What is the main reserve currency in the world. Three Key Functions of a Reserve Currency

Reserve currency- 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 currency parity, and is used, if necessary, as a means of conducting foreign exchange interventions, as well as for conducting international payments.

Sometimes this also means the currencies most used in international trade.

Previously, reserve currencies were used mainly as a means of settlement in commodity markets (oil, gold, etc.), but recently, especially in Asian countries, reserve currencies are used to accumulate gold and foreign exchange reserves (hereinafter referred to as gold and foreign exchange reserves) in order to strengthen the competitiveness of exports by weakening of their currencies, as well as as a reserve in case of financial crises.

Reserve currency status

The country issuing such a currency has certain advantages: the ability to cover the balance of payments deficit with the national currency (which is currently happening with the US trade balance), and to help strengthen the position of national corporations in competition in the world market. But the promotion of a currency to the role of reserve imposes on the issuing country the responsibility of maintaining the stability of the currency, removing foreign exchange and trade restrictions, and taking measures to eliminate the balance of payments deficit.

Initially, the British pound sterling played the role of reserve currency, playing a dominant role in international settlements. Following the decisions of the Bretton Woods conference (USA, 1944), along with the pound sterling, the US dollar began to be used as an international payment and reserve currency, which soon took a dominant position in international payments.

The Jamaica Agreement legally formalized the demonetization of gold for the first time, which resulted in the abolition of:

• official gold price;
• fixing the gold content of currencies, and therefore gold parities (formally, the Special Drawing Rights are declared the basis of currency parities in the IMF Charter);
• contributions of gold by IMF member countries to its capital.

But despite the legal removal of gold from the world monetary system, it continues to serve as world money as an international reserve.

World reserve currencies

GBP

Yen

Special Drawing Rights

Special Drawing Rights- an artificial reserve and means of payment issued by the International Monetary Fund. It has a limited scope of application and is circulated only within the IMF. Used to regulate balances of payments, replenish reserves, and settle IMF loans.

In connection with the development of the global economic crisis, in March 2009, China proposed to create a world reserve currency on the basis of special drawing rights, which could replace the US dollar in this capacity. It is planned to expand the basic currency basket. In the future, this may lead to the emergence of a new world currency in cash circulation [ ], how at one time the euro emerged from the ECU.

Clearing currencies CLS

Other currencies

A number of countries and regional blocs have expressed interest in promoting their currencies for use as global reserve currencies:

• Russia - a number of politicians, officials and employees of the Russian Central Bank have declared interest in turning the ruble into a reserve currency. Deputy Chairman of the Central Bank of the Russian Federation Konstantin Korishchenko, speaking at a round table meeting “Can the ruble become a world reserve currency?”, said that some foreign central banks are already placing part of their assets in rubles. First Deputy Chairman of the Government of the Russian Federation, Dmitry Medvedev, said that the ruble should be turned into one of the world's reserve currencies. Politicians consider the main factor that makes it possible to make the ruble a reserve currency, natural resources, which Russia currently does not sell for rubles. The organization of oil and gas exchanges, where trading will be conducted in rubles, will presumably automatically create a need for ruble assets in other countries. However, the example of the euro shows that currencies become reserve currencies rather slowly. It will be necessary to create attractive ruble-denominated financial instruments in which foreign investors could place rubles. Without this, most likely, the ruble will be freely convertible, but it will be purchased only as much as needs to be spent immediately, and ruble reserves abroad will increase slightly.
• The Gulf Cooperation Council planned to introduce a regional currency in 2010 Dinar Bay, for the purpose of use as a reserve currency. Later, the introduction of the currency was postponed to a later date (no earlier than 2015).
• Although China has not made official statements about giving the yuan the functions of a reserve currency, thanks to its ever-increasing role in international trade, the role of the yuan in the world is also growing. China uses the yuan in payments with neighboring countries (Russia, South Korea, etc.). China's foreign investments are generally denominated in RMB. It is interesting that back in the early 2000s it was noted that in China, in the speeches of officials and in the press, the idea of ​​​​creating an “Asian currency” like the euro was already being discussed, for which the Chinese yuan would serve as the basis. The yuan began to be used in international payments; at the beginning of 2014, it accounted for 2.2% of all foreign exchange transactions in the world, and it entered the top ten in terms of trading turnover. November 30, 2015 Executive Board of the International Monetary Fund (

Every country has a Central Bank, designed to perform certain tasks, one of which is regulating the exchange rate of the national currency. The stability of the currency of a particular state is largely influenced by it.

