Why U.S. Dollar is a Reserve Currency ?

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A Reserve currency is the one which is held in significant quantities by the Govts. as part of their
foreign exchange reserves and is commonly used in international transactions, investments and all
aspects of Global economy.
The purpose of  Reserve currency is to be a currency of last resort i.e. Trust - used in international
transactions. In order to be a good reserve, currency should be -
Liquid - Easily sold & purchased in Market.
Deep - Large amounts can be transacted without affecting the price of currency.
Since 1944, when nations around the world ratified Bretton Woods agreement, Gold backed  U.S. Dollar has been the most dominant currency of the world. People prefer to use Dollars as it was trusted since U.S. always paid back its Debts - Term full faith & credit on every federal reserve
bill. The U.S. economy benefits from a currency which greases the wheels of Global financial system. The strength of U.S. economy supports value of its currency. Around 65% of currency is used outside the country. Almost 40% of world's debt is issued in Dollars resulting into increased need  for Dollars by foreign banks. 
In 1972, U.S, made a deal with Saudi Arabia to exchange U.S. treasury bonds (Debts)/ Military personnel/ weapons for Saudi Arabia to sell all of their oil in Dollars. Rest of the OPEC countries
followed and traded all oil for Dollars. U.S. has military bases in most of countries producing oil.
This deal created a monoply of oil trade denominations in U.S. dollars which means that all
countries who use oil must have Dollars in order to buy oil. 
Attempts have been made in the past to disintegrate the dollars and come up with a new to trade
oil but were not successful.




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