Reserve currency - wikipedia Reserve currency A reserve currency ( or anchor currency ) is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves. The reserve currency is commonly used in international transactions, international investments and all aspects of the global economy. It is often considered a hard currency or safe - haven currency. People who live in a country that issues a reserve currency can purchase imports and borrow across borders more cheaply than people in other nations because they do not need to exchange their currency to do so. By the end of the 20th century, the United States dollar was considered the world 's most dominant reserve currency. The world 's need for dollars has allowed the United States government as well as Americans to borrow at lower costs, granting them an advantage in excess of $100 billion per year. Contents 1 History 2 Global currency reserves 3 Theory 4 Major reserve currencies 4.1 United States dollar 4.2 Euro 5 Other reserve currencies 5.1 Dutch guilder 5.2 Pound sterling 5.3 Japanese yen 5.4 Swiss franc 5.5 Canadian dollar 5.6 Chinese yuan 6 Calls for an alternative reserve currency 6.1 Special drawing rights 7 See also 8 References 9 Further reading History Reserve currencies come and go. International currencies in the past have included the Greek drachma, coined in the fifth century B.C., the Roman denari, the Byzantine solidus and Arab dinar of the middle - ages, the Venetian ducato and the Florentine florin of the Renaissance, the seventeenth century Dutch guilder and the French franc. Under the gold standard, the predominant global financial system from 1870 to 1914, paper notes were convertible into preset, fixed quantities of gold. The Dutch guilder emerged as a de facto world currency in the 18th century due to unprecedented domination of trade by the Dutch East India Company. However, the development of the modern concept of a reserve currency took place in the mid nineteenth century, with the introduction of national central banks and treasuries and an increasingly integrated global economy. By the 1860s, most industrialised countries had followed the lead of the United Kingdom and put their currency on to the gold standard. At that point the UK was the primary exporter of manufactured goods and services and over 60 % of world trade was invoiced in pound sterling. British banks were also expanding overseas, London was the world centre for insurance and commodity markets and British capital was the leading source of foreign investment around the world ; sterling soon became the standard currency used for international commercial transactions. John Maynard Keynes ( right ) and Harry Dexter White helped to draft the provisions of the post-war financial system. Here, they meet at the inaugural meeting of the International Monetary Fund, 1946. Attempts were made in the interwar period to restore the gold standard. The British Gold Standard Act reintroduced the gold bullion standard in 1925, followed by many other countries. This led to relative stability, followed by deflation, but because the onset of the Great Depression and other factors, global trade greatly declined and the gold standard fell. Speculative attacks on the pound forced Britain entirely off the gold standard in 1931. After World War II, the international financial system was governed by a formal agreement, the Bretton Woods System. Under this system the United States dollar was placed deliberately as the anchor of the system, with the US government guaranteeing other central banks that they could sell their US dollar reserves at a fixed rate for gold. In the late 1960s and early 1970s, the system suffered setbacks ostensibly due to problems pointed out by the Triffin dilemma -- the conflict of economic interests that arises between short - term domestic objectives and long - term international objectives when a national currency also serves as a world reserve currency. Global currency reserves Thus the following table is a limited view about the global currency reserves that only deals with allocated reserves : Currency composition of official foreign exchange reserves 1999 2000 2002 2003 2005 2006 2007 2008 2009 2011 2012 2013 2014 2015 2016 US dollar 71.0 % 70.5 % 70.7 % 66.5 % 65.8 % 66.0 % 66.4 % 65.7 % 64.1 % 64.1 % 62.1 % 61.8 % 62.3 % 61.1 % 61.0 % 63.1 % 64.0 % 64.0 % Euro 17.9 % 18.8 % 19.8 % 24.2 % 25.3 % 24.9 % 24.3 % 25.2 % 26.3 % 26.4 % 27.6 % 26.0 % 24.7 % 24.3 % 24.4 % 22.1 % 20.3 % 19.7 % Chinese renminbi 1.1 % Pound sterling 2.9 % 2.8 % 2.7 % 2.9 % 2.6 % 3.2 % 3.6 % 4.2 % 4.7 % 4.0 % 4.3 % 3.9 % 3.8 % 4.0 % 4.0 % 3.8 % 4.7 % 4.4 % Japanese yen 6.4 % 6.3 % 5.2 % 4.5 % 4.1 % 3.8 % 3.7 % 3.2 % 2.9 % 3.1 % 2.9 % 3.7 % 3.6 % 4.1 % 3.8 % 3.9 % 3.8 % 4.2 % Canadian dollar 1.5 % 1.8 % 1.9 % 1.9 % 2.0 % Australian dollar 1.5 % 1.8 % 1.8 % 1.8 % 1.8 % Swiss franc 0.2 % 0.3 % 0.3 % 0.4 % 0.2 % 0.2 % 0.1 % 