20
Mar
2016

What are world reserve currencies?

A smart investor who expects to succeed must constantly improve his skills.


If your activity is related to deposits in currencies (for example, you trade), then you have to constantly follow the news and understand complex terms.

What are world reserve currencies? Not so long ago, the yuan as the world's reserve currency began to be used, and with it, interest in this direction increased. Many of our regular readers invest in international currencies, so we decided to cover this complex topic.

Reserve currency, why use it?

We will try to explain everything in such a way that even a beginner can get a general idea of ​​this term (for convenience, we will abbreviate it as RTM).

All countries have a Central Bank, its activities are aimed at regulating economic issues. In particular, it is created to support the national currency.

In order to be able to manage quotes (), the Central Bank contains a special balance used for various manipulations.

Surely you have heard about the country's gold reserve, it is almost the same, only all assets are converted into gold to make it convenient to store them.

In addition to gold, assets are held in various world reserve currencies. As the saying goes " Don't put all your eggs in one basket". The state is well aware of how risky it is to hold the same assets, so it tries to distribute them into several parts.

In the future, world reserve currencies are used to adjust the exchange rate of the national currency, conduct international transactions, and also for investment purposes.

What are the criteria for choosing an MRV?

The government of the countries independently determines which RTMs to use. To ensure reliability, the most stable currencies with minimal inflation, such as the dollar, are used. Otherwise, it could harm the economy.

There is an International Monetary Fund, which is located in the United States and through it new RTIs are established. They are selected according to a variety of criteria, but there are a couple of main factors here - this is the development of the economy and its scale.

For example, in the 18th century, the English pound was the world's most popular currency. The UK had the most developed economy. The dollar came to replace it because it was used on a larger scale.

The new global reserve currency, the Yuan, is a great example. China is developing at a rapid pace, increasing production, increasing imports all the time, and so on. Therefore, the addition of its national currency to the MRI list does not surprise anyone.

What are the world's reserve currencies?

Due to the general statistics of the currencies used, it is possible to draw conclusions about which money is better to invest your assets in. Here is what the list of world reserve currencies looks like today:

1. American dollars.
2. Euro.
3. English pounds.
4. Japanese yen.
5. Swiss frank.
6. Chinese yuan.

In addition, there is a special currency, used by the International Monetary Fund. It consists of several national currencies in the following volumes:

• 41.73% - US dollar.
• 30.93% - European euros.
• 10.92% - Chinese yuan.
• 8.33% - Japanese yen.
• 8.09% - British pound.

Special borrowing facilities (SDRs) have been used since 1969, they were created by the IMF to solve global problems. It is unlikely that you will be as interested in this as the TOP 10 countries in terms of reserves.

Reserve currencies These are the monetary units of certain countries, which are used by the central banks of various states for accumulation in their own gold and foreign exchange reserves.

Besides reserve currencies act as a means of payment in the exchange of goods and services at the international level (i.e. in international trade).

Currently, the role of the world's leading reserve currencies is played by: the US dollar (), the European currency euro (), the British pound (), the Japanese yen (YEN or), the Swiss franc () and others. The percentage of international reserves of the respective monetary units is shown in the table.

Reserve currencies, being in the assets of various states, can be used to pay off the deficit of the country's balance of payments, for implementation (in order to equalize the exchange rate of the national currency), in the interests of international payment transactions, and also in order to increase the competitiveness of export operations by weakening their own currency , as well as in the role of an airbag in case of financial instability.

Reserve currencies (RV) must have the following features

1. The main quality is its stability as a means of payment. In other words, the use of such a currency implies the least risk of loss due to fluctuations in its value. The reserve unit must be stable, freely and easily convertible to other foreign currencies.
2. The second sign is the scale of the country's economy and its share in international trade. The greater the percentage of the presence of the economic structure of the issuing country in the global financial space, the easier it is to introduce its currency into international settlements.
3. The third property of RW is the degree of maturity of the national capital market. The more developed the financial market, the easier it is to attract loans (at low cost) and invest in instruments with optimal returns - as a result of this, an influx of foreign investors will constantly be observed in the domestic market of the state.

Thus, in order to obtain the status of a reserve, a monetary unit must be stable, stable, be the currency of a country with a large, developed economy, involved in international trade and having a mature financial market.

Reserve currency

(reserve currency)

A reserve currency is a foreign currency that is owned, trusting its stability

World reserve currencies, functions of reserve currencies, advantages and disadvantages of their use, euro, pound, franc and ruble as world reserve currencies

World reserve currencies as a reserve currency World reserve currency - pound sterling Yen as an important reserve currency Reserve currency Swiss franc Special Drawing Rights Other currencies Reserve currency functions Reserve currency as a means of payment Reserve currency as a means of payment Reserve currency as a tool for the preservation and accumulation of capital Prospects for the Russian ruble as a reserve currency Sources and links

Reserve currency is, definition

The reserve currency is recognized world currency, accumulated by the central banks of various countries as foreign exchange reserves. Reserve currency is an investment asset, performs the function of a means by which the currency is determined, is used to carry out foreign exchange interventions if necessary, and also acts as a means for international settlements by central banks.

