World reserve currencies are How many reserve currencies are there in the world?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

It's no secret that in today's world money is of great importance. What is happening today with the Russian economy is directly related not only to the cost of oil, the situation in Ukraine, but also to the financial market. The world's reserve currencies are, first of all, an island of security where Russian citizens feel somewhat more secure. The ruble has always been considered not very stable, but at the same time it took a well-deserved place in the financial market. Unfortunately, due to the fact that the national ruble has recently been behaving extremely insecurely, many have chosen world reserve currencies to save their savings. What kind of money can rightly be considered as such? Indeed, in the financial market there are a lot of various monetary units that can be considered quite reliable. How many reserve currencies are there in the world and why exactly are they chosen as a kind of "safe haven"?

What is a backupcurrency?

Modern business society under the concept of world reserve currency understands the monetary unit that is required by banks of other states to create a certain currency reserve. First of all, it is used as a tool for trade between different countries. It is also used as an international asset, establishing a strong relationship between the two leading currencies. Often this term is used to refer to monetary units in bank settlements with certain organizations. Previously, such currencies were used to settle in the gold and oil markets, thereby determining the cost of these resources. Today, they are used mainly to accumulate gold and foreign exchange reserves, and also strengthen the possibility of export competition by weakening their own currency.

World reserve currencies are a kind of "safety cushion" in case of financial instability. But initially it is worth noting that such cash reserves serve as a safety net in case of a financial crisis. It is no secret that it is the world reserve currencies that contribute to the weakening of the national currency. Which ones - we will consider further.

How many reserve currencies are there in the world?

It has long been known that absolutely any monetary unit can be a reserve currency. All that is needed for this is economic stability in her state, as well as the absence of revolutions and other upheavals. But even if the currency is stable, involved in world trade and has a developed financialmarket, this does not mean that it has the status of a reserve unit. After all, money acquires this status only after the leading banks of other countries begin to use them to preserve their own reserves. So it turns out that world reserve currencies are monetary units that perform the function of an investment asset. Currently, several currencies are considered reserve money. First of all, it is, of course, the US dollar (USD) and such as the common European currency euro (EUR), Japanese yen (JPY), British pound (GBP), Swiss franc (CHF), as well as several others. It is these monetary units that are in the assets of most states.

Reserve currency dollar (USD)

The dollar appeared back in 1861. Then, at the request of Congress, about 57 million banknotes were printed. Although the official birthday of the dollar is still considered to be July 6, 1785. It was on this day that he was officially registered. It is believed that the dollar is the world's No. 1 reserve currency. Indeed, over the past decade, more than 50% of the total gold and foreign exchange reserves of all countries of the world were calculated in this particular monetary unit. Why is the dollar the world's settlement and reserve currency? In order to answer this question, you need to plunge into history a little.

When the consequences of the Second World War had already cleared up, it became clear that drastic measures had to be taken. So, at the next congress, a single price for 1 troy ounce of oil was adoptedin the amount of $35. And by this, the countries recognized the American dollar as a single settlement and reserve currency. As you know, during the war, the American economy suffered the least, and the US gold reserves were huge. In addition, the United States had a powerful industry. This was primarily due to the fact that countries on the trading market often wanted to buy something in return. This allowed the United States not only to look like a leader in the world market, but also to strengthen the country's economy as a whole. It is not surprising that during that period, countries needed to be more involved in exports, because such a strategy made it possible to accumulate gold and currency. So it turned out that the United States, exporting its own currency, received the status of the most stable country, and the dollar took a leading position and a high rank.

Euro (EUR) as global reserve currency

The history of this currency goes back to 1995. It was during this year in Madrid that the EU decided to "christen" the future common currency of the eleven states - the euro. Although the development of the European currency project began in 1979. This idea was truly great. After all, earlier all attempts to create some kind of financial union ended in disastrous results. Just like the dollar, the euro has a lot of support from other states, which gives it the opportunity to become the leading currency for setting exchange rates. But the fact that the members of the Union of Europe support this banknote also has some negative impact associated with the irregular development of these states. Analysts believe that soondue to the fact that the internationalization of the euro gave impetus to the formation of a bipolar world monetary and financial system, it and the dollar will have an impact on different zones and territories. The euro is likely to remain within Eastern and Central Europe, while the dollar will dominate within South and East Asia and Latin America. But today we can safely say that these are the two most powerful world reserve currencies.

