ranjan

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