0.2 % 0.2 % 0.1 % 0.1 % 0.1 % 0.1 % 0.3 % 0.3 % 0.3 % 0.3 % 0.2 % Other 1.6 % 1.4 % 1.2 % 1.4 % 1.9 % 1.9 % 1.9 % 1.5 % 1.8 % 2.2 % 3.1 % 4.4 % 5.4 % 3.3 % 2.9 % 3.2 % 3.2 % 2.5 % Sources : The percental composition of currencies of official foreign exchange reserves since 1995. US dollar Euro German mark French franc Pound sterling Japanese yen Other Theory Economists debate whether a single reserve currency will always dominate the global economy. Many have recently argued that one currency will almost always dominate due to network externalities, especially in the field of invoicing trade and denominating foreign debt securities, meaning that there are strong incentives to conform to the choice that dominates the marketplace. The argument is that, in the absence of sufficiently large shocks, a currency that dominates the marketplace will not lose much ground to challengers. However, some economists, such as Barry Eichengreen, argue that this is not as true when it comes to the denomination of official reserves because the network externalities are not strong. As long as the currency 's market is sufficiently liquid, the benefits of reserve diversification are strong, as it insures against large capital losses. The implication is that the world may well soon begin to move away from a financial system dominated uniquely by the US dollar. In the first half of the 20th century multiple currencies did share the status as primary reserve currencies. Although the British Sterling was the largest currency, both the French franc and the German mark shared large portions of the market until the First World War, after which the mark was replaced by the dollar. Since the Second World War, the dollar has dominated official reserves, but this is likely a reflection of the unusual domination of the American economy during this period, as well as official discouragement of reserve status from the potential rivals, Germany and Japan. The top reserve currency is generally selected by the banking community for the strength and stability of the economy in which it is used. Thus, as a currency becomes less stable, or its economy becomes less dominant, bankers may over time abandon it for a currency issued by a larger or more stable economy. This can take a relatively long time, as recognition is important in determining a reserve currency. For example, it took many years after the United States overtook the United Kingdom as the world 's largest economy before the dollar overtook the pound sterling as the dominant global reserve currency. In 1944, when the US dollar was chosen as the world reference currency at Bretton Woods, it was only the second currency in global reserves. The G8 also frequently issues public statements as to exchange rates. In the past due to the Plaza Accord, its predecessor bodies could directly manipulate rates to reverse large trade deficits. Major reserve currencies Distribution of global reserve currencies United States dollar Main article : United States dollar The United States dollar is the most widely held currency in the Allocated Reserves today. Throughout the last decade, an average of two thirds of the total Allocated foreign exchange reserves of countries have been in US dollars. For this reason, the US dollar is said to have `` reserve - currency status '', making it somewhat easier for the United States to run higher trade deficits with greatly postponed economic impact or even postponing a currency crisis. Central bank reserves held in dollar - denominated debt, however, are small compared to private holdings of such debt. In the event that non-United States holders of dollar - denominated assets decided to shift holdings to assets denominated in other currencies, there could be serious consequences for the US economy. Changes of this kind are rare, and typically change takes place gradually over time ; the markets involved adjust accordingly. However, the dollar remains the favorite reserve currency because it has stability along with assets such as United States Treasury security that have both scale and liquidity. The US dollar 's dominant position in global reserves is challenged occasionally, because of the growing share of unallocated reserves, and because of the doubt regarding dollar stability in the long term. However, in the aftermath of the financial crisis, the dollar 's share in the world 's foreign - exchange trades rose slightly from 85 % in 2010 to 87 % in 2013. The dollar 's role as the undisputed reserve currency of the world allows the United States to impose unilateral sanctions against actions performed between other countries, for example the American fine against BNP Paribas for violations of U.S. sanctions that were not laws of France or the other countries involved in the transactions. In 2014 Beijing and Moscow signed a 150 billion yuan central bank liquidity swap line agreement to get