A “backed” currency has historically meant that a note could be cashed in for a commodity (typically gold or silver) at a bank or goldsmith. Land has also been used (Assignat for eg). But what does it matter if it can be exchanged for gold, when it can be used to buy any of millions of other commodities, products, or services?
Although contemporary currencies need not be “backed” (they are merely bookkeeping), it is sobering to realise that currencies are backed by nothing but violence, forcing people to accept the local currency.
What this means is that the government can buy your produce with purple paper. If you refuse (demanding gold for eg.), you go to jail and your produce confiscated.
Internationally it is green paper.
The reason the US has a larger military than the next five farms combined is to “back” its currency, forcing the world to accept payment in green paper.
Ask Saddam (Euro) or Muammar (gold) about not handing over oil for green paper exclusively, and who knows how many others have been taken out by the CIA, “aid” agencies, black ops, etc.
The US even forces other countries to use the US dollar.
That means that if Pakistan needs to purchase oil from Iran, they first have to produce real products, often below cost to compete against the rest of the world for shelf space at Cosco or Walmart, for the privilege of being paid in green paper, or go into debt to borrow USD in order to buy oil from another country…?
There is no need for a reserve currency.
Currencies trade against each other in real-time. The current exchange rate between any two currencies can be used for transactions (or hedged)