The Central Bank carries out its work by performing various operations. All these transactions are reflected in its balance sheet, where liabilities are the obligations of the Central Bank, the main share of which is occupied by the national currency, while assets represent the security for these obligations. As a rule, the first positions in the composition of assets are held by gold and foreign currency reserves.

The currency that participates in the creation of the gold and foreign exchange reserve of the state, thereby supporting its national currency, is called reserve. Typically, the Central Bank reserve consists of several currencies. Any country has the right to choose a reserve currency at its own discretion, although it is obvious that a weak currency is unlikely to be able to support the national exchange rate. Based on this, the state reserve usually includes reliable currencies quoted on the world market, belonging to countries with a low level of currency.

Reserve currencies act as:

• investment asset;
• regulator of the national currency exchange rate during foreign exchange interventions;
• means of payment for the state when carrying out export operations.

There is such a thing as world reserve currencies. Their composition is determined by the International Monetary Fund. Why does the IMF decide which currencies are included in the world currencies? Probably because this lending institution is the largest in the world and has an understanding of the economic situation and foreign exchange reserves of the countries it lends to. Moreover, the IMF is based in the United States, the country with the world's most popular reserve currency.

The IMF's decision to include a country's currency in the world reserves is influenced primarily by the scale and development of the national economy. The concepts of the scale and degree of development of a country's economic system are not identical, as it might seem at first glance. For example, a couple of centuries ago, the English pound acted as the world currency, despite the fact that in terms of the scale of the economy, Great Britain was much inferior to America, but significantly ahead of it in development. On the other hand, the recent inclusion of the Chinese yuan in the world reserve currencies was a consequence of the significant growth in the scale of this country’s economy (many financial analysts predict China’s leading position in the world). Note that China's economy is considered developing, not developed.

World reserve currencies

Today, the central banks of most countries use several world reserve currencies as their assets.

U.S. It has been the main world currency for the last few decades. The US national currency accounts for over 60% of foreign exchange reserves around the world.

Euro. In the list of world reserve currencies, the European currency is in second place after the US dollar and accounts for approximately 25% of world reserves. The dollar and the euro are the two main competitors in the foreign exchange assets of the central banks of the world powers. Before a common European currency appeared, the world reserve currencies included the German mark and several other national currencies of European countries.

English pound sterling. From the 18th century until the introduction of the gold standard (early 20th century), the English pound remained the main world currency. However, after the gold standard was replaced by the dollar standard, it faded into the background, giving way to the US dollar, and then to the currencies of other countries. Only in the last few years has the British pound begun to regain its position in foreign exchange reserves and today it ranks 3rd in the system of world currencies.

Japanese yen. Not long ago, the Japanese currency lost 3rd place to the English pound, falling by 1 point in the system of world currencies.

Swiss frank. Switzerland has a reputation for having a stable economy and the world's most reliable financial system, which has allowed the Swiss franc to become the world's reserve currency, but its share is generally insignificant.

Special Drawing Rights. Among other things, the world reserve fund issues its own virtual non-cash currency. It presents several world reserve currencies in various proportions; the decision on which currencies will be represented in the SDR, as well as their share in the total basket, is made once every 5 years. The latest revision resulted in the inclusion of the Chinese yuan in the SDR, so today the basket consists of the following currencies:

• American dollar with a share of 41.73%;
• euro with a share of 30.93%;
• Chinese yuan with a share of 10.92%;
• Japanese yen - 8.33%;
• English pound sterling – 8.09%.

The decision to include the Chinese currency in the world currency has already been made by the World Reserve Fund and will come into force in October of this year.

In addition to the listed monetary units, world currencies include Canadian and Australian dollars. They also received this status not so long ago and have a small share of the total world reserves. They are usually listed as “other currencies” in reports.

The currency of the state, which is used by the central banks of other countries to create and store cash reserves, as well as to conduct transactions for international payments and investments of foreign countries is called "reserve currency".

There are certain requirements for a reserve currency:

• convertibility of national currencies
• stable rate
• favorable legal regime for use in international transactions.