Reserve currency- This universally recognized in the world National currency, which accumulates in the central banks other countries in foreign exchange reserves. It performs the function of an investment asset, serves as a way to determine the currency parity, is used, if necessary, as a means of carrying out foreign exchange interventions, as well as for international payments.

The reserve currency is foreign currency owned by the state, trusting its stability and expecting to use it to pay off foreign debts. For many years, the United States dollar and the pound sterling played the role of reserve currency, but now many states prefer the currency of Japan and the German mark.

The reserve currency is foreign currency that is accumulated by central banks in foreign exchange reserves and is used for international settlements.

The reserve currency is

The reserve currency is world currency, acting as an investment asset. Accumulated by Central Banks in foreign exchange reserves. The reserve currency is designed to determine the currency parity and is often used for foreign exchange interventions and international payments.

The reserve currency is a currency generally recognized in the world, which is accumulated by central banks in foreign exchange reserves, performing the function of an investment asset, and is used for international payments.

The reserve currency is currency accumulated central bank country for international payments. A freely convertible (convertible) currency usually acts as a reserve. Late 60s - early 70s. 20th century the widest application as R. in. got U.S. $, the British pound sterling, and the German mark, which serve more than half of the international payment turnover of the capitalist countries.

The reserve currency is

The essence and status of the reserve currency

A reserve currency is usually understood as the currency that central banks and governments of various countries use to store their reserves. It is this definition that is used in modern economic literature and is given both in dictionaries and in scientific articles. One of the most important features of a reserve currency is its stability as a means of payment. In other words, the use of a reserve currency by economic agents implies minimal losses due to fluctuations in its value. One of the factors of currency stability is its free convertibility. Thus, if the monetary unit is stable and can be freely exchanged for other currencies at any time, this inspires the confidence of economic agents, and they will use it for settlements among themselves.

The next factor in the formation of a reserve currency is the size of the economy of the issuing country and its share in world trade. The currency of a country whose economy occupies a significant share in the global economy is more likely to be used in international settlements. A large share of the country in world economy creates the prerequisites for giving its currency the role of an international means payment. This is what helped the Dutch guilder to become the main currencies in the 17th century, the British pound sterling in the 19th century. And United States dollar in the 20th century and up to the present. For example, the creation of the euro used in countries whose total GDP is approximately equal to GDP United States, created the prerequisites for the growth of the role of . Moreover, the dramatic increase in the role of the People's Republic of China as one of the leading economies in recent decades has led to widespread discussion of the potential of the yuan as one of the main world currencies.

The reserve currency is

Thus, in order to become a reserve currency, it needs to be stable, to be the currency of a large economy, widely involved in the global trade and having developed financial markets. However, we emphasize once again that the status of a reserve currency is acquired only after the central banks of other countries begin to use this currency to store their reserves.

The status of a reserve currency gives the issuing country certain advantages: the ability to cover the balance of payments deficit with the national currency (what is happening now with the trade balance USA), to help strengthen the position of national corporations in the competitive struggle in the global market. At the same time, the promotion of the currency to the role of a reserve imposes on the issuing country the obligation to maintain the stability of the currency, remove currency and trade restrictions, and take measures to eliminate the deficit. balance of payments.

The reserve currency is

Initially, the English pound sterling, which played a dominant role in international settlements. Decisions of the Bretton Woods Conference ( USA, 1944), along with the pound sterling, the United States dollar began to be used as an international payment and reserve currency, which soon occupied a dominant position in international settlements.

On January 8, 1976, as a result of the agreements, the Jamaica Monetary Conference (Kingston,) was officially formed, which provided for the free fluctuation of exchange rates. In addition to the US dollar, they began to use as reserve currencies German mark(Later ) And Japanese currency.

The reserve currency is

The Jamaican Agreement for the first time legally formalized the demonetization of gold. This was reflected in the cancellation:

Official prices on gold;

Fixing the gold content of currencies, and hence the gold parities (formally, the basis of currency parities in the IMF Charter are the Special Drawing Rights);

Contributions gold member countries in it.

However, despite the legal removal of gold from the monetary system, it continues to perform such a function of world money as an international reserve.

