3 ms·

Why are reserve currencies needed?

• LatteLazy 6y ago
  It's a safe place to store value and take out loans because it won't rise or fall in value a lot suddenly. It's useful for setting prices for the same reason. It's sort of the same reason you don't want to be paid or keep your money in bitcoin: you agree a salary today or you put an amount of value in today. They when you come to spend that money you suddenly find bitcoin has fallen in value... (there are other reasons too, but this is the big one)
  • thephyber 6y ago
    Those are all desirable properties of a currency. What distinguishes any given local currency from a reserve currency?
    • wenc 6y ago
      https://en.wikipedia.org/wiki/Reserve_currency https://en.wikipedia.org/wiki/Reserve_currency
    • LatteLazy 6y ago
      There is no real difference, the reserve currency is just better at those things than a local currency. Reserve currencies exist when your currency or that of your trade partner(s) is not able to do the job. This is why countries with stable currencies and small trade imbalances don't hold much in reserve currencies.