A Brief History of Leading Reserve Currencies. Not What You May Think.

This is our most unusual link yet and one we hope you enjoy.

It’s not a link to an article; it’s a link to an interactive graphic. It shows a circle divided into different colored slices that represent the major reserve currencies of the day for the past 100 years. The slices expand and contract, depending on the year, to show the rise and fall of major reserve currencies.

There are some valuable lessons for investors here. The first lesson is that reserve currency status is not all about the dollar. In fact, during the first 30 years of the twentieth century, the dollar was a player, but sterling dominated reserve positions.

The 1920s were a kind of wrestling match between the dollar and sterling during which the two currencies took turns being the leading currency. The lead switched back and forth and both were important in all events. It wasn’t until 1944 that the U.S. dollar dominated, but even then, sterling played an important role.

The Deutsche mark, Japanese yen, and Swiss franc also had significant shares of the reserve currency pie. By the late twentieth-century, sterling was greatly diminished, but then the euro replaced the Deutsche mark and other European currencies to assume a huge position second only to the dollar.

Other currencies such as the Chinese yuan are represented. They start out with tiny slices, but those slices are growing lately.

The point is that reserve currency status is more dynamic than most investors realize, and dominance is neither permanent nor guaranteed. The dollar is still about 60% of total reserves today, but that percentage is shrinking and there’s lots of competition on the horizon including a new BRICS 11 currency. Interestingly, the best form of money is not represented at all – that’s gold.

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