Table International savings in foreign exchange reserves

US as a reserve currency

The United States dollar is considered the main reserve currency of our world or the universal currency (the value of this will not change). During the last decade, more than 50 percent of the total gold reserves of the world's states were in US dollars. From 2003 to 2008, as the euro strengthened and negative trends accumulated in the United States economy, the dollar exchange rate against other currencies and its role as a reserve currency declined.

The United States dollar (USD) became the world's leading currency after World War II. Today dollar is a universal means of payment in international business, a safe-haven currency in various financial and political crises in other countries, as well as an object of international investment, thanks to a large volume of highly reliable securities - long-term US government bonds. Confidence in the stability of the American economic and financial system, in the fact that all income from government debt securities will be paid on time, not requisitioned and not subject to unexpected tax, attracts both private foreign investors and foreign governments.

In recent years, the US stock market has shown unprecedented growth, attracting huge capitals foreign and domestic investors, which serves as an additional source of strength dollar. Since the mid-80s, American stocks have become a more profitable investment option. money than gold: stocks rose, and price gold fell. But after 1993, American stocks are growing so fast that not only independent experts, but also officials have repeatedly expressed fears that stock prices are too high and their fall could be too sharp and lead to a financial and economic crisis.

The dollar takes, according to various estimates, a share of 50 to 61 percent in international reserves of central banks, totaling up to $1 trillion. It is the generally accepted base currency when quoting other currencies. The dollar participates as one of the parties in 87% of all transactions in the foreign exchange market (as of October 1998). Of all Japanese currency exchanges, the United States dollar accounted for 87%; For german mark this figure was 64%, and for the Canadian dollar - 98%.

Due to the special position that the dollar occupies in the world market, it is customary to express the prices of all other currencies in relation to the dollar. the yen is expressed as the number of yen that is given for one dollar; pounds is expressed as the number of dollars that give for one pound. But for the dollar, this means that it has as many prices as there are currencies, and when one of its prices rises, another can fall. To obtain an objective characteristic of the price of the dollar, you can use the average with taking into account volumes of international trade, the dollar exchange rate against major world currencies (the meaning of this index will be discussed in more detail in paragraph 3), which shows that the dollar now confidently justifies the statements of the American financial authorities that a strong dollar continues to be the basis of US policy .

Since the second half of 2008, in the conditions of globalization of the crisis in the world economy, there has been an increase in the dollar against other currencies, since this currency is considered stable and stable.

Since the first half of 2009, there has been a depreciation of the United States dollar against other major currencies due to a significant emission of this currency to combat the decline and a very large external debt United States (more than 14 trillion US dollars).

It is US dollars that lends to various countries and the IMF.

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Single European currency as a reserve

The role of the euro in the process of transforming the world monetary and financial system will largely be determined by the extent of the internationalization of the euro, by how fully and effectively the new EU currency will perform the functions of a second reserve currency. There are two levels process internationalization of the euro - official and private.

At the official interstate level, the use money as a reserve currency, it assumes the following functions: reserve asset; instrument of foreign exchange interventions; the anchor currency to which the rates of other currencies are pegged.

The global and regional prospects for the ruble are still in doubt. However, it is very likely that the global trend of currency mergers and acquisitions will continue. In this case, we will still see a new supranational currency in the space of the Russian Federation and Kazakhstan, whether it be the ruble, yuan or euro, as Mikhail Prokhorov suggested in his time.

The reserve currency is

Reserve currency in international trade

Consider the reasons for using several reserve currencies in international settlements. If all economic agents in the world could make settlements using only national currencies, then there would be no need for reserve currencies. However, the economic reality is that when settling in a foreign trade transaction, an importer, as a rule, is not able to quickly receive the required amount to pay in the currency of an exporter from a country that is not one of the major world economies. This is due to the fact that in order to obtain the required currency, it is necessary to find an economic agent interested in exchanging the same amount of the importer's currency for the exporter's currency. The same applies to settlements in international capital markets: attracting funds from abroad for investment within the country implies that the amount received as a loan in foreign currency must be exchanged for the national currency. That is, there should be an owner of the national currency who is interested in buying just such an amount of the creditor's currency. If creditor And borrower are located in countries, economic relations between which are complicated for any reason, then it is not easy to carry out such a currency exchange operation.

It is believed that pricing in international transactions is usually done in the currency of the exporter. In fact, very often other factors influence the decision to choose a currency. First, much depends on the role of the importer in world trade. If the importing country is a major customer that forms a significant part of the demand for the exporter's products, then it is quite likely to switch to the importer's currency. Secondly, the exporter's ability to set prices in national currency depends on his own position in the world market. Usually organizations from developing countries prefer to set prices not in national, but in leading world currencies. Thirdly, in the case of long-established standardized markets, for example, when supplies commodities and agricultural commodities, all speculators accept certain rules for determining the prices of these commodities. Currently, almost all commodity markets prices are determined in US dollars.