A reserve currency provides certain advantages to the state whose national currency it is:

• The balance of payments deficit can be covered by the national currency
• strengthening positions in the global market

The reserve currency has its own history - it has changed over different periods of time. Initially, the English pound sterling acted as a reserve currency; it performed the most important functions within the framework of international payments. Over time, for international payments, the US dollar was added to the pound sterling, which then took a leading position.

After the introduction of the gold exchange standard, based on gold and two currencies (the US dollar and the British pound sterling), the dollar became the only currency directly linked to gold.

After the Jamaica Conference, free fluctuations in exchange rates were eliminated and the German mark, Swiss franc, and Japanese yen also began to be considered as reserve currencies.

The 21st century has a tendency to transform the dollar into the world's main reserve currency. Today, the second largest currency is the euro, which is gradually increasing its volumes in the central banks of countries.

The British pound lost its role as a reserve currency after the Second World War, the difficult economic situation in the country and the strengthening role of the United States in the economy. The Japanese Yen has been considered as a reserve currency for several decades, but at the moment the use of this currency is low. The stability of the Swiss franc makes it attractive for introduction as a reserve currency, but its share in foreign banks is still small.

Recently, many states have shown interest in introducing a national currency as a reserve currency. Such assumptions were made by Russia regarding the ruble, China regarding the Yuan, etc. However, at the moment, the dominant position is occupied by the dollar and the euro, in which the majority of reserves of banks in other countries are calculated.

Source: https://www.site/rezervnaya-valyuta/ - Reserve currency

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A reserve currency is a foreign currency that the government holds and trusts in its stability

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

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Reserve currency is, definition

The reserve currency is 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 currency parity, and is used, if necessary, as a means of conducting foreign exchange interventions, as well as for conducting international payments.

The reserve currency is foreign currency that a government holds, trusting in its stability and expecting to use it to repay. For many years, sterling also played the role of a reserve currency, but currently many countries give preference to Japanese and.

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

The reserve currency is a world currency that performs the function of an investment asset. Accumulated by Central banks in foreign exchange reserves. The reserve currency is designed to determine currency parity and is often used for foreign exchange interventions and international settlements by the Central Bank.

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 settlements.

The reserve currency is currency accumulated by a country to carry out international transactions. A freely convertible (convertible) currency usually acts as a reserve currency. In the late 60s - early 70s. 20th century most widely used as R. v. received the English pound sterling, as well as the mark, which serve more than half of the international payment turnover of capitalist countries.

Essence and status of reserve currency

Typically, a reserve currency refers to the currency that central banks and governments of various countries use to hold their reserves. This is the 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 in quality. In other words, the use of a reserve monetary unit by economic agents involves minimal losses due to its fluctuations. One of the factors for the stability of a currency is its free currency. Thus, if a monetary unit is stable and can be freely exchanged for other currencies at any time, this inspires confidence among economic agents, and they will use it to make payments 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 the world. The currency of a country whose economy occupies a significant share in the world will be used more in international payments. The country's large share in the world economy creates the preconditions for giving its currency the role of an international means of payment. This is what helped the Dutch guilder in the 17th century and the British pound sterling in the 19th century become key currencies. and the American dollar in the 20th century. and until now. For example, the creation of a single European currency used in , which in total is approximately equal to the US GDP, created the preconditions for the growth of the role. Moreover, the sharp increase in its role as a leading economy in recent decades has prompted widespread discussion of its potential as one of the world's major currencies.

Thus, in order to become a reserve currency, it must be stable, be the currency of a large economy, widely involved in world trade and have developed financial institutions. However, we emphasize once again that a currency acquires reserve status 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 country issuing the currency certain advantages: the ability to cover it with the national currency (which is now happening with the US trade balance), to help strengthen its position in competition in the world market. At the same time, the promotion of a currency to the role of reserve imposes on the issuing country the responsibility of maintaining the stability of the currency, removing foreign exchange and trade restrictions, and taking measures to eliminate the balance of payments deficit.

Initially, the British pound sterling played the role of a reserve currency, playing a dominant role in international settlements. By the decisions of the Bretton Woods conference (USA, 1944), along with the pound sterling, the US dollar began to be used as an international payment and reserve currency, which soon took a dominant position in international payments.

On January 8, 1976, as a result of the agreements, the Jamaica Currency Conference (Kingston, ) was officially formed, which provided for free fluctuation. In addition to the US dollar, the official currency of Germany (later the euro) and the Japanese yen are used as reserve currencies.

