A currency doesn't become global by decree, but through trust and strength. Global trade and economic power determine a currency's true identity. Let's find out who gives permission for this.

When we hear the names of the dollar, euro, or yen, a question inevitably arises: how do only a few currencies become accepted worldwide? Does it require permission from a global institution, or does it happen automatically? Can any country make its currency international? Let's find the answers to these questions.

What does a global currency mean?

When a country's currency is not limited to use within that country but is also used in other countries, it is called a global or international currency. Such currencies are used for trade between countries, for investment, and central banks hold them in their foreign exchange reserves. The US dollar is the prime example, used in most of the world's trade and transactions.

How does a currency become global?

No currency becomes international overnight. The biggest reason behind this is the strong and stable economy of that country. A country with a large economic size, controlled inflation, and reliable policies earns the world's trust in its currency. In addition, it is essential that the currency is widely used in international trade so that other countries accept it.

The crucial role of open markets

To become a global currency, a country's financial markets must be open and transparent. Foreign investors should be able to invest in that country without fear and withdraw their money when needed. If a currency is subject to excessive control, restrictions, or uncertainty, global investors will distance themselves from it. This is why a strong banking system and clear regulations are extremely important.

Why do reserve currencies become special?

When the central banks of other countries start holding a currency in their foreign exchange reserves, it is called a reserve currency. This means that there is long-term trust in that currency. Today, most central banks in the world hold the US dollar, euro, Japanese yen, and British pound as reserves.

Who gives permission? People often think that permission from the IMF or World Bank is required to make a currency global, but the reality is that no institution grants direct permission for this. It's a natural process determined by market forces, trade, and trust. However, the International Monetary Fund (IMF) does include certain major currencies in its Special Drawing Rights (SDR) basket, which gives them global recognition.

What is the IMF's role?

The IMF includes the world's major currencies in its Special Drawing Rights (SDR). Only currencies that are widely used in international trade and finance are included. The dollar, euro, yen, and Chinese yuan are part of this basket. However, this recognition is granted only after a currency has already established global trust.