this post was submitted on 08 Nov 2024
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[–] [email protected] 6 points 1 month ago* (last edited 1 month ago)

The way I (state certified smoothbrain) think of it is this: Cash reserves serve as short time collateral when a state is shopping on credit (which states usually do). So your transactions need to be backed by a currency your trading partner is willing to accept.

Other types of reserves exist, but these usually need to be converted first, which adds a layer of delay and transaction that makes it a more long term thing.

Not sure how correct it is, but I find that this oversimplification works and is correct most of the time.