A reserve currency (or anchor currency ) is a currency held in significant amount by governments and agencies as part of their foreign exchange reserves. The reserve currency is commonly used in international transactions, international investments and all aspects of the global economy. This is often considered a hard currency or a safe-haven currency. People living in countries that issue a reserve currency can buy imports and borrow across borders cheaper than people in other countries because they do not have to swap their currency to do so.
By the end of the 20th century, the US dollar was considered the most dominant reserve currency in the world. The world's need for dollars has allowed the United States and American governments to borrow at lower costs, giving them a profit of over $ 100 billion per year.
Video Reserve currency
Histori
The reserve currency comes and goes. International currencies in the past have included Greek drachmas, created in the fifth century BC, Roman denominations, Byzantine solidar and medieval Arabian dinars, Venetian ducato and Florentine florin Renaissance, seventeenth-century Dutch guilders and French francs.
Dutch Gilda emerged as the world's currency in the 18th century because of the dominance of trade by the Dutch East India Company that has never happened before. However, the development of the modern concept of a reserve currency took place in the mid-nineteenth century, with the introduction of a national central bank and an increasingly integrated global treasury and economy. In the 1860s, most industrialized countries had followed the UK's footsteps and put their currency on the gold standard. At that time the UK was a major exporter of manufactured goods and services and more than 60% of world trade was billed in pound sterling. British banks are also expanding abroad, London is a world center for the insurance and commodity markets and UK capital is a major source of foreign investment worldwide; sterling soon became the standard currency used for international commercial transactions.
Efforts were made in the interwar period to restore the gold standard. The Gold Standard Law reintroduced the gold bullion standard in 1925, followed by many other countries. This led to relative stability, followed by deflation, but due to the Great Depression and other factors, global trade greatly declined and the gold standard fell. The speculative strikes on the pound forced the British completely from the gold standard in 1931.
After World War II, the international financial system was governed by a formal agreement, the Bretton Woods System. Under this system, the United States dollar is deliberately placed as an anchor system, with the US government securing other central banks that they can sell their US dollar reserves with fixed interest rates for gold.
In the late 1960s and early 1970s, the system suffered a setback that seemed to be caused by the problem posed by Triffin's dilemma - the emerging economic conflicts between short-term domestic destinations and long-term international goals when the national currency also served as the eye money reserves of the world.
Maps Reserve currency
Global currency reserves
Thus the following table is a limited view of global currency reserves that deal only with allocated reserves:
Currency composition of official foreign exchange reserves from 1995 to 2013.
Theory
Economists debate whether a single reserve currency will always dominate the global economy. Many have recently argued that one currency will almost always dominate due to network externalities (sometimes called "network effects"), especially in the area of ​​invoicing and denominated foreign debt trade, which means that there is a strong incentive to adapt to choices that dominate the market. The argument is that, in the absence of large shocks, the currency that dominates the market will not lose many reasons for the challengers.
However, some economists, such as Barry Eichengreen, argue that this is not true when it comes to official reserve denominations because of network externalities is not strong. As long as the currency market is fairly liquid, the benefits of reserve diversification are very strong, as it guarantees substantial capital losses. The implication is that the world may soon start to move away from the financial system that is uniquely dominated by the US dollar. In the first half of the 20th century, many currencies share the status as the primary reserve currency. Although the British Sterling was the largest currency, both the French franc and the German brand shared most of the market until the First World War, after which the mark was replaced by the dollar. Since the Second World War, the dollar has dominated the official reserves, but this may be a reflection of the unusual dominance of the American economy during this period, as well as the official disappointment of reserve status from potential rivals Germany and Japan.
The top reserve currency is generally chosen by the banking community for the strength and stability of the economy in which it is used. Thus, when the currency becomes less stable, or its economy becomes less dominant, the bankers eventually leave it for the currency issued by a larger or more stable economy. This can take a relatively long time, because recognition is important in determining the reserve currency. For example, it took years after the United States took over the United Kingdom as the world's largest economy before the dollar took over the pound sterling as the dominant global reserve currency. In 1944, when the US dollar was chosen as the world reference currency at Bretton Woods, it was only the second currency in global reserves.
The G8 also often issues public statements as exchange rates. In the past because of the Plaza Accord, its predecessor's body could have directly manipulated rates to reverse large trade deficits.
Primary reserve currency
United States Dollar
United States Dollar is the most heavily owned currency in Allocated Reserves today. Over the last decade, an average of two-thirds of the country's total foreign reserves have been allocated in US dollars. For this reason, the US dollar is said to have a "reserve currency status", making it somewhat easier for the United States to run a higher trade deficit with a highly delayed economic impact or even delaying currency crises. Central bank deposits kept in dollar-denominated debt are small, compared to private ownership of the debt. In the case of non-US dollar-denominated assets owners deciding to transfer ownership of assets in other currencies, there may be serious consequences for the US economy. This kind of change is rare, and usually changes occur gradually over time; the markets involved adjust accordingly.
However, the dollar remains a favorite reserve currency because it has stability along with assets such as US Treasury security that has scale and liquidity.
The dominant position of the US dollar in global reserves is sometimes challenged, as the larger reserves are unallocated, and because of doubts about dollar stability in the long term. However, after the financial crisis, the share of dollars in world foreign exchange trading rose slightly from 85% in 2010 to 87% in 2013.
The role of the dollar as the undeniable reserve currency of the world allows the United States to impose unilateral sanctions on acts committed between other countries, such as the American fine against BNP Paribas for violations of US sanctions that are not French or other countries involved. in the transaction. In 2014, Beijing and Moscow signed a 150 billion yuan central bank liquidity swap agreement to tackle American sanctions for their behavior.