From the point of view of the monetary authorities, the issue of determining prices on the international market is in a slightly different perspective. The main price, which is influenced by the state in the international Forex market, is the price of national money. And if inside the country the purchasing power of the monetary unit, which is determined by inflation, acts as a measure of the value of money, then on the world market the Central Bank faces the problem of determining the value of the national currency relative to the currencies of other countries. In case of use exchange rates as an instrument of monetary policy, including for the purposes of fixing exchange rate, usually only one currency is used as the main target rate, or in some cases a basket of two or three currencies.

One of the most important functions of a reserve currency is its use as an intermediate currency in exchange transactions. Conversion currencies are relatively rarely produced directly from one currency to another. Usually the funds are first converted into an intermediate currency, and only then into the currency necessary for the execution of the contract. With general use and a sufficiently large volume of transactions in the intermediate currency, this can significantly reduce the waiting time between requests to buy and consent to sell. Thus, the agreement to use an intermediate currency to speed up transactions gives economic agents quite definite advantages for work on the international market.

At the same time, the more participants in the Forex currency market use an intermediate currency, the more widely it will be accepted as a means of payment by other economic agents. Accordingly, the role of the main intermediate currency in comparison with competing currencies will increase as the scale of its use increases. At present, most of the total volume of foreign exchange transactions is carried out in one intermediate currency, in United States dollars. However, there is an example in history of how a stronger currency gradually replaces a weaker one. In the first half of the XX century. the United States dollar and the British pound sterling were simultaneously used as intermediate currencies. Nevertheless, the desire of an increasing number of market participants to use the United States dollar led to the strengthening of its position as a means of payment, and over time, the pound was practically no longer used for intermediate foreign exchange transactions.

The use of currency for foreign exchange interventions by central banks acts as a kind of its use as an intermediate one. The use for the implementation of interventions of the currency that economic agents in the international Forex market agree to accept as widely as possible, allows you to quickly and efficiently conduct foreign exchange interventions.

International capital markets allow economic agents of all countries to sell and buy assets. It is generally assumed that debt is issued in the currency of the creditor. However, the use of a limited number of currencies to denominate debt obligations makes it possible to increase the efficiency and speed of the capital market. Moreover, the instability of the exchange rates of most developing countries and the underdevelopment of their financial markets make it more risky to raise and allocate funds in their national currencies. Thus, to ensure the operation of the global financial market, it is cost-effective to use several of the most stable currencies for denominating debt.

The purchase and sale of foreign exchange reserves by central banks are closely related to their exchange rate policy. In particular, if the central bank of a country intends to prevent the appreciation of the national currency, it begins to buy foreign currency, increasing its reserves. In this case, only their storage in the most liquid and cost-stable currencies can serve as a guarantee of demand for foreign exchange reserves. Consequently, reserves are accumulated in those currencies that are in demand in the international Forex market.

Advantages and disadvantages of owning a reserve currency

An active discussion of the advantages of a key reserve currency took place mainly in the 50-60s of the last century. This is due to the formation of the Bretton Woods system of exchange rates, as well as the primary role that the US dollar played in this system. The transition from a gold or gold exchange standard to a system in which the bulk of international reserves were United States dollars raised many questions in itself. And taking into account the fact that the monetary unit of only one country played the role of a reserve currency, the representatives of many countries had a feeling of injustice. It was believed that through its unique position in the global monetary system, the United States enjoyed an "excessive privilege", which allowed them to receive additional advantages.

One of the main benefits that countries with reserve currencies enjoy is greater fiscal flexibility. politicians. With a significant and prolonged state budget deficit, the confidence of economic agents in the ability of the state to finance it decreases and demand borrowers are on the decline. As a result, at a certain point in time, the government faces the question of whether it is necessary to find sources of financing the budget deficit or move to a balanced budget. One of the alternatives is the monetary method of financing, when the state pays its obligations with newly issued money.

In a country whose currency is not a reserve currency, this leads to an increase in the amount of money circulating in the economy. Growth in aggregate demand, combined with limited capacity to increase production, will give producers the opportunity to raise prices for goods and services. At the same time, the desire to increase release by attracting additional labor resources will reduce unemployment below the natural rate and create an opportunity for workers to successfully achieve higher wages. As a result, the rate of inflation increases in the country. Given the significant economic and political costs of the inflationary scenario, such a development of events is unacceptable for most states.

For a country with a reserve currency, there is more room for maneuver. Demand on assets denominated in the currency of such a country is significantly higher due to purchases by foreign economic agents for use in international transactions as an intermediate currency, as well as due to the accumulation of international reserves by foreign central banks. Thus, the increase in the aggregate money supply directed to financing budget deficit, is partially absorbed by the demand for the reserve currency from foreign economic agents. Therefore, through monetary expansion in a country with a reserve currency, budget deficit can be large and last longer without significant inflationary consequences.