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

The term “reserve currency” was originally used to describe the currencies of those countries whose currencies could be used for other countries and which had significant reserve positions. This etymology of the term is quite justified, since to provide loans to other countries, the IMF can only use the funds of member countries accumulated in the fund. If lending in a particular country's currency is high, the fund uses that currency for its operations. In the amount of the used part of the funds in national currency, the country receives an additional right of claim to the IMF, i.e. increases its reserve position. Thus, the reserve position is greater for those countries whose currencies are in greatest demand on the market and are widely used for lending within the IMF.

World reserve currencies

Nowadays, the main reserve currencies of the world include the US dollar and the euro. The second tier includes: pound sterling (), Japanese yen () and ().

Table International savings in foreign currency reserves

US dollar as a reserve currency

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

The US dollar (USD) became the leading world currency after World War II. Today, the dollar is a universal means of payment in international business, a safe-haven currency in various financial and other countries, as well as an object of international investment, thanks to the large volume of highly reliable - US government long-term. Confidence in the stability of the American economic and financial system, that all government payments will be paid on time, not requisitioned or subject to unexpected taxes, attracts both private and foreign governments to this market.

In recent years, the American stock market has shown unprecedented growth, attracting huge foreign and domestic capital, which serves as an additional source of dollar strength. Since the mid-1980s, American stocks have become a better money option than gold: stocks rose while the price of gold fell. After 1993, American stocks grew so quickly that not only independent investors, but also officials repeatedly expressed concerns that stock prices were excessively inflated and their fall could be too sharp and lead to financial and financial losses.

The dollar, according to various estimates, accounts for between 50 and 61 percent of international central bank reserves, amounting to up to $1 trillion. It is the generally accepted base currency when quoting other currencies. The dollar is involved as one of the parties in 87% of all transactions on (as of October 1998). Of all Japanese official currency exchanges, the US dollar accounted for 87%; for the official currency of Germany this figure was 64%, and for - 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 price of Japanese currency is expressed by the number of Japanese currencies that are given for one dollar; the price of a pound is expressed by the number of dollars that are given for one pound. But for the dollar, this means that it has as many prices as there are currencies, and when one price rises, another may fall. To obtain an objective characteristic of the price of the dollar, one can use the volume-averaged exchange rate of the dollar against major world currencies (the meaning of this will be discussed in more detail in paragraph 3), which shows that the dollar is currently confidently justifying the statements of American financial institutions that a strong dollar continues to be the backbone of the US.

Since the 2nd half of 2008, in the context of the globalization of crisis phenomena in the world economy, there has been an increase in the dollar exchange rate relative to other currencies, since this currency is considered stable and stable.

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

It is US dollars that are provided on credit to various countries and the IMF.

issue of US dollar securities

Single European currency as a reserve

This means of payment was created by the IMF in 1969 as a supplement to the existing reserve assets of member countries. The main purpose of creation: to overcome the Triffin paradox within the framework of the Bretton Woods monetary system - the contradiction between the international nature of use and the national nature of currencies.

The SDR rate is published daily and is determined based on the dollar value of a basket of four leading currencies: the US dollar, euro, yen and pound sterling. Before the introduction of the euro, the rate was pegged to a basket of five currencies since 1981: the US dollar, the German official currency, the French Swiss yen, and the pound sterling. The weight of currencies in the basket is reviewed every five years.

However, the second largest participant in the future union, Kazakhstan, is not yet ready to accept the ruble as a single currency. Kazakhstan's Minister of Economic Development and Trade Kairat Kelimbetov said in August that "the reserve currency for our region is a basket dominated by the tenge, yuan and ruble."

“Russia is setting ambitious goals such as turning the ruble into a world reserve currency. But, no offense, even the yuan is not very ready for this right now. And if we discuss some kind of reserve currency in our space, it should rather be a basket, which will include the yuan, the ruble, and the tenge, the minister believes. - There is no need to politicize this process. Transforming into an international financial center is not a major goal, in my opinion. This is an important task, but much more important is to modernize our own economy.”

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

Reserve currency in international trade

Let's consider the reasons for using several reserve currencies in international payments. If all economic agents in the world could make payments using only national currencies, then there would be no need for reserve currencies. However, the economic reality is that when making payments in a foreign trade transaction, the importer, as a rule, is not able to quickly obtain the required amount to pay in the currency of the exporter from a country that is not one of the world's major 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 national currency. That is, there must be an owner of the national currency who is interested in purchasing exactly that amount of the creditor’s currency. If the lender and the borrower are located in countries where economic relations between them are complicated for some reason, then it is not easy to carry out such a currency exchange transaction.

