Reserve Currency
The currency used as the standard for international trade and foreign reserves — currently the US dollar. That is why US rates and policy move markets worldwide.
In plain terms
A reserve currency is the money the world uses as the "common standard" to trade and exchange money. Right now the US dollar plays that role. Buying oil, or trading between other countries, is usually settled in dollars.
So central banks around the world stockpile dollars (foreign reserves). Because the dollar is the world's standard money, what happens in the US (especially rates) spreads worldwide.
What it tells you
Because the dollar is the reserve currency, the Fed's rate decisions are not just a US matter. When US rates rise, money worldwide crowds into the safer, higher-yielding dollar, shaking other countries' stock markets and currencies.
So investors everywhere have to watch US rates and the dollar, because their markets are heavily affected by US monetary policy.
Formula
reserve currency = the currency at the center of world-trade settlement and countries' foreign reserves currently, in practice, the US dollar (USD) plays that role
What high or low means
When US rates rise or a crisis hits, money crowds into the safe reserve-currency dollar, and the dollar tends to strengthen. A strong dollar can pull money out of emerging markets.
Conversely, when the US cuts rates the dollar weakens, and risk-taking money can spread to other markets.
Be careful with the simplification "the dollar is always safe because it is the reserve currency." The dollar's value also swings with the US economy and policy, and there is always debate that the reserve currency's standing could shift over the long run.
Reserve-currency status does not change overnight, but do not underestimate the impact of US policy by leaning on it. It is a structure where a single US rate spreads worldwide.
Exchange rates and currency flows are macro. This term is background for understanding market news. (※ Our screen handles individual companies' SEC-filed financials.)
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Reserve and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.