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).

BREAKING DOWN '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. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  2. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  3. Paris Pair

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

    The four forex pairs which are considered to be the most heavily ...
  5. Central Bank

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

    A forum of the world's seven most industrialized economies. The ...
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. Personal Finance

    Does It Make Sense to Go to College in Europe?

    If you're deciding whether to get a degree abroad, first do your research and talk to alumni who have completed the same program.
  9. Savings

    Traveling Abroad? Get the Best Exchange Rates

    When you exchange currencies, here’s how to make sure you are getting top value on the trade.
  10. Forex Education

    China's Devaluation of the Yuan

    Just over one week ago the People’s Bank of China (PBOC) surprised markets with three consecutive devaluations of the yuan, knocking over 3% off its value.
RELATED FAQS
  1. How is the value of a pip determined?

    A pip in foreign exchange trading is a measure of a price movement in a currency pair. "Pip" is an acronym for price interest ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

You May Also Like

Hot Definitions
  1. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  2. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  3. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  4. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  5. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  6. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
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!