In a country without a reserve currency, a current account of the balance of payments can arise only if there is a surplus in the capital and financial instruments account or a reduction in the international reserves of the monetary authorities. Thus, deficit in trade in goods and services is financed by capital inflow. In crisis cases, when trust in national economy on the part of investors falls, the country may face a sharp outflow of capital. The associated significant drop in demand for the national currency leads to a depreciation of its exchange rate. As a result, monetary authorities are faced with the need to devalue the national currency or spend reserves to maintain the exchange rate.

In the event of a depreciation of the national currency, the cost of imports increases, which leads to a decrease in demand for imported goods. The cost of exporting, on the contrary, decreases, which makes domestically produced goods more competitive and increases the demand for them from foreign economic agents. As a result, the current account balance is becoming more balanced. If the monetary authorities believe that the capital outflow is temporary and will quickly reverse direction, they can support the exchange rate using foreign exchange reserves.

The opposite situation will develop in the case surplus current account. Long-term and significant excess of exports over import will create a permanent excess demand for the national currency. If there is no outflow of capital, the Central Bank will be forced to strengthen the national currency or build up reserves, increasing the national currency. It was the unwillingness to increase inflation that forced the German Bundesbank in 1961 and 1969. go for the revaluation of the brand within the Bretton Woods system. In a recent study of the reaction monetary policy on imbalances in foreign trade conducted by the IMF, points out that in the modern era of floating rates in the 1990s and 2000s, with downward pressure, central banks more often depreciated the national currency, and with upward pressure, they accumulated foreign exchange reserves.

For the country of the issuer of the reserve currency, the restrictions imposed on the policy of the central bank in relation to the exchange rate and reserves of gold and currency are not as severe as for other countries. deficit The current account of such countries is relatively easily financed by foreign economic agents, since they demand reserve assets denominated in the reserve currency. As a result, a country with a reserve currency can live with a balance of payments deficit for a long time without serious difficulties.

The advantage of having a reserve currency for the implementation of the most flexible fiscal and foreign trade policy is demonstrated by the example of the United States. The current account in the United States has been observed over the past few decades, with the exception of a small positive balance in 1991. The deficit of the consolidated budget has been fixed since 2002. The agreement of central banks and sovereign wealth funds of developing countries to accumulate dollar assets as international reserves.

Recently, not only in academic but also in political circles, there has been a heated discussion about the causes of global imbalances and about how long the US can withstand a double and how the process of transition to an equilibrium state will take place.

Seigniorage, like the issue of money within the country, the possession of a reserve currency within the framework of the world economy makes it possible to receive direct money from the issue of money. Increasing offer money, the state gets the opportunity to acquire assets by "printing" money. In addition, the state would have to pay interest if it had to raise funds not by issuing securities of money, but in the credit market. In other words, by printing money, obligatory and the only one possible for use, the state forces other economic agents to provide it with an interest-free loan. Closely related to the concept of seigniorage is the concept of the inflation tax, which refers to decline the real value of money associated with rising prices in the country.

All of the above options income from the issuance of credit money, the direct initial acquisition of assets, the absence of interest payments, the inflation tax also apply to the world reserve currency, since economic agents around the world accept the reserve currency as payment for goods and services.

Advantages and disadvantages of using a reserve currency in various countries

To form a complete picture of the reasons for the emergence of reserve currencies, let us consider the advantages and disadvantages of using a reserve currency by foreign economic agents. Among the areas of use of foreign currency by residents of the country, three areas can be distinguished: settlements on international transactions, use as international reserves and settlements within the country.

The advantages and disadvantages associated with the use of foreign currency in international settlements are quite obvious. The advantages of using a reserve currency in international transactions usually include a reduction in risks in relation to the volume of demand for the products of exporting companies. This is due to a decrease in price volatility with fluctuations in the exchange rates of national currencies. The disadvantages of using a reserve currency include the risks of changes in exchange rates.

The monetary authorities keep funds in foreign currency as international reserves because, in modern conditions of high capital mobility, in order to be able to influence the national currency rate, the monetary base must be provided with reserves. Note that reserves do not have to be significant. Nevertheless, the presence of reserves in precious metals or foreign currency increases the credibility of the national currency. The use of foreign currency within the country as a legal medium of exchange is called full dollarization. Consideration of aspects of the use of foreign currency in domestic settlements is both the object of economic research and the subject of political discussions. This is largely due to the fact that it is both a national symbol and a key instrument of an independent economic policy. Let's highlight the main advantages and disadvantages of dollarization.

