What is a reserve currency?

A large percentage of commodities, such as gold and oil, are priced in the reserve currency, causing other countries to hold this currency to pay for these goods. A reserve currency is a large amount of currency held by central banks and major financial institutions to use for international transactions.

How are reserve currencies used in international commerce?

The reserves are acquired through trade, with the acquiring country selling goods in exchange for currency. Reserve currencies thus grease the wheels of international commerce by helping countries and businesses conduct transactions using the same currency, a much simpler task than settling transactions involving different currencies.

What is the future of the dollar as a reserve currency?

The future of the dollar as the most popular reserve currency is less certain. Reserve currencies are foreign currencies held by central banks. When a country acquires reserves, it doesn't place the currency in general circulation. Instead, it parks the reserves in the central bank.

What is Germany's reserve currency?

The eurois currently the second most commonly held reserve currency, representing about 21% of international foreign currency reserves. After World War II and the rebuilding of the German economy, the German Deutsche Markgained the status of the second most important reserve currency after the US dollar.