A country whose currency is the primary reserve currency can likely borrow at lower interest rates than it could if its currency

A country whose currency is the primary reserve currency can likely borrow at lower interest rates than it could if its currency

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July 16, 2021
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A country whose currency is the primary reserve currency can likely borrow at lower interest rates than it could if its currency were not the primary reserve currency. Do you agree or disagree? Explain.

Answer and ExplanationSolution by a verified expert

Explanation
The primary reserve currency is a certain quantity of foreign exchange in terms of currency, particularly the dollar, which is held by the central government and other financial institutions. Further, it can be said that a currency is the primary reserve currency, and other countries are willing to buy them, making the demand for the primary reserve currency increase in the foreign market. This rise in demand converts into a higher price for the currency in the foreign market. Thereby, it can be borrowed at a lower interest rate.

Verified Answer
Yes, since the holding of the reserve currency is mostly in the form of government bonds, an increase in demand for bonds leads to a fall in interest rates.

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