Can one country adopt the currency of another country?

Currency reserves and gold reserves by country

Gold reserves

Gold is a precious metal and is held in the form of gold bars or coins. Gold is also subject to noticeable fluctuations in value, which vary due to supply and demand. Compared to other forms of investment, however, the precious metal retains a significantly more stable value, which guarantees a certain stability even after economic crises.

The most famous gold deposits in the world are Fort Knox (Kentucky) in the USA and the Federal Reserve Bank in New York. In the last few decades, however, more and more central banks have sold large portions of their gold holdings. In 1960 around 60% of all currency reserves were invested in gold, today this is less than 10%. As a result of the gold price, which has risen sharply in recent years, the value of the holdings has risen accordingly - which in turn means that more gold reserves can be gradually sold without reducing the monetary value of the reserves.

Foreign exchange reserves

These include not only cash balances in foreign currencies, but also bank deposits, stocks and bonds. By using foreign currencies, foreign exchange speculations can generate higher returns on the one hand, but also losses on the other. Foreign exchange reserves can become problematic when there are large stocks in the currency of a country that is itself experiencing difficulties. With the currency losses in this country, the values ​​of its own reserves would also fall, which would lead to turbulence or devaluations in their own country.

National money supply and currency reserves

The amount of money is given in millions of euros.
The euro countries are listed separately below this table.

Currency reserves in the euro zone

In the case of the euro, the determination of the amount of money at the national level is statistically possible, but not particularly meaningful for hedging the overall currency. The countries of the euro area jointly undertake the task of securing the euro proportionately with reserves. The following table shows the currency reserves of the individual euro countries and the gold components they contain.

The total money supply in the euro zone was 13.00 trillion euros in 2019. The German share of this alone was around 3.20 trillion euros, i.e. around 24.6%. For this share, the German central banks provided around 26.8% of all currency reserves with 201.7 billion euros.

In total, of 13.00 trillion euros, only 5.8% was secured by currency reserves. This is less than every 17th euro.

The International Monetary Fund

The basic idea of ​​the International Monetary Fund (IMF) is relatively simple: Before a country gets into economic difficulties, the community steps in and supports this country with predetermined amounts of money. These are the "special drawing rights" with which a country can "draw" additional loans. With 189 member states, almost all United Nations countries are represented in the IMF.

Cryptocurrencies with no equivalent

One of the biggest criticisms of cryptocurrencies like Bitcoin or Ethereum is the lack of equivalent value. Cryptocurrencies are created out of practically nothing and apart from a few bits and bytes have neither their own material value nor a stored equivalent. However, if you consider that e.g. the US dollar, as one of the largest currencies in the world, only has an equivalent value of 2.6%, this criticism must also apply to many of the conventional and official currencies.

* Figures for December 2018
all other information for December 2019

All data are based on the publications issued by the International Monetary Fund or the European Central Bank.