.2% 4.5% 4.1% 3.9% 3.7% 3.2% 2.9% 3.3%
French franc 2.4% 1.8% 1.4% 1.6%
Swiss franc 0.3% 0.2% 0.4% 0.3% 0.2% 0.3% 0.3% 0.4% 0.2% 0.2% 0.1% 0.2% 0.2% 0.1%
Other 13.6% 11.7% 10.2% 6.1% 1.6% 1.4% 1.2% 1.4% 1.9% 1.8% 1.9% 1.5% 1.8% 2.0%
Sources: 1995-1999, 2006-2008 IMF: Currency Composition of Official Foreign Exchange ReservesPDF (80 KB)
Sources: 1999-2005, ECB: The Accumulation of Foreign ReservesPDF (816 KB) v • d • e