reserve currency

A reserve currency is a large quantity of currency maintained by central banks and other major financial institutions to prepare for international debt obligations or to influence their domestic exchange rate. Holding a reserve currency minimizes exchange rate risk, as the purchasing nation will not have to exchange its currency for the current reserve currency to make the purchase. Since 1944, the USD has been predominantly used as a reserve currency although the Euro, Yen and RMB have gained importance lately.

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