The stability of the foreign exchange rate enables national economic agents to use it as a substitute for the national currency. In case of persistent instability in state economy confidence in the national currency can be severely undermined. A high, significant budget deficit and a deficit in the balance of payments are the main factors that negatively affect the desire of economic agents to use the national currency in settlements among themselves and as a store of value. Periods when countries experience these problems have often been times of transition to full dollarization. Thus, one of the important benefits of full dollarization for residents countries is the ability to preserve the value of savings and the use of foreign currency as a means of payment and a measure of value. This motive becomes especially relevant during a crisis, when households reduce the demand for national currency in favor of foreign currency due to increased currency risks.

Reducing currency risks in the event of full dollarization reduces the cost of raising capital for residents countries. A decrease in the risk premium is also possible due to the low probabilities holding a pro-inflationary monetary policy. Increasing the country's investment attractiveness can lead to increased investment and economic growth.

A loss income from seigniorage is associated with the inability to use the national currency to generate income from the issue of money. In particular, the economists of the Bank for International Settlements assessed the possible losses of various countries in case of refusal to issue securities of their own currency. Wherein income, received by the state from seigniorage, is calculated by multiplying the profitability of the state. bonds for average growth monetary aggregate towards GDP.

The inability to pursue an independent monetary policy becomes one of the most serious shortcomings that must be taken into account in full dollarization. In the case of using a foreign currency as a legal medium of exchange within the country, monetary policy is actually determined by the central bank of the country whose currency is used. Given the importance and effectiveness of monetary policy, this disadvantage of full dollarization is very significant.

Thus, reserve currency is usually understood as the currency that central banks use to hold official reserves. The reserve currency must meet several additional criteria. It should be a stable currency of a large economy with extensive foreign economic relations and a developed financial market. In addition, important factors for the formation of a reserve currency are the historically established tradition of its use in world trade, as well as the network effect. Today, the IMF officially allocates four reserve currencies: the United States dollar, the euro, the pound sterling, and the currency of Japan.

The reserve currency performs in the world payment system certain functions that are aimed at meeting the needs of economic agents in a means of payment, a means of payment and a means of storing value. It is customary to separate the demand for a reserve currency from private economic agents and from central banks. Reserve currency is used by private economic agents for conducting foreign trade transactions, as an intermediate currency in currency exchange operations and as a currency for denominating corporate debt. Central banks use the reserve currency as a benchmark for setting the exchange rate, for conducting foreign exchange interventions, and for holding official reserves.

The issue of reserve currency securities implies certain advantages and disadvantages. As advantages for the issuing country, it is customary to single out the flexibility of fiscal policy, the flexibility of foreign trade policy, additional income from seigniorage and the convenience for doing international business by residents of this country. The main disadvantage is the limited flexibility of monetary policy.

The use of a reserve currency by economic agents of other countries also has both advantages and disadvantages for them. The advantages are the possibility management currency risk when conducting foreign trade transactions, as well as increasing confidence in the economic policy of a country that has reserves denominated in reserve currencies. In case of refusal to issue one's own currency, the main advantage is the stability of the reserve currency used, but the loss of independence of monetary policy and the loss of income from seigniorage become serious disadvantages.

Thus, in addition to being used by central banks to store their reserves, a reserve currency must have certain properties and perform many other functions.

Sources and links

en.wikipedia.org - the free encyclopedia Wikipedia

dic.academic.ru - dictionaries and encyclopedias on Academician

traditio-ru.org - Russian encyclopedia Tradition

forex-investor.net - foreign exchange dictionary

mybank.ua - website about personal finance

slovari.yandex.ru - dictionaries on Yandex

webeconomy.ru - a site about the economy of the world

otmashi.ru - information Internet project

See what "Reserve currency" is in other dictionaries: - Reserve currency is a national currency generally recognized in the world, which is accumulated by the central banks of other countries in foreign exchange reserves. It performs the function of an investment asset, serves as a way to determine the currency parity, ... ... Wikipedia

RESERVE CURRENCY- (reserve currency) The currency used as a reserve foreign currency by other states. Such a currency must be convertible and must be the currency of a large country with low inflation. The main ... ... Economic dictionary

RESERVE CURRENCY- RESERVE currency, foreign currency accumulated by the country's central bank for international settlements. Usually, a convertible currency acts as a reserve currency (see Currency Convertibility). In the 1990s as a reserve currency ... ... Modern Encyclopedia

Reserve currency- RESERVE CURRENCY, foreign currency accumulated by the country's central bank for international settlements. Usually, a convertible currency acts as a reserve currency (see Currency Convertibility). In the 1990s as a reserve currency ... ... Illustrated Encyclopedic Dictionary

RESERVE CURRENCY- foreign currency accumulated by the central bank of the country for international settlements ... Big Encyclopedic Dictionary

Reserve currency- (Reserve currency) - the currency in which central banks accumulate and store reserves of funds for interstate settlements. The status of the reserve currency was officially assigned to the dollar and the pound sterling in 1944, as part of the so-called ... ... Economic and Mathematical Dictionary,

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The speed, correctness and security of international settlements is a basic factor in the successful foreign economic activity of the country, especially in the case of incomplete convertibility of the national currency. The use of major reserve currencies is a necessity for the global financial system.

