The next closest reserve currency is the euro. Only 25% of central bank reserves, and 39% of cross-border transactions, were in euros.
In March 2009, China and Russia suggested the world adopt a single global currency. The goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies." In other words, China is concerned its $2 trillion dollar holdings will be worth less if dollar-inflation sets in. This could happen as a result of increased U.S. deficit spending and printing of U.S. Treasuries to support U.S. debt. China would like the IMF to develop a currency to replace the dollar. (Source: FT.com, China Calls for a New Reserve Currency, March 23, 2009)
Treasury Secretary Tim Geithner mentioned that the U.S. is open to the idea. However, President Obama supports a strong dollar.
The dollar became the world's reserve currency in the Bretton-Woods agreement, made after World War II. The world's developed countries met at Bretton Woods, New Hampshire, to peg the rate of exchange for all foreign currencies to the U.S. dollar. At that time, the dollar was backed by its value in gold. By the early 1970's, countries began demanding gold for the dollars they held to combat inflation. Rather than allow Fort Knox to be depleted of all gold reserves, President Nixon untied the dollar to gold. By that time, the dollar had already become the world's dominant reserve currency.
