What is a reserve currency? Why central banks hold dollars and euros
By SendPay Business · · 2 min read
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A reserve currency is a foreign currency that central banks and governments hold in large amounts to pay for imports, repay debts and support their own currency. Most of the world's reserves are held in just a few currencies.
Why the US dollar leads
The US dollar makes up more than half of the foreign currency reserves that central banks report to the IMF. Many commodities, such as oil, are priced in dollars, much international trade and borrowing is in dollars, and US government debt is a large, easy-to-sell place to hold money.
Other reserve currencies
The euro is the second largest. Others include the Japanese yen, the British pound, the Canadian and Australian dollars, the Chinese renminbi and the Swiss franc, each holding a much smaller share.
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Why it matters for payments
Because so much trade is priced in dollars, many cross-border payments pass through US dollars even when neither side is in the US. Businesses that buy or sell abroad often find it useful to hold USD or EUR balances instead of converting every payment.
Where SendPay fits
SendPay platforms give your customers GBP, EUR and USD accounts with currency exchange under your own brand, powered by licensed partners. SendPay tells you in writing which licences apply to your platform before you launch.
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Questions people ask
How is the dollar index worked out?
Enter the six exchange rates into the free calculator.
US Dollar Index calculator →What would holding a currency balance save me?
See what converting every payment in and out costs a year, and what converting only the difference saves.
Multi-currency account savings calculator →What is one SDR worth today?
Work it out from today's rates with the free calculator.
SDR calculator →Read next
Spotted a mistake or something out of date? and we'll fix it. How our guides are made
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.