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A reserve currency is a foreign exchange instrument that is widely accepted by the world's central banks. The requirements are political and economic stability and liquidity without excessive government controls.
Central banks and leading global financial institutions hold reserve currencies to prepare for investments, transactions, and international debt obligations or to influence their domestic exchange rate. When it comes to the world of reserve currencies, the US dollar is the leader.
The US dollar replaced the British pound sterling as the king of currencies in around 1945 after the end of the Second World War.