Currency
Here’s How Reserve Currencies Have Evolved Over 120 Years
Here’s How Reserve Currencies Have Evolved Over 120 Years
Over the last 120 years, the popularity of different reserve currencies have ebbed and flowed, reflecting the shifting fortunes of leading global economies.
For example, in the year 1900, the U.S. dollar and pound sterling made up 0% and 62% of global reserves respectively. But fast forward to 2020, and the pound now represents just 4.7% of global currency reserves, while the U.S. dollar stands at nearly 60%.
Today’s motion graphic from James Eagle looks at the year-over-year change in currency reserves as a portion of total reserves, spread across 120 years.
Currency | 1900 | 1920 | 1940 | 1960 | 1980 | 2000 | 2020 |
---|---|---|---|---|---|---|---|
U.S. Dollar | 0.0% | 28.4% | 27.9% | 61.7% | 57.9% | 71.2% | 59.0% |
Euro | 0.0% | 0.0% | 0.0% | 0.0% | 17.5% | 18.5% | 21.2% |
Deutsche mark | 14.7% | 4.2% | 0.0% | 0.0% | 12.9% | 0.0% | 0.0% |
Japanese yen | 0.0% | 0.0% | 0.0% | 0.0% | 3.9% | 5.8% | 6.0% |
Pound sterling | 62.0% | 57.3% | 68.9% | 35.1% | 2.4% | 2.7% | 4.7% |
Chinese renminbi | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 2.3% |
French franc | 17.5% | 6.2% | 2.1% | 1.3% | 1.0% | 0.0% | 0.0% |
Canadian dollar | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 2.1% |
Australian dollar | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 1.8% |
Swiss franc | 0.0% | 0.0% | 0.8% | 0.3% | 2.2% | 0.3% | 0.2% |
Dutch guilder | 0.0% | 3.9% | 0.3% | 0.1% | 0.9% | 0.0% | 0.0% |
Other | 5.7% | 0.0% | 0.0% | 1.6% | 1.3% | 1.5% | 2.7% |
What is a Reserve Currency?
A reserve currency is a large quantity of currency held in “reserve” by monetary authorities like central banks.
Currencies are often held in reserve in preparation for investments and transactions, among other things. Our vast global trade system, which is approaching $20 trillion in value, means plenty of currencies are always needed in reserve. In fact, an estimated $5 trillion in currency swaps hands every single day.
Here are some reasons that currency reserves are held:
- Exchange rate stability for the domestic currency
- To ensures liquidity in times of crisis
- To diversify central bank portfolios, which can reduce risk and improve credit ratings
- More than 65 countries peg their currencies to the U.S. dollar
- Five U.S. territories and a number of sovereign countries, such as Ecuador and Panama, use it as an official currency of exchange
- Around 90% of all Forex trading involves the U.S. dollar
All things equal, countries benefit economically from greater demand for their respective currencies.
The Rise and Fall of Reserve Currencies
Some economists argue that the demand for currencies in the long run revolves around the economic relevance of a country. In general, the larger and more powerful a nation’s economy is, the greater the network effect, and the more interlinked they are to the global economy. Thus, the greater demand there is to hold their currency in reserve.
The last 120 years of currency reserve data shows some support for this claim. For example, Japan’s economy hit a peak in terms of its relative share of global GDP in the early 1990s, just before the effects of the Lost Decade were felt. Subsequently, their peak as a reserve currency was around the same horizon, at 9.4% in 1990.
America’s Era of Dominance
Due to the economic strength of the United States in the post-WWII era, the dollar is what economists call a vehicle currency.
This means many non-dollar economies still choose to engage in international transactions using the dollar. These smaller and less accepted currencies are often converted to U.S. dollars before proceeding with any business or trade dealings. This is why, although Asian economies tend to have neighboring states as their top trade partners, they still engage in a massive portion of these transactions with the U.S. greenback as the currency of choice.
Here are some facts that further exemplify the strength and power of the U.S. dollar:
Additionally, the dollar is often seen as a haven in times of extreme uncertainty and tumult. Given its status as the world’s reserve currency, it can be perceived as less risky and can withstand economic shock to a greater degree relative to other currencies.
New Challengers to the Dollar
In the not too distant past, the U.S. displaced the UK economically and as the world’s reserve currency. Today, the U.S. economy is showing signs of slowing down, based on GDP growth.
China is on the rise, having already displaced the U.S. as the EU’s top trade partner. With projections for China to overtake the U.S. as the world’s largest economy before 2030 in nominal terms, could a new global reserve currency emerge?

This article was published as a part of Visual Capitalist's Creator Program, which features data-driven visuals from some of our favorite Creators around the world.
