Connect with us

Money

Here’s How Reserve Currencies Have Evolved Over 120 Years

Published

on

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.

Currency1900192019401960198020002020
U.S. Dollar0.0%28.4%27.9%61.7%57.9%71.2%59.0%
Euro0.0%0.0%0.0%0.0%17.5%18.5%21.2%
Deutsche mark14.7%4.2%0.0%0.0%12.9%0.0%0.0%
Japanese yen0.0%0.0%0.0%0.0%3.9%5.8%6.0%
Pound sterling62.0%57.3%68.9%35.1%2.4%2.7%4.7%
Chinese renminbi0.0%0.0%0.0%0.0%0.0%0.0%2.3%
French franc17.5%6.2%2.1%1.3%1.0%0.0%0.0%
Canadian dollar0.0%0.0%0.0%0.0%0.0%0.0%2.1%
Australian dollar0.0%0.0%0.0%0.0%0.0%0.0%1.8%
Swiss franc0.0%0.0%0.8%0.3%2.2%0.3%0.2%
Dutch guilder0.0%3.9%0.3%0.1%0.9%0.0%0.0%
Other5.7%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
    • 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:

      • 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
        • 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?

          green check mark icon

          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.

Click for Comments

Money

The Richest People in the World in 2024

The combined wealth of the 10 richest individuals in the world amounts to $1.44 trillion.

Published

on

A list of the richest people in the world in 2024.

The Richest People in the World in 2024

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

The combined wealth of the 10 richest individuals in the world amounts to $1.44 trillion.

Using data from Forbes Real-Time Billionaires List, we provide a snapshot of the richest people in the world as of February 2024.

Bernard Arnault Ahead of Elon Musk

Bernard Arnault overtook Elon Musk as the richest person in 2024 due to a 21% decline in Musk’s wealth, from $245.3 billion to $194.6 billion.

The billionaire chairman and CEO of the global luxury goods company LVMH runs dozens of luxury brands such as Louis Vuitton, Sephora, and Tiffany & Co. The French businessman also has investments in businesses such as Netflix and ByteDance, the parent company of TikTok.

RankNameNet WorthSourceCountry
1Bernard Arnault & family$212.1BLVMH🇫🇷 France
2Elon Musk$194.6BTesla, SpaceX🇺🇸 United States
3Jeff Bezos$192.4BAmazon🇺🇸 United States
4Mark Zuckerberg$161.8BFacebook🇺🇸 United States
5Larry Ellison$144.0BOracle🇺🇸 United States
6Warren Buffett$128.7BBerkshire Hathaway🇺🇸 United States
7Bill Gates$123.1BMicrosoft🇺🇸 United States
8Larry Page$120.3BGoogle🇺🇸 United States
9Steve Ballmer$119.2BMicrosoft🇺🇸 United States
10Sergey Brin$115.4BGoogle🇺🇸 United States

The cumulative net worth of the top five richest individuals grew 4% in 2023, to $904.9 billion.

Among women, the richest person, L’Oréal’s Françoise Bettencourt Meyers, saw her fortune grow by $1.2 billion in 2023.

In China, Zhong Shanshan, the chairman and founder of bottled water and beverage producer Nongfu Spring, remains the country’s richest person with a net worth of $60.5 billion.

In India, the list is topped by Mukesh Ambani. The chairman of Reliance Industries, which has interests in petrochemicals, oil and gas, telecom, retail, and financial services, has a $102.1 billion fortune.

How Fortunes Have Changed

Just as in 2023, Mark Zuckerberg saw the most significant growth in his fortune among the top 10 richest individuals. The Facebook co-founder’s net worth surged by over $45 billion by February 2024 compared to November 2023, after Meta’s latest results far exceeded Wall Street’s expectations, sending its shares up.

Zuckerberg’s net worth growth of 39% moved him from 7th to 4th, overtaking Bill Gates, Warren Buffett, and Larry Ellison.

A list of the top 10 richest people in the world in 2024.

Meanwhile, Larry Ellison, Oracle’s chief technology officer and former CEO, saw his net worth retreat by $3 billion after the company reported disappointing revenue in 2023.

Continue Reading
Find the Best Platforms for Stock Trading at StockBrokers.com

Subscribe

Popular