Track E · InstitutionsNode E4
Reserve currencies — what makes one
Layer 1 · Pocket
~ 30s readThe thirty-second answer
What is this?
Reserve-currency status requires four things: liquidity, rule of law, deep capital markets, and willingness to run external deficits. Few currencies meet all four; the dollar meets all four overwhelmingly.
Why should I care?
Reserve-currency status sounds abstract. It's the reason your government can borrow at low rates, your imports are slightly cheaper, and US sanctions can reach foreign banks halfway around the world. Whoever holds the reserve currency holds the rules of global finance.
Reserve-currency requirements · grades
- USD
- all 4 ✓
- EUR
- 3 of 4
- JPY
- 2 of 4
- GBP
- 2 of 4
- CNY
- 1 of 4