Everybody's got an opinion on the dollar, ranging from its aesthetics (for the most part, people think greenbacks lack that) to its utility (we hear a lot from folks bemoaning its use as a fiat currency).

Voices were raised in recent months in favor of doing away with the dollar as a reserve currency, the most strident emanating from exporters of dollar-denominated commodities, such as Russia, and nations like China that hold large swatches of U.S. government paper.

So, what's a reserve currency and why should the buck get the boot?

A reserve currency is a simply a store of value, held by a central bank and denominated in the legal tender of another nation, that facilitates international trade and foreign exchange. The modern notion of a reserve currency came about in the late 19th century along with the emergence of the international gold standard.

The U.S. dollar is the most widely held reserve currency, representing about two-thirds (10-year weighted average: 65.9%) of central bank foreign exchange holdings. The hegemony enjoyed by the greenback makes it easier for the U.S. to run and maintain high trade deficits, a consequence of the nation's debt-financed consumerism and low savings rate. The greenback's preeminence is eroding, though. Its allocation in central bank reserves has been chipped away at a rate of 70 basis points (0.7%) a year over the past decade.

Central Bank Currency Holdings: Percentage Of Allocated Reserves

Source: IMF

The euro, launched in 1999, now represents a quarter (a 24.8% weighted average) of allocated reserves and is the second-most commonly held currency in the world. Since its introduction, central banks have gradually added to their euro holdings, largely at the expense of the dollar, in recognition of the European trading bloc's growing influence and as a means of diversifying risk. Euro allocations are building at an 85 basis-point compound annual rate.

The British pound sterling comes in a distant third (weighted average: 3.7% of allocated reserves), having slipped from its former role as the world's most heavily banked currency. Though sterling makes up a small percentage of global reserves, holdings have nearly doubled over the past five years, largely because of the quid's higher yields. Vagaries in sterling's trend in the last decade have allowed commitments to grow an average 12 basis points a year.

The exact opposite scenario has prevailed for the Japanese yen (3.8% weighted average). As with sterling, the yen's importance as a reserve currency has been waning for decades, but  in the wake of the Japanese asset bubble implosion, the yen's diminution accelerated. Allocations are falling at a 31 basis-point annual rate.

Owing to its relative stability, the Swiss franc is often referred to as a reserve currency, though allocations are, and have traditionally been, quite small. Commitments average only 0.20% and have actually been eroding by 1 basis point a year.

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