DEFINITION of 'National Currency'

A national currency is a legal tender issued by a country's central bank or monetary authority. It is typically the predominant medium of exchange for purchasing goods and services. In the United States, the dollar is the primary form of currency, backed by the full faith and credit of the government and the Federal Reserve. Large currency bases like the dollar and even the British pound (GBP) can also play an instrumental role in other regions of the world. For example, commodity prices are quoted in US dollars (USD) despite trading in countries outside of the United States. What's more, some countries might peg their national currency to the US dollar to keep inflation aligned with expectations and maintain a stable monetary policy regime. 

BREAKING DOWN 'National Currency'

A national currency such as the US dollar, the Euro and the Japanese Yen (JPY) is recognized as the world's most widely accepted currencies. They have a global status as a reliable reserve currency with minimal risk of collapsing. As a result, most foreign transactions are conducted in one of the three currencies. Some countries have also adopted other nation's currency as their own. In parts of Latin America, regions like Ecuador and El Salvador recognize and accept the US dollar for the exchange of goods and services. On the other hand, some countries like the United Arab Emirates simply peg or fix their currency rates to the US Dollar. That way any geopolitical or economic event won't destabilize the national currency overnight. 

Trading National Currencies

Currency is not only good for buying groceries or paying a friend back for dinner. It can also be traded and exchanged as a financial instrument similar to stocks, bonds and any other asset classes. In fact, the currency market, or forex (FX), is the largest marketplace in the world that continues to expand each year. Currency trading takes place 24 hours per day, 5 days a week, but more often than not, national currencies will only actively trade during its countries regular market hours. For example, the US dollar may record the large volume or wild fluctuations between 9:30 AM and 4:30 PM when the market opens and closes. 

Furthermore, currency trading is often performed in pairs, meaning you trade one currency in relation to another. That said, greater adoption and creation of exchange-traded funds (ETF) has made it possible to trade individual currencies. For example, Guggenheim offers a line of exchange traded products that offer exposure to a national currency like the Australian Dollar or British Pound. 

  1. Key Currency

    A key currency used is money issued by stable, developed country ...
  2. Reciprocal Currency

    In the foreign exchange market, a currency pair that involves ...
  3. Currency Board

    A currency board is a monetary authority that makes decisions ...
  4. International Currency Exchange ...

    An international currency exchange rate is the rate at which ...
  5. Base Currency

    The first currency quoted in a currency pair on forex. It is ...
  6. Currency Pairs

    Currency pairs are two currencies with exchange rates coupled ...
Related Articles
  1. Trading

    Drastic Currency Changes: What's The Cause?

    Currency fluctuations often defy logic. Learn the trends and factors that result in these movements.
  2. Trading

    The 6 Most-Traded Currencies And Why They're So Popular

    Regardless of the reason, forex is an integral part of 21st century finance. And the more widely used and reliable the currency, the greater the likelihood of people buying and selling it every ...
  3. Insights

    A Primer On Reserve Currencies

    For nearly a century, the U.S. dollar has served as the world's premier reserve currency, but the future is uncertain.
  4. Trading

    Top 5 Reasons To Invest In Currencies

    Here's why you should get into the forex market.
  5. Investing

    What Is A Currency War And How Does It Work?

    We look at what a currency war is, what factors may lead to it, the impacts of such a strategy, and whether there is a currency war currently.
  6. Trading

    Dollarization Explained

    Find out how fledgling economies can find some stability in their currency and attract foreign investment.
  7. Investing

    The Pros And Cons Of A Pegged Exchange Rate

    A pegged exchange rate occurs when one country fixes its currency’s value to the value of another country’s currency. But it has both pros and cons.
  8. Trading

    Canada And Australia Dollars To Be Reserve Currencies

    The IMF upgrading the Canadian and Australian dollars to "official" reserve currency status is a recognition of reality.
  9. Trading

    The U.S. Dollar's Unofficial Status as World Currency

    Discover how and why the U.S. dollar emerged as official currency in many foreign countries.
  1. Why is the U.S. dollar shown on the top of some currency pairs and on the bottom ...

    All currencies are traded in pairs. The first currency in the pair is called the base currency while the second is called ... Read Answer >>
  2. How do national interest rates affect a currency's value and exchange rate?

    Generally, higher interest rates increase the value of a country's currency and lower interest rates tend to be unattractive ... Read Answer >>
  3. Why isn't the EUR/USD currency pair quoted as USD/EUR?

    In a currency pair, the first currency is called the base currency and the second is the quote currency, a longtime convention ... Read Answer >>
  4. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Answer >>
  5. How often do exchange rates fluctuate?

    Learn how exchange rates fluctuate. Exchange rates float freely against one another, which means they are in constant fluctuation. ... Read Answer >>
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  3. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  4. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  5. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center