around American sanctions on their behaviors. Euro Further information : International status and usage of the euro The euro is currently the second most commonly held reserve currency, comprising about a quarter of allocated holdings. After World War II and the rebuilding of the German economy, the German Deutsche Mark gained the status of the second most important reserve currency after the US dollar. When the euro was introduced on 1 January 1999, replacing the Mark, French franc and ten other European currencies, it inherited the status of a major reserve currency from the Mark. Since then, its contribution to official reserves has risen continually as banks seek to diversify their reserves, and trade in the eurozone continues to expand. Former U.S. Federal Reserve Chairman Alan Greenspan said in September 2007 that the euro could replace the U.S. dollar as the world 's primary reserve currency. It was `` absolutely conceivable that the euro will replace the US dollar as reserve currency, or will be traded as an equally important reserve currency. '' Econometric analysis by Jeffrey Frankel and Menzie Chinn in 2006 suggested that the euro could replace the U.S. dollar as the major reserve currency by 2020 if either the remaining EU members, including the UK and Denmark, adopted the euro by 2020, or the recent depreciation trend of the dollar persisted into the future. In recent years, the euro 's share of the worldwide currency reserve basket has continued to increase -- albeit at a slower rate than before the beginning of the worldwide credit crunch related recession and Eurozone crisis, which harmed the euro and slowed its adoption. Since 2009, the reserve currency use of the euro has continued to drop, down to 23.9 percent in 2013. Other reserve currencies Dutch guilder The Dutch guilder was the de facto reserve currency in Europe in 17th and 18th centuries. Pound sterling The United Kingdom 's pound sterling was the primary reserve currency of much of the world in the 19th century and first half of the 20th century. The emergence of the USA as an economic superpower, and the establishment of the U.S. Federal Reserve System in 1913, and U.S. economic dominance from the second half of the 20th century onward, as well as economic weakness in the UK at various times during the second half of the 20th century, resulted in Sterling losing its status as the world 's most important reserve currency : in the 1950s 55 % of global reserves were still held in sterling ; but the share was 10 % lower within 20 years. Between mid-2006 and 2011 as well as in 2013 ( but not since ) it was the third most widely held reserve currency, having seen a resurgence in popularity in recent years, growing from about 2.5 % to around 4 % of all currency reserves. Analysts said this resurgence was caused by carry - trade investors considering the pound as a stable high - yield proxy to the euro, and by the position of London in world financial affairs. Japanese yen Japan 's yen is part of the International Monetary Fund 's ( IMF ) special drawing rights ( SDR ) valuation. The SDR currency value is determined daily by the IMF, based on the exchange rates of the currencies making up the basket, as quoted at noon at the London market. The valuation basket is reviewed and adjusted every five years. The SDR Values and yen conversion for government procurement are used by the Japan External Trade Organization for Japan 's official procurement in international trade. Swiss franc The Swiss franc, despite gaining ground among the world 's foreign - currency reserves and being often used in denominating foreign loans, can not be considered as a world reserve currency, since the share of all foreign exchange reserves held in Swiss francs has historically been well below 0.5 %. The daily trading market turnover of the franc, however, ranked fifth, or about 3.4 %, among all currencies in a 2007 survey by the Bank for International Settlements. Canadian dollar A number of central banks ( and commercial banks ) keep Canadian dollars as a reserve currency. In the economy of the Americas, the Canadian dollar plays a similar role to that played by the Australian dollar ( AUD ) in the Asia - Pacific region. The Canadian dollar ( as a regional reserve currency for banking ) has been an important part of the British, French and Dutch Caribbean states ' economies and finance systems since the 1950s. The Canadian dollar is also held by many central banks in Central America and South America. It is held in Latin America because of remittances and international trade in the region. Because Canada 's primary foreign - trade relationship is with the United States, Canadian consumers, economists, and many businesses primarily define and value the Canadian dollar in terms of the United States dollar. Thus, by observing how the Canadian dollar floats in terms of the US dollar, foreign - exchange economists can indirectly observe internal behaviours and patterns in the US economy that could not be seen by direct observation. Also, because it is considered a petrodollar, the Canadian dollar has only fully evolved into a global reserve currency since the 1970s, when it was floated against all other world currencies. The Canadian dollar, since 2013, is ranked 5th among foreign currency reserves in the world. Chinese yuan Main article : Internationalization of the renminbi Chinese yuan officially became a world reserve currency on November 30, 2015. It represents 10.92 % of the IMF 's Special Drawing Rights currency basket. This makes Chinese yuan the third reserve currency after the US dollar and Euro. Calls for an alternative reserve currency A report released by the United Nations Conference on Trade and Development in 2010, called for abandoning the U.S. dollar as the single major reserve currency. The report states that the new reserve system should not be based on a single currency or even multiple national currencies but instead permit the emission of international liquidity to create a more stable global financial system. Countries such as Russia and the People 's Republic of China, central banks, and economic analysts and groups, such as the Gulf Cooperation Council, have expressed a desire to see an independent new currency replace the dollar as the reserve currency. On 10 July 2009, Russian President Medvedev proposed a new ' world currency ' at the G8 meeting in London as an alternative reserve currency to replace the dollar. According to economist Michael Hudson, China has said, `` we do n't want to make any more foreign exchange reserve of any paper currency, because all the paper currencies are government debt currencies. '' China, Russia, India, Turkey, Brazil, Venezuela and other oil - producing countries have recently agreed `` to transact all of their mutual trade and investment in their own currencies '' effectively minimizing the need, at least in the short term, for a global reserve currency. Nevertheless, at the beginning of the 21st century, gold and crude oil were still priced in dollars, which helps export inflation and has brought complaints about OPEC 's policies of managing oil quotas to maintain dollar price stability. Special drawing rights Some have proposed the use of the International Monetary Fund 's ( IMF ) special drawing rights ( SDRs ) as a reserve. China has proposed using SDRs, calculated daily from a basket of U.S. dollar, euro, Japanese yen and British pounds, for international payments. On 3 September 2009, the United Nations Conference on Trade and Development ( UNCTAD ) issued a report calling for a new reserve currency based on the SDR, managed by a new global reserve bank. The IMF released a report in February 2011, stating that using SDRs `` could help stabilize the global financial system. '' See also Commodity currency Exorbitant privilege Floating currency Foreign exchange reserves Fiat currency Hard currency Krugerrand Seigniorage Special drawing rights Triffin dilemma World currency References Jump up ^ `` The Federal Reserve in the International Sphere '', The Federal Reserve System : Purposes & Functions, a publication of the Board of Governors of the Federal Reserve System, 9th Edition, June 2005 Jump up ^ Rogoff, Kenneth ( October 2013 ). `` America 's Endless Budget Battle ''. Project Syndicate. Jump up ^ Pisani - Ferry, Jean ; Posen, Adam S. ( 2009 ). The Euro at Ten : The Next Global Currency. United States of America : Peter G. Peterson Institute for International Economies & Brueggel. Jump up ^ `` A history of sterling '' by Kit Dawnay, The Telegraph, 8 October 2001 Jump up ^ Text of the Gold Standard Bill speech by Winston Churchill, House of Commons, 4 May 1925 Jump up ^ Text of speech by Chancellor of the Exchequer Philip Snowden to the House of Commons, 21 September 1931 Jump up ^ Eichengreen, Barry J. ( 15 September 2008 ). Globalizing Capital : A History of the International Monetary System. Princeton University Press. pp. 61 --. ISBN 978 - 0 - 691 - 13937 - 1. Retrieved 23 November 2010. 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Jump up ^ Smolchenko, Anna ( 13 October 2014 ). `` China, Russia seek ' international justice ', agree currency swap line ''. news.yahoo.com. AFP News. Retrieved 13 October 2014. Jump up ^ Lim, Ewe - Ghee ( June 2006 ). `` The Euro 's Challenge to the Dollar : Different Views from Economists and Evidence from COFER ( Currency Composition of Foreign Exchange Reserves ) and Other Data '' ( PDF ). IMF. Jump up ^ `` Euro could replace dollar as top currency - Greenspan '', Reuters, 7 September 2007 Jump up ^ Menzie, Chinn ; Jeffery Frankel ( January 2006 ). `` Will the Euro Eventually Surpass The Dollar As Leading International Reserve Currency ? '' ( PDF ). NBER. Retrieved 11 October 2007. Jump up ^ `` Aristovnik, Aleksander & Čeč, Tanja, 2010. `` Compositional Analysis Of Foreign Currency Reserves In The 1999 - 2007 Period. The Euro Vs. The Dollar As Leading Reserve Currency, '' Journal for Economic Forecasting, Vol. 13 ( 1 ), pages 165 - 181 '' ( PDF ). Institute for Economic Forecasting. 