 

A reserve currency is considered to be a currency that is part of the country's gold and foreign exchange reserves and thereby provides support for the national currency. In the domestic economy of the country, reserve currencies are used:

• as an investment asset;
• for interventions to regulate the exchange rate of the national currency;
• for carrying out state settlements on export operations of international trade.

World reserve currencies- Monetary units used to store the own assets of the Central Banks, support the currency parity and international mutual settlements.

Initially, the International Monetary Fund (IMF) used the term "reserve" only for currencies that had a significant weight in the fund's settlement basket, since loans are provided only at the expense of member countries. If the currency is in demand enough, its position is strengthened and the issuing country receives additional income and privileges. At the moment, the interpretation of the term has been expanded and includes monetary units that are widely used as a means of investment and settlement with the following mandatory features:

• stable means of payment. It implies full convertibility and minimal risk of losses due to exchange rate fluctuations. This increases the confidence of counterparties in mutual settlements.
• Large volumeGDP and a significant share in world trade. It was a large international trade turnover that was the key factor in the recognition of the Dutch guilder as a universal means of payment in the 17th century, the British pound sterling in the 19th century and the US dollar in the 20th century.
• Developed domestic financial market. If the banking system and other financial institutions of the country are able to attract large volumes of domestic and foreign investments at low cost and in a short time, then this strengthens the position of the national currency;
• External network effect (network externalities) - additional value that consumers receive in case of an increase in their number. For example, settlements in US dollars are more valuable than in a less common currency, as they allow you to carry out a larger number of transactions without additional conversion.
• historical factor. Business practice has inertia, that is, the longer the currency is widely used in mutual settlements, the more likely it is to be used in the future, like other world reserve currencies. What it is is illustrated by the British pound sterling, which was the main means of payment in the 19th century and continues to be widely used, mainly due to its historical recognition.

The country issuing the world reserve currency receives certain financial advantages: the ability to cover external debt only with its national currency (this is now happening with the US trade balance), helps to strengthen the position of its corporations in the world market. At the same time, the support of the national currency as a reserve requires the fulfillment of the requirements to support the stability of the currency, the removal of foreign exchange and trade restrictions, and the timely adoption of measures to eliminate the balance of payments deficit.

Once again, we note that even if all of the above signs are present, the monetary unit receives the status of a reserve only after the Central Banks begin to store assets in it.

Functions

The world reserve currency should perform three main functions:

Calculation tool

It is common practice in international trade to determine the price of the contract in the currency of the exporter, but there may be other options:

• if the importer consumes a significant amount of products, then, most often, it is he who chooses the most convenient means of payment for him;
• the total share of a particular exporter in world trade: export contracts in world reserve currencies are used not only in emerging markets, but also by countries such as the Russian Federation, for example, when selling energy resources;
• special types of settlements for certain sectors of international trade.

From the point of view of monetary policy, in the domestic market, the Central Bank can only influence the purchasing power of the national currency - through the inflation rate. At the same time, it is necessary to constantly maintain parity with other countries, and for this purpose, 2-3 world reserve currencies can be selected for settlements.

Instrument of payment

In case of impossibility or a long period of direct conversion, a set of several reserve currencies is used as an intermediate option (vehicle currency), which significantly speeds up the process of coordinating purchase and sale requests.

Central banks can use intermediate conversion as a tool for intervention, especially if the national currency is not included in the list of reserves or has limited conversion.

storage facility

The use of reserve currencies as the face value of debt obligations and securities makes it possible to reduce the risks from exchange rate fluctuations, as well as to generally increase the efficiency and speed of turnover of the international capital market. For example, shares of US companies denominated in dollars are freely listed on all major global stock markets without additional bureaucratic procedures.

Also, the world reserve currency can be used directly to store the assets of Central banks and private investors. An example is the Swiss franc, which has been a safe haven currency for over 100 years.

List according to the IMF

Main reserve currencies as of 2016:

• US dollar - USD;
• euro − EUR;
• pound sterling - GBP (positions have significantly weakened due to the beginning of Britain's exit from the EU, but, most likely, the pound will remain on the list of reserve currencies);
• Japanese yen - JPY;
• Swiss franc - CHF;
• Chinese yuan - CNY (only added to the Special Drawing Rights basket and cannot be considered a full global reserve due to incomplete convertibility).

