Key Currency

A key currency is a dominant currency used in international trade, finance, and foreign exchange reserves. It serves as a reference for pricing commodities, settling transactions, and maintaining foreign exchange reserves by central banks. The U.S. dollar is the most prominent key currency, widely used in global trade, particularly for oil and commodities. Key currencies are also important in maintaining stability in the global financial system due to their widespread use.

Example

The U.S. dollar is considered a key currency because it is commonly used for international trade and is held in significant quantities by central banks as part of their foreign exchange reserves.

Key points

• A dominant currency used for international trade, finance, and reserves.

• The U.S. dollar is the most widely recognized key currency.

• Central banks often hold key currencies to stabilize their own national currencies.

Quick Answers to Curious Questions

Why is the U.S. dollar considered a key currency?

The U.S. dollar is used for international trade, pricing commodities, and as a reserve currency held by central banks, making it globally dominant.

What role does a key currency play in global finance?

Key currencies provide stability in global markets by facilitating trade, acting as a benchmark for exchange rates, and being held in foreign reserves.