The crippling impact of reserve currencies on developing countries

Nicholas Biekpe ()
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Nicholas Biekpe: Chartered Institute of Development Finance

Development Finance Agenda, 2024, vol. 9, issue 2, 3

Abstract: It sounds like a contradiction when we are reminded that the richest countries in the world are also the most indebted. The apparent contradiction is, however, easily explained away once we begin to understand the traditional roles reserve currencies are supposed to play in, for instance, international trade and payments, exchange rate stability, external debt servicing, financial crisis and speculative attacks, etc. The most dominant reserve currency is the dollar. Other, less dominant, are the euro, pound, and yen. The US dollar constitutes about 60% of the world’s traded portfolio of reserve currencies. The dollar, euro, yen, and pound, together, constitute about 89.4% of total traded reserve currencies. Logically, therefore, countries with reserve currencies can borrow as much as they want because they can always” print more” to settle both domestic and external debts.

Date: 2024
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