Reserve Currency

A reserve currency is a foreign currency that is held in significant quantities by central banks and other financial institutions as part of their foreign exchange reserves. Reserve currencies are used in international trade, finance, and investment, providing a store of value and serving as a medium of exchange for cross-border transactions. The U.S. dollar is the most widely used reserve currency, followed by the euro, Japanese yen, and British pound.

Example

Central banks around the world hold large amounts of U.S. dollars in their reserves because it is the primary currency used in global trade and finance.