what is a reserve currency 
a reserve currency is a large quantity of currency maintained by central banks and other major financial institutions to prepare for investments transactions and international debt obligations or to influence their domestic exchange rate a large percentage of commodities such as gold and oil are priced in the reserve currency causing other countries to hold this currency to pay for these goods understanding reserve currencyholding a reserve currency minimizes exchange rate risk as the purchasing nation will not have to exchange its currency for the current reserve currency to make the purchase since 1944 the u s dollar has been the primary reserve currency used by other countries as a result foreign nations closely monitor the monetary policy of the united states to ensure that the value of their reserves is not adversely affected by inflation or rising prices 