It is believed that pricing in international transactions is usually done in the currency of the exporter. In reality, other factors often 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 large customer that forms a significant part of the demand for the exporter’s products, then a transition to the importer’s currency is quite likely. Secondly, the exporter's ability to set prices in national currency depends on its own position in the world market. Typically, 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, for the supply of raw materials and agricultural goods, everyone accepts certain rules for the prices of these goods. Currently, prices in almost all markets are determined in US dollars.

From the point of view of monetary authorities, the issue of determining prices on the international market is from a slightly different perspective. The main price influenced by the state in the foreign exchange market is the price of national money. And if within the country the purchasing power of the monetary unit, which is determined by inflation, serves as a measure of the value of money, then on the world market the central bank is faced with the problem of determining the value of the national currency relative to the currencies of other countries. When the exchange rate is used as a monetary policy instrument, including for exchange rate fixing purposes, only one currency or, in some cases, a basket of two or three currencies is usually used as the main target rate.

One of the most important functions of a reserve currency is its use as an intermediate currency in exchange transactions. Currency conversions are relatively rarely done directly from one currency to another. Typically, funds are first converted into an intermediate currency, and only then into the currency required to fulfill the contract. With widespread use and a sufficiently large volume of transactions in the intermediate currency, this can significantly reduce the waiting time between purchase requests and approval to sell. Thus, agreeing to use an intermediate currency to speed up transactions gives economic agents very clear advantages for operating in the international market.

The loss of income from seigniorage is associated with the inability to use the national currency to generate income from money issues. In particular, economists at the Bank for International Settlements assessed the possible losses of various countries if they refuse to issue their own currency. In this case, the income received by the state from seigniorage is calculated by multiplying it by the average increase in the money supply in relation to GDP.

The inability to pursue an independent monetary policy becomes one of the most serious disadvantages that must be taken into account with full dollarization. When foreign currency is used as a legal medium of exchange within a 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, a 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 broad foreign economic relations and a developed financial market. In addition, important factors for the formation of a reserve currency are the historical tradition of its use in world trade, as well as the network effect. Today, the IMF officially allocates four reserve currencies: the US dollar, the euro, the pound sterling and the Japanese yen.

The reserve currency performs certain functions in the world 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 reserve currency on the part of private economic agents and on the part of central banks. Private economic agents use the reserve currency for foreign trade transactions, as an intermediate currency in currency exchange transactions and as a currency for corporate debt. Central banks use the reserve currency as a benchmark for setting exchange rates, for conducting foreign exchange interventions, and for holding official reserves.

The issue of reserve currency securities involves certain advantages and disadvantages. It is customary to highlight flexibility of fiscal policy, flexibility of foreign trade policy, additional income from seigniorage and convenience for conducting international business by residents of a given country as advantages for the issuing country. The main disadvantage is the limitation of monetary policy flexibility.

issue of reserve currency securities

The use of reserve currency by economic agents of other countries also has both advantages and disadvantages for them. The advantages are the ability to manage 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 securities of 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 are 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

ru.wikipedia.org – free encyclopedia Wikipedia

dic.academic.ru - dictionaries and encyclopedias on Academician

traditio-ru.org – Russian encyclopedia Tradition

forex-investor.net – Forex dictionary

mybank.ua – site about personal finance

webeconomy.ru – website about the global economy

otmashi.ru – information Internet project

vedomosti.ru – business dictionary Vedomosti

trader-lib.ru – online library

ria.ru – news agency RIA-Novosti

pacificcapitals.com – Pacific Capitals website

refoteka.ru – collection of abstracts

xreferat.ru – collection of abstracts

tourister.ru – Tourist website

bankir.ru – news site about banks

forexluck.ru – information site about Forex

comment-respublika.info - information and analytical portal Republic

stock-list.ru – site Exchange navigator

Greetings, dear readers and subscribers! Probably, many of you bought dollars and euros so as not to lose your savings during the crisis. Maybe there are no serious reasons for this? Our leaders say that nothing threatens the ruble. But there is one problem.

The ruble is not a reserve currency. This means that it is not completely protected from sudden changes in the exchange rate, which is immediately reflected in store price tags. In general, what are the world's reserve currencies and what should be understood by this? Let's figure it out.

