Key Currency

AAA

DEFINITION of 'Key Currency'

The currency used as a reference in an international transaction or when setting an exchange rate. The key currency used is usually issued by a stable, developed country such as the United States. Central banks also hold key currencies in reserve (reserve currency).

INVESTOPEDIA EXPLAINS 'Key Currency'

As a monetary practice, countries with smaller or less-dominant economies sometimes align their exchange rates with the dominant trading partner. The central bank of some developing countries may fix the exchange rate to the key currency, which has the effect of limiting monetary policy flexibility but can also increase confidence in the country's economy.

RELATED TERMS
  1. Paris Pair

    The nickname for the U.S. Dollar/French Franc currency pair prior ...
  2. Major Pairs

    The four forex pairs which are considered to be the most heavily ...
  3. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  4. Central Bank

    The entity responsible for overseeing the monetary system for ...
  5. Group Of Seven - G-7

    A forum of the world's seven most industrialized economies. The ...
  6. Currency Pair

    The quotation and pricing structure of the currencies traded ...
RELATED FAQS
  1. How is a block chain network useful for trading goods and assets in virtual currencies?

    Perhaps the most famous quote associated with blockchain technology came from an anonymous virtual currency user, who described ... Read Full Answer >>
  2. What types of companies benefit from reporting results utilizing constant currencies ...

    Any company that does a substantial amount of business in foreign countries, and is therefore subject to foreign currency ... Read Full Answer >>
  3. What are key benefits to a country that has engaged in a policy of currency depreciation?

    In the modern world, most currencies represent fiat money not backed by any commodity or precious metal and whose value is ... Read Full Answer >>
  4. How does a block chain prevent double-spending of Bitcoins?

    Double-spending – the incidence of one individual successfully spending a Bitcoin balance more than once – is a major concern ... Read Full Answer >>
  5. What is the difference between barter and currency systems?

    The primary difference between barter and currency systems is that a currency system uses an agreed-upon form of paper or ... Read Full Answer >>
  6. What is a forward contract against an export?

    A forward contract against an export is an agreement between the importer and exporter to exchange a specified amount of ... Read Full Answer >>
Related Articles
  1. Options & Futures

    A Primer On The Forex Market

    Moving from equities to currencies requires you to adjust how you interpret quotes, margin, spreads and rollovers.
  2. Forex Fundamentals

    What Causes A Currency Crisis?

    Find out what can cause a currency to collapse, and what central banks can do to help.
  3. Forex Education

    Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
  4. Personal Finance

    The Currency Board: Understanding The Government's Bank

    Currency board, central bank - what's the difference? Find out more about this little-known monetary authority.
  5. Forex Education

    Forex Basics: Setting Up An Account

    The line between profitable forex trading and ending up in the red may be as simple as choosing the right account.
  6. Forex Education

    Global Trade And The Currency Market

    Learn how the Bretton Woods system got the ball rolling for world trade.
  7. Bonds & Fixed Income

    6 Factors That Influence Exchange Rates

    Find out how a currency's relative value reflects a country's economic health and impacts your investment returns.
  8. Forex Fundamentals

    Understanding the Floating Exchange Rate

    Floating exchange rate is the exchange rate between two currencies at any given time.
  9. Forex

    Why The Yuan (RMB) Is Russia's Favorite Currency

    Russia has agreed to a currency swap worth $24 billion with China. What is Russia's thinking behind promoting the Yuan in its economy?
  10. Forex

    How Undervalued Is The Yuan?

    Some argue that the large U.S. trade deficits over the past 15 years are primarily due to currency management by U.S. trading partners.

You May Also Like

Hot Definitions
  1. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  2. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  3. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  4. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  5. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
  6. Himalayan Option

    An exotic equity option belonging to a class known as mountain range options. Himalayan options are based on a basket of ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!