Special Drawing Rights

This term is used for an artificial payment (and reserve) currency created by the IMF in 1969 for settlements between participants and third-party holders. It is used to regulate the balance and cover the deficit of the balance of payments, settlements on loans and replenishment of the fund's assets.

The unit code is XDR (according to ISO4217). It exists only in a non-cash version, it is not a convertible and a debt obligation. The main purpose of creation: to eliminate the contradiction between the national and international nature of reserve currencies (Triffin's paradox).

The XDR rate is calculated daily and represents the dollar value of a basket of five currencies: US dollar, euro, pound sterling, yen and Chinese yuan. The XDR interest rate is published weekly, the weight of the currencies included in the basket is adjusted every five years:

After the 2008 crisis, China proposed using XDR for cash payments as well, in the form of coins and banknotes, but this idea did not receive support, primarily from the United States.

CLS payment system

The international payment system for the implementation of conversion interstate and interbank transactions was created in 1997 and by now the shareholders of CLS Bank are all Central Banks and major financial institutions from 17 countries.

The system works according to the “payment against payment” system (payment-versus-payment), which makes it possible to guarantee the exchange in the required amount and at a pre-fixed rate. The share of CLS currencies in daily conversion transactions is more than 55% of the total world volume, and includes, in addition to the reserve, such exotic options as the Hungarian forint and the South Korean won.

Ruble as world reserve currency

The inclusion of the ruble in the IMF basket will be beneficial for the Russian Federation, both from an economic and political point of view. The first actions of the government and the Bank of Russia in this direction date back to 2011, when the start of the process of integration with the CLS system was announced.

At the second stage, it is planned to create a specialized exchange for the sale of energy resources for rubles, which should cause a sharp increase in the demand for ruble-denominated assets on the part of foreign partners. But the experience of using the euro shows that the process of turning the national currency into a fully global reserve currency is rather slow. At the moment, connection to the CLS system is suspended primarily due to the sanctions imposed against Russia in 2014.

Objective prerequisites for acquiring the status of a reserve currency: the country's dominant position in world production, exports of goods and capital, gold and foreign exchange reserves; developed network of credit and banking institutions, including abroad; organized and capacious stock market and loan capital market; free convertibility of the currency.

Disadvantages: 1. you can not resort to devaluation; 2. there should be no balance of payments deficit; 3. not resort to currency and trade restrictions.

15. Benefits of reserve currency status.

The reserve currency performs the functions of an international means of payment and reserve, serves as the basis for determining the exchange rate and exchange rate for other countries, is used for foreign exchange intervention to regulate the exchange rate.

The status of a reserve currency gives advantages to the issuing country: 1. the ability to cover the balance of payments deficit with the national currency; 2. the possibility of strengthening the positions of national companies in the competitive struggle in the world market.

16. Principles of the Paris Monetary System.

The Paris Monetary System was based on the following structural principles:

its basis is the gold coin standard

each currency has a gold content. In accordance with the gold content, the gold parities of currencies were established. Currencies are freely convertible into gold. Gold was used as universally recognized world money.

gold performed all the functions of money (a measure of value, a means of accumulating wealth, a means of payment, circulation, world money)

free coinage of gold coins with a fixed gold content

17. Principles of functioning of the Genoese monetary system.

In 1922 at the Genoa International Conference, they legally formalized the second world sun - the gold exchange standard, in which banknotes were exchanged for foreign currency, exchangeable for gold.

Its basis was gold and mottos. Foreign currencies began to be used as international payment and reserve funds. But the status of a reserve currency has not been officially assigned to any currency.

preserved gold parities

freely fluctuating exchange rates restored

currency regulation was carried out in the form of an active foreign exchange policy

18. Features of the currency crisis of 1929-1936.

19. Stages of development of the currency crisis of 1929-1936.

1.1929-30s - depreciation of the currencies of agrarian and colonial countries, the demand for raw materials on the world market has sharply decreased and its prices have fallen.

2. mid 1931 crisis in Germany and Austria. In connection with the outflow of foreign capital, a decrease in the official gold reserve and the bankruptcy of banks, Germany introduced foreign exchange restrictions.

3. autumn 1931 - the abolition of the gold standard in the UK. The main reason is the deterioration of the balance of payments and the decrease in the official gold reserves of the country.

4. April 1933 - the abolition of the gold standard in the United States. A policy of depreciation of the dollar was pursued by buying up gold. The United States has committed itself to exchange dollars for gold at this price for national banks.

5. autumn 1936 - In France, the exchange of banknotes for gold bars was stopped. The reason was the drop in exports.