19 July 2010. Retrieved 5 July 2010. Jump up ^ `` Currency Composition of Official Foreign Exchange Reserves ( COFER ) -- Updated COFER tables include first quarter 2009 data. June 30, 2009 '' ( PDF ). Retrieved 8 July 2009. Jump up ^ `` Euro Takes a Hit as Reserve Currency. '' Jump up ^ `` Born of a Panic : Forming the Fed System - The Region - Publications & Papers - The Federal Reserve Bank of Minneapolis ''. Minneapolisfed.org. Retrieved 6 December 2014. Jump up ^ `` The United Nations Charter and Extra-State Warfare : The U.N. Grows Up ''. The World Financial Review. 13 November 2013. Retrieved 15 August 2014. Jump up ^ Blackden, Richard ( 23 January 2007 ). `` Sterling surges to 14 - year high ''. The Daily Telegraph. London. Retrieved 24 January 2007. Jump up ^ `` Currency Strategists : Morgan Says Pound Is Euro Proxy ''. xak.com. Bloomberg. 8 February 2006. Jump up ^ `` SDR Valuation '', International Monetary Fund website : `` The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of a basket of major currencies ( the U.S. dollar, Euro, Japanese yen, and pound sterling ). The SDR currency value is calculated daily ( except on IMF holidays or whenever the IMF is closed for business ) and the valuation basket is reviewed and adjusted every five years. '' Jump up ^ Japanese Government Procurement, Japan External Trade Organization website ( accessed : 6 January 2015 ) Jump up ^ `` Is the Dollar Dying ? Why US Currency Is in Danger '' by Jeff Cox, CNBC, 14 February 2013 Jump up ^ `` A new global reserve ? '', The Economist, 2 July 2010 Jump up ^ `` Triennial Central Bank Survey, Foreign exchange and derivatives market activity in 2007 '' ( PDF ). Bank for International Settlements. December 2007. ^ Jump up to : `` The Canadian Dollar as a Reserve Currency '' by Lukasz Pomorski, Francisco Rivadeneyra and Eric Wolfe, Funds Management and Banking Department, The Bank of Canada Review, Spring 2014 Jump up ^ `` Currency Composition of Official Foreign Exchange Reserves ( COFER ) ''. www.imf.org. International Monetary Fund. 30 September 2014. Retrieved 1 October 2014. ^ Jump up to : http://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14/51/Special-Drawing-Right-SDR Jump up ^ https://www.bloomberg.com/news/articles/2015-11-30/imf-backs-yuan-in-reserve-currency-club-after-rejection-in-2010 Jump up ^ `` Scrap dollar as sole reserve currency : U.N. Report ''. Reuters.com. 29 June 2010. Retrieved 27 November 2011. Jump up ^ `` UN report calls for new global reserve currency to replace U.S. dollar ''. People 's Daily, PRC. 30 June 2010. Retrieved 27 November 2011. Jump up ^ Conway, Edmund ( 7 September 2009 ). `` UN wants new global currency to replace dollar ''. London : The Telegraph. Retrieved 27 November 2011. Jump up ^ `` Medvedev Shows Off Sample Coin of New ' World Currency ' at G - 8 ''. Reuters.com. 10 July 2009. Retrieved 14 October 2010. Jump up ^ `` World Tired of Paying Bill for US Military ''. therealnews.com. 27 December 2010. Jump up ^ Burleigh, Marc. `` OPEC leaves oil quotas unchanged, seeing economic ' risks '. '' AFP, 11 December 2010. Jump up ^ `` China backs talks on dollar as reserve - Russian source, Reuters, 19 March 2, 2009 ''. Reuters.com. 19 March 2009. Retrieved 22 August 2010. Jump up ^ `` UNCTAD Trade and Development Report 2009 ''. Unctad.org. 6 October 2002. Retrieved 22 August 2010. Jump up ^ `` IMF calls for dollar alternative '' by Ben Rooney, CNN Money, 10 February 2011 Further reading Prasad, Eswar S. ( 2014 ). The Dollar Trap : How the U.S. Dollar Tightened Its Grip on Global Finance. Princeton, NJ : Princeton University Press. ISBN 978 - 0 - 691 - 16112 - 9. Retrieved from `` https://en.wikipedia.org/w/index.php?title=Reserve_currency&oldid=807162424 '' Categories : Currency Foreign exchange reserves Monetary hegemony Hidden categories : Pages using citations with format and no URL Pages using web citations with no URL Use dmy dates from August 2014 Talk Contents About Wikipedia Български Català Čeština Deutsch Eesti Español Esperanto Français 한국어 Bahasa Indonesia Italiano Қазақша Magyar Nederlands 日本 語 Português Русский Slovenčina Suomi Svenska Türkçe Українська اردو 中文 Edit links This page was last edited on 26 October 2017, at 08 : 47. Text is available under the Creative Commons Attribution - ShareAlike License ; additional terms may apply. By using this site, you agree to the Terms of Use and Privacy Policy. Wikipedia ® is a registered trademark of the Wikimedia Foundation, Inc., a non-profit organization. About Wikipedia

Question: when did the dollar became the world currency
Answer: By the end of the 20th century