Hello and

welcome to Moneygirls quick and dirty tips for a richer life.

Today's topic, the World's Reserve Currency.

Recently, Alan Greenspan, the former U.S. Federal Reserve Chairman,

said it's possible that the euro could replace the U.S. dollar

as the World's reserve currency of choice.

So what exactly is a reserve currency and why doesn't matter?

A reserve currency is money that's held by many countries as their foreign exchange reserves.

It's also the currency that's typically used to price commodities such as oil and gold that are traded between countries.

A country whose currency is the predominant

reserve currency benefits tremendously. In the case of the dollar, the U.S.

benefits from the increased demand for the dollar that the reserve currency status creates. the reserve. They also lend the dollars they've accumulated back to the U.S. at low interest rates.

Most significantly, the U.S. benefits from importing these goods and exporting its inflation to other countries in the form of depreciating dollars.

More than 60% of the world's reserve currency is held in U.S. dollars.

So why would Mr. Greenspan think that the euro might replace the dollar is the world's

predominant reserve currency?

For starters, the euro has been gaining ground as a reserve currency since it was introduced in 2002.

Now, only five years later, approximately one-fourth of the world's reserve currency is held in euros.

Second, when the US dollar loses value, as it's been doing over the past

several years, other nations have more reason to move their reserve currency out of dollars

and into other currencies that are doing a better job

of holding their value, such as the euro.

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