A reserve currency is a currency that central banks hold as part of their foreign exchange reserves.
This currency is often used for international transactions.
Reserve currencies are always strong currencies with a major role in international trade.
They’re often also defined as a “hard currency” or “safe-haven currency“, as these have a more stable value than less commonly used currencies, which allows them to be used as a store of value.
Over the course of history, there have been diverse reserve currencies, such as the Greek drachma, the Roman denarii, Dutch guilder, and the British pound.
The U.S. dollar emerged as the global reserve currency after the Second World War.
Currently, around 64% of global foreign exchange currency reserves were held in U.S. dollars, followed by the euro at 20%, the British pound at 4.7%, and the Japanese yen at 3.8%.