"The dollar is the world's reserve currency": What the heck does that mean?
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This entry was posted on Tuesday, January 13th, 2009 at 6:42 am and is filed under Currency Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
January 13th, 2009 at 6:42 am
A bank is meant to hold a fraction of its money in reserves, which means that it cannot lend out or use this money and is in reserves for emergency. The central bank indicates what percentage of money should be put into reserves. This reserve money is in dollars, so if the value of the dollar declines sharply, so do the world's reserves of money, which is why the dollar is such an important currency.
January 13th, 2009 at 6:42 am
It means that many nations use the dollar as a peg for their currencies or denominate products in dollars.
OPEC prices oil in dollars for example.
They also peg their currencies to the dollar. They buy and sell dollars to regulate their monetary supply.