What Is Reserve Currency?

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A reserve currency is a name of the currency that is held in necessary quantities in many institution and governments across the world. This is usually used in most of the international transaction and has an exchange rate for each country through which the business is done. It offers an opportunity for the people living in countries that use the currency to purchase goods more cheaply without having to undergo extra cost as it is the case for other nations. The US dollar is known to be the most dominant currency that has been in use for quite some time. However, other suggestions from different government also want to put their money at a global level. A perfect example is the China authority that focuses on overthrowing the dominance of …show more content…
Most of the nations have stabilized their economies through the use of this particular currency. This is because it has facilitated many international trades with other countries. Additionally, they have formed for them the medium for which they can exchange different transactions in their nations. Therefore, this becomes difficult to convince some of these countries to adopt to another exchange rate (Baumol & Blinder, 2016). This could be due to the reason that they have believed that there could not be any other better currency more than the USD. Additionally, the United States has established various trade networks with different nations across the globe. This implies that it is difficult to replace their dollars with a new currency. Importantly, it has served to promote the improvement of different market segments among nations thus strengthening its …show more content…
This means if the yuan becomes the global currency with its frequent inflation the world economy will be at risk. Therefore, the fact that the United States has established a firm foundation of the dollar that is known internationally. It will be every hard for it to be replaced shortly (Baumol & Blinder, 2016). This is supported by the fact that dollar has its ways of management in case there is an issue of inflation unless the event of the new currency. Therefore, for the fear of operating in an economic recession the dollar will remain to serve its role in the world. Importantly, it is known that America has the greatest number of investors across the world. These serve at helping other countries to catch up with an effective, economical line to meet their needs. It is, therefore, evident that these Americans will prefer using their exchange rates of the dollars as a way of supporting their country welfare. Additionally, it is most used in many central banks across the world which is an indication that it has form

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