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Key Currency

What is '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).

Explaining '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.


Further Reading


Global imbalances and the key currency regime: the case for a commodity reserve currency
www.tandfonline.com [PDF]
… Without a key currency, countries would have to rectify long-run trade deficits or devalue their currency; unemployment would … at an unduly fast rate; for example, an import blockade, as under the scarce currency clause … International Journal of Finance and Economics, 9: 307–313 …

What ever happened to Germany? Is the decline of the former European key currency country caused by structural sclerosis or by macroeconomic mismanagement?What ever happened to Germany? Is the decline of the former European key currency country caused by structural sclerosis or by macroeconomic mismanagement?
www.tandfonline.com [PDF]
… Without a key currency, countries would have to rectify long-run trade deficits or devalue their currency; unemployment would … at an unduly fast rate; for example, an import blockade, as under the scarce currency clause … International Journal of Finance and Economics, 9: 307–313 …

Key currency competition: The Euro versus the dollarKey currency competition: The Euro versus the dollar
journals.sagepub.com [PDF]
… Without a key currency, countries would have to rectify long-run trade deficits or devalue their currency; unemployment would … at an unduly fast rate; for example, an import blockade, as under the scarce currency clause … International Journal of Finance and Economics, 9: 307–313 …

Inertia of the US Dollar as a Key Currency through the Two CrisesInertia of the US Dollar as a Key Currency through the Two Crises
www.tandfonline.com [PDF]
… Without a key currency, countries would have to rectify long-run trade deficits or devalue their currency; unemployment would … at an unduly fast rate; for example, an import blockade, as under the scarce currency clause … International Journal of Finance and Economics, 9: 307–313 …

Financial capital movements and central bank behavior in a two-country, short-run portfolio balance modelFinancial capital movements and central bank behavior in a two-country, short-run portfolio balance model
www.sciencedirect.com [PDF]
… Without a key currency, countries would have to rectify long-run trade deficits or devalue their currency; unemployment would … at an unduly fast rate; for example, an import blockade, as under the scarce currency clause … International Journal of Finance and Economics, 9: 307–313 …

The macroeconomic implications of a key currencyThe macroeconomic implications of a key currency
www.nber.org [PDF]
… Without a key currency, countries would have to rectify long-run trade deficits or devalue their currency; unemployment would … at an unduly fast rate; for example, an import blockade, as under the scarce currency clause … International Journal of Finance and Economics, 9: 307–313 …

Inertia in the key currencyInertia in the key currency
www.sciencedirect.com [PDF]
… Without a key currency, countries would have to rectify long-run trade deficits or devalue their currency; unemployment would … at an unduly fast rate; for example, an import blockade, as under the scarce currency clause … International Journal of Finance and Economics, 9: 307–313 …

Key currency status: An exorbitant privilege and an extraordinary riskKey currency status: An exorbitant privilege and an extraordinary risk
www.sciencedirect.com [PDF]
… Without a key currency, countries would have to rectify long-run trade deficits or devalue their currency; unemployment would … at an unduly fast rate; for example, an import blockade, as under the scarce currency clause … International Journal of Finance and Economics, 9: 307–313 …

Volatility of RMB and its Impact on Regional Currency Cooperation <span style=[J]' src='/thumbnails/?img=http%3A%2F%2Fen.cnki.com.cn%2FArticle_en%2FCJFDTotal-GJJR200903003.htm' />Volatility of RMB and its Impact on Regional Currency Cooperation [J]
en.cnki.com.cn [[J]' href='https:/api.miniature.io/pdf?url=en.cnki.com.cn%2FArticle_en%2FCJFDTotal-GJJR200903003.htm'>PDF]
… Without a key currency, countries would have to rectify long-run trade deficits or devalue their currency; unemployment would … at an unduly fast rate; for example, an import blockade, as under the scarce currency clause … International Journal of Finance and Economics, 9: 307–313 …

The key currency proposalThe key currency proposal
academic.oup.com [PDF]
… Without a key currency, countries would have to rectify long-run trade deficits or devalue their currency; unemployment would … at an unduly fast rate; for example, an import blockade, as under the scarce currency clause … International Journal of Finance and Economics, 9: 307–313 …



Q&A About Key Currency


Which countries are the largest holders of US debt?

China, Japan and the oil exporting nations.

How does fixing an exchange rate limit monetary policy flexibility?

Fixing an exchange rate limits monetary policy flexibility because it means that you cannot change your country's money supply to meet changing economic conditions and inflationary pressures.

Who issues the key currencies?

The United States issues the key currencies.

What are some examples of countries that use a key currency as their reference point for exchange rates?

Some developing countries may fix their exchange rate to the U.S. dollar, which has limited monetary policy flexibility but can also increase confidence in its economy.

What is a key currency?

A key currency is the most important or dominant currency in an international transaction.

What is a reserve currency?

A reserve currency is a foreign currency held by central banks or other monetary authorities as part of their foreign exchange reserves.

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