Euro
The euro is currently the second most commonly reserved currency, comprising about a quarter of the allocated holdings. After World War II and the rebuilding of the German economy, Germany's Deutsche Mark earned the status of the second most important reserve currency after the US dollar. When the euro was introduced on 1 January 1999, replacing Mark, the French franc and ten other European currencies, inherited the main reserve currency status of Mark. Since then, his contribution to official reserves has steadily increased as banks seek to diversify their reserves, and trade in the euro zone continues to expand.
Former Federal Reserve Chairman Alan Greenspan said in September 2007 that the euro could replace the US dollar as the world's major reserve currency. It's "absolutely imaginable that the euro will replace the US dollar as a reserve currency, or it will be traded as an equally important reserve currency." Econometric analysis by Jeffrey Frankel and Menzie Chinn in 2006 suggested that the euro could replace the US dollar as the main reserve currency by 2020 if remaining EU members, including Britain and Denmark, adopt the euro by 2020, or recent depreciation trends. the dollar persists in the future. In recent years, the euro's share of the world's reserve currency basket has continued to rise - albeit at a slower pace than before the onset of the world credit recession linked to the euro zone crisis and crisis, harming the euro and slowing its adoption. Since 2009, the use of the reserve currency of the euro has continued to decline, dropping to 23.9 percent by 2013.
Other reserve currency
Dutch Dutch guilders
The Dutch sugar is the de facto reserve currency in Europe in the 17th and 18th centuries.
Pound sterling
The British Pound was the main reserve currency of most of the world in the 19th century and the first half of the 20th century. The emergence of the US as an economic superpower, and the establishment of the US Federal Reserve System in 1913, and the US economic dominance of the second half of the 20th century in the future, as well as the economic weakness in Britain at various times during the second half of the 20th century, resulted in Sterling lost its status as the most important reserve currency in the world: in the 1950s, 55% of global reserves were kept in sterling; but that portion is 10% lower in 20 years.
Since 2006, with the exception of 2012, Sterling is the third most widely held reserve currency, having seen a rise in popularity in recent years, growing from about 2.5% to about 4% of all reserve currencies. Analysts say the revival is due to carry-trade investors given the pound as a proxy for stable high yields against the euro, and by London's position in world financial affairs.
Japanese Yen
The Japanese Yen is part of the International Monetary Fund's (IMR) special drawing rights (SDR) valuation. The SDR currency rate is determined daily by the IMF, based on currency exchange rates that make up the basket, as quoted during the day on the London market. Assessment bays are reviewed and adjusted every five years.
The value of the SDR and the conversion of the yen for government procurement is used by the Japan External Trade Organization for the official procurement of Japan in international trade.
Swiss franc
The Swiss franc, although gaining ground among the world's foreign currency reserves and often used in foreign loan denominations, can not be considered the world's reserve currency, since the share of all foreign exchange reserves held in the Swiss franc is historically well below 0.5 % The daily franc trading market turnover, however, ranked fifth, or about 3.4%, among all currencies in a 2007 survey by the Bank for International Settlements.
Canadian Dollar
A number of central banks (and commercial banks) keep the Canadian dollar as a reserve currency. In the US economy, the Canadian dollar plays a role similar to that played by the Australian dollar (AUD) in the Asia-Pacific region. The Canadian Dollar (as the regional reserve currency for banks) has been an important part of the economic and financial system of British, French and Dutch countries since the 1950s. The Canadian Dollar is also held by many central banks in Central and South America. It was held in Latin America due to remittances and international trade in the region.
Since Canada's main foreign trade relationship is with the United States, Canadian consumers, economists and many businesses primarily determine and value the Canadian dollar in terms of the United States dollar. Thus, by observing how the Canadian dollar floats in terms of the US dollar, foreign exchange economists indirectly can observe internal behavior and patterns in the US economy that can not be seen by direct observation. Also, being considered petrodollars, the Canadian dollar has only fully evolved into a global reserve currency since the 1970s, when it is floating against all other world currencies.
The Canadian dollar, since 2013, is ranked 5th among the world's foreign currency reserves.
Chinese Yuan
Chinese Yuan officially became the world's reserve currency on November 30, 2015. It represents 10.92% of the IMF Special Drawing Currency basket. This makes the Chinese yuan a third reserve currency after the US dollar and Euro.
Call for alternative backup currency
A report released by the United Nations Conference on Trade and Development in 2010, called for leaving the US dollar as the single major reserve currency. The report states that the new reserve system should not be based on a single currency or even a double national currency but enable international liquidity emissions to create a more stable global financial system.
Countries such as Russia and the People's Republic of China, central banks, and analysts and economic groups, such as the Gulf Cooperation Council, have expressed a desire to see an independent new currency replace the dollar as a reserve currency.
On July 10, 2009, Russian President Medvedev proposed a new 'world currency' at the G8 meeting in London as an alternative reserve currency to replace the dollar.
China, Russia, India, Turkey, Brazil, Venezuela and other oil-producing countries recently agreed "to transact all trade and investment together with them in their own currency" effectively minimize the need, at least in the short term, to global reserve currency. Nevertheless, at the beginning of the 21st century, gold and crude oil are still valued in dollars, which aided in the export of inflation and have brought concerns about OPEC's policy of managing oil quotas to keep the price stability of the dollar.
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Some have proposed the use of special International Monetary Fund (IMF) withdrawal rights as reserves.
China proposes using SDR, calculated daily from a basket of US dollars, euros, Japanese yen, and British pound, for international payments.
On September 3, 2009, the United Nations Conference on Trade and Development (UNCTAD) issued a report calling for new currency reserves under the SDR, managed by a new global reserve bank. The IMF released its report in February 2011, stating that using SDR "can help stabilize the global financial system."
See also
References
Further reading
Source of the article : Wikipedia
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