Japanese yen (JPY) - an honorable third place

Previously, the Japanese yen was considered one of the most powerful safe-haven currencies. But over the past few years, its popularity has definitely declined. And today this monetary unit occupies only the third place in the financial market. The yen was created in 1871, although other gold, silver and paper money existed in parallel with it. Well, the international title comes to her on May 11, 1953, exactly when the International Monetary Fund legalized her ratio with gold weighing 2.5 milligrams.

Of course, its volume in the modern financial market is much inferior to the leading dollar and euro. But this does not prevent the Japanese yen from occupying an honorable third place among the world's reserve currencies. This monetary unit differs from its competitors by a fairly high round-the-clock liquidity all over the world. And despite its position among the leaders, the yen is indispensable in international financial markets.

World currency Pound Sterling (GBP)

Pound Sterling -fairly traded currency in the world. That is why it ranks fourth in terms of trust among citizens of the entire Earth. For the first time the concept of "pound sterling" appeared in 1694. And in the period from 1821 to 1914, it was this monetary unit that was considered the main reserve currency in the financial market. Unfortunately, after the Second World War, Great Britain was significantly weakened. This gave the US the opportunity to take the lead in some ways, and the dollar to replace the pound.

The emergence of the euro in the financial market also had a significant impact on this currency. After all, before the EU decided to create a single European national currency, the pound sterling benefited from all sorts of rumors about the convergence of the exchange rate. And if the results of the referendum in the UK were positive, then the pound would have joined the euro as early as 2000. The global market is almost 14% made up of pounds sterling. And this is a very good result.

Stable Swiss Franc (CHF)

For the first time this currency was discussed in 1850. In terms of its nominal value, this monetary unit was equated to the French franc. The main advantage of this currency is that it is practically the most stable in the world. Throughout history, the devaluation of the franc has been recorded only a few times. Because of this, he has a high level of trust among citizens around the world.

Traditionally, the Swiss franc is considered a currencyunits of low-tax zones with zero inflation. As a reserve currency, it entrenched in fourth place. And although it represents the only monetary unit that is not included in the EU and the G7 countries, and its share almost never rises above 0.3%, it, thanks to its “eternal” stability, never loses its position in the world market. Although with the introduction of the European single currency, the constancy and immutability of the Swiss franc has somewhat diminished.

Ruble and yuan as reserve currencies

All the world's reserve currencies today took their well-deserved places. And if a few years ago, in 2007, the government of the Russian Federation declared that the ruble could safely enter world exports, then after all the crises experienced, this became almost impossible. That is why most analysts concluded that the ruble will not be able to take its place among the safe-haven currencies in the near future.

The same, in principle, cannot be said about the Chinese yuan. The world reserve currency, as you know, must have a "set of leadership qualities." Today, China is doing everything to ensure that its national currency strengthens and grows. And, according to leading experts, he does it well. After all, according to the data for 2014, it was this currency that became one of the 10 actively traded, having outstripped 22 “opponents” over the past three years. Work on the offshore market has also not stood still in recent years, and already at the end of March 2014, Germany agreed with China on cooperation in clearing, as well as on settlements in yuan. Besidesthe stock exchanges of Hong Kong and Shanghai opened a cross trading mechanism, gold in China's reserves increased significantly, and 40 world banks made investments in the Chinese currency. All this leads to the fact that in a few years the yuan will take its place of honor as the world's No. 1 reserve currency.

Forecast for 2015

It is difficult to imagine what the world monetary system will be like in the coming years. In connection with the current crisis caused by a sharp decline in the cost of oil, it is rather difficult to assume what the financial world is waiting for. The ruble failed, but today Russia, together with China, is doing everything possible to minimize the impact of the US currency on the global financial market. And no matter how sad it may sound for the United States, the future of the reserve currency is secured for the yuan in any case. After all, not only experts speak about this, but also data on the study of the world's currency markets over the past few years. The Celestial Empire has long proved its worth as a major trading force and the strongest exporter with the second largest economy in the world. And many experts assure that in 10 years the yuan will achieve its goals. In addition, China is already taking confident steps towards this. And, as you know, world reserve currencies are the currencies of those countries that have come a long way!