What are they needed for

Gold and foreign exchange reserves are intended, first of all, to ensure the stability of the national currency, being a measure of its “weight”. The structure of these reserves can be different: in addition to the currencies themselves, they may include gold bullion, as well as highly liquid securities denominated in foreign currency.

In Russia, the US dollar is used as a reserve currency, and the structure of reserves at the end of 2016 was as follows:

If the country's economy is heavily dependent on the export of raw materials, as, for example, in Russia, then a fall in world prices for the main export goods (oil, gas, metals) can lead to a shortage of foreign exchange earnings. This has a negative impact on the exchange rate of the national currency (demand for imports remains, but banks do not have enough foreign currency at their disposal to secure import contracts).

Which in turn leads to a rush of demand for foreign currency, which is bought by banks and major companies as a means of preserving assets. In such cases, the central bank may be forced to make foreign exchange interventions to stabilize the exchange rate. The larger the central bank's reserves, the greater its ability to influence the situation.

In 2016, the list of reserve currencies increased by 1 position: the Chinese yuan. But it should be noted that its role is so far limited only to participation in special drawing rights. By the way, if you have a desire, I literally wrote yesterday about how this can be done.

This is the mechanism through which payments are made between the main donor countries of the International Monetary Fund (IMF). Each donor has a certain quota, within which he must contribute funds to replenish the fund.

These quotas are measured in an artificial currency called Special Drawing Rights, or SDR. The same unit takes into account loans from central banks of IMF member countries for temporary replenishment of reserves, etc.

SDR does not have a physical medium and is not in free circulation. This is just a mathematical model, while real calculations are made in reserve currencies.

See the SDR (international code XDR) exchange rate for the ruble and the US dollar here: val.ru/valdetails.asp?tool=960.

What currencies can be reserve

A logical question arises: what are the criteria for using a currency as a reserve currency? The IMF takes into account:

• High economic development of the issuing country
• Relatively low inflation rate
• The ability of the national economy to attract a large volume of foreign investment
• Popularity of currency in foreign trade transactions

The share of the Swiss franc in the foreign exchange reserves of central banks is usually small and amounts to no more than 1% of the total.

Despite this, the value of the franc is very high: it is used as a means of payment when paying fees for the international registration of trademarks. In addition, due to the exceptional strength of the Swiss economy, the franc is considered a traditional safe-haven currency. When financial crises occur, investors use it as a means of protecting capital.

The Australian and Canadian dollars are not suitable for the role of reserve currencies mainly due to the “commodity” dependence of the economies of these countries: Australia on the prices of gold and silver, Canada on oil.

In addition, their gold and foreign exchange reserves are significantly inferior to the 5 largest economies in the world: the USA, China, the Eurozone, Japan and Britain. As for the Swiss franc, it is backed by a huge (especially per capita) dollar reserve: more than 600 billion, which even in absolute value puts Switzerland in 3rd position in the world.

There has long been talk in Russia about measures to give the ruble the status of a reserve currency. To do this, it was proposed to start with the creation of oil exchanges and sell oil for rubles. Unfortunately, demand for oil has fallen, and the oil-export-oriented Russian economy is subject to severe inflation. So the prospects for the ruble are still vague.

Countries whose currencies are reserves have advantages over others. First of all, this is the possibility of covering external debt at the expense of the national currency, as well as more favorable conditions for exports. On the other hand, there are serious obligations: the need to maintain and combat the balance of payments deficit.

Why are reserve currencies more convenient to trade?

Let's return to Forex and spreads of currency pairs. Without going into detail, here it is enough to say that a spread is the difference between the best selling and buying prices of an asset at the same point in time. So, the higher the demand for a currency, the more active its use in calculations, the more there are both buyers and sellers of this currency in the market, so the spread is small.

On the contrary, the more exotic the currency, the fewer market participants work with it, the spread can be very high, and exchange rate fluctuations can be sharp and unpredictable. Of course, it is more convenient for a trader to work with pairs of reserve currencies: their behavior is easier to predict, and volatility rarely goes beyond average values, which is convenient when controlling risk.

Afterword

As you can see, in the world of finance there are things on which our lives greatly depend. We feel this when looking at store price tags or buying trips to hot countries. And in order not to be a chip in a stormy river, become successful investors. Subscribing to blog news is the first step on this path!