Money
Visualizing $65 Trillion in Hidden Dollar Debt
Since 2008, the value of unrecorded dollar debt has doubled. Here’s why this is increasing risk in global financial markets.

Visualizing $65 Trillion in Hidden Dollar Debt
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The scale of hidden dollar debt around the world is huge.
No less than $65 trillion in unrecorded dollar debt circulates across the global financial system in non-U.S. banks and shadow banks. To put in perspective, global GDP sits at $104 trillion.
This dollar debt is in the form of foreign-exchange swaps, which have exploded over the last decade due to years of monetary easing and ultra-low interest rates, as investors searched for higher yields. Today, unrecorded debt from these foreign-exchange swaps is worth more than double the dollar debt officially recorded on balance sheets across these institutions.
Based on analysis from the Bank of International Settlements (BIS), the above infographic charts the rise in hidden dollar debt across non-U.S. financial institutions and examines the wider implications of its growth.
Dollar Debt: A Beginners Guide
To start, we will briefly look at the role of foreign-exchange (forex) swaps in the global economy. The forex market is the largest in the world by a long stretch, with trillions traded daily.
Some of the key players that use foreign-exchange swaps are:
- Corporations
- Financial institutions
- Central banks
To understand forex swaps is to look at the role of currency risk. As we have seen in 2022, the U.S. dollar has been on a tear. When this happens, it hurts company earnings that generate revenue across borders. That’s because they earn revenue in foreign currencies (which have likely declined in value against the dollar) but end up converting earnings to U.S. dollars.
In order to reduce currency risk, market participants will buy forex swaps. Here, two parties agree to exchange one currency for another. In short, this helps protect the company from unfavorable foreign exchange rates.
What’s more, due to accounting rules, forex swaps are often unrecorded on balance sheets, and as a result are quite opaque.
A Mountain of Debt
Since 2008, the value of this opaque, unrecorded dollar debt has nearly doubled.
Date | Non-U.S. Bank Unrecorded Debt | Non-U.S. Shadow Bank Unrecorded Debt |
---|---|---|
2022* | $39.4T | $26.0T |
2021 | $37.1T | $25.0T |
2020 | $34.5T | $22.9T |
2019 | $32.9T | $21.5T |
2018 | $32.4T | $20.1T |
2017 | $31.2T | $18.8T |
2016 | $27.9T | $17.0T |
2015 | $25.1T | $15.6T |
2014 | $30.0T | $17.0T |
2013 | $30.8T | $15.7T |
2012 | $28.9T | $15.9T |
2011 | $27.5T | $14.7T |
2010 | $24.8T | $15.0T |
2009 | $21.4T | $12.1T |
2008 | $21.9T | $12.4T |
*As of June 30, 2022
Driving its rise in part was an era of rock-bottom interest rates globally. As investors sought out higher returns, they took on greater leverage—and forex swaps are one example of this.
Now, as interest rates have been rising, forex swaps have increased amid higher market volatility as investors look to hedge currency risk. This appears in both non-U.S. banks and non-U.S. shadow banks, which are unregulated financial intermediaries.
Overall, the value of unrecorded debt is staggering. An estimated $39 trillion is held by non-U.S. banks along with $26 trillion in overseas shadow banks around the world.
Past Case Studies
Why does the massive growth in dollar debt present risks?
During the market crashes of 2008 and 2020, forex swaps faced a funding squeeze. To borrow U.S. dollars, market participants had to pay high rates. A lot of this hinged on the impact of extreme volatility on these swaps, putting pressure on funding rates.
Here are two examples of how volatility can heighten risk in the forex market:
- Exchange-rate volatility: Sharp swings in USD can spur a liquidity crunch
- U.S. interest-rate volatility: Sudden rate fluctuations can mean much higher costs for these trades
In both cases, the U.S. central bank had to step in to provide liquidity in the market and prevent dollar shortages. This was done through pumping cash into the system and creating swap lines with other non-U.S. banks such as the Bank of Canada or the Bank of Japan. These were designed to protect from declining currency values and a liquidity crunch.
Dollar Debt: The Wider Implications
The risk from growing dollar debt and these swap lines arises when a non-U.S. bank or shadow bank may not be able to hold up their end of the agreement. In fact, on a daily basis, there is an estimated $2.2 trillion in forex swaps exposed to settlement risk.
Given its vast scale, this dollar debt could have greater systemic spillover effects. If participants fail to pay it could undermine financial market stability. Because demand for U.S. dollars increases during market uncertainty, a worsening economic climate could potentially expose the forex market to more vulnerabilities.
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