what is a key currency 
a key currency refers to a currency which is stable does not fluctuate much and provides the foundation for exchange rates for international transactions because of their global use key currencies tend to set the value of other currencies also these currencies tend to have a stable valuation over time a key currency usually comes from a country that is financially strong economically stable and developed and one that is involved in the global market nevertheless key currency rates do fluctuate daily and updated key currency rates can appear in financial institutions and financial reporting outlets understanding key currencieskey currencies form the reference value for international commerce transactions and as an exchange rate in the foreign exchange forex marketplace an exchange rate is the price of a nation s currency relative to another country s currency and it includes the domestic currency and the foreign currency international commerce is trade between companies in different countries or trade between different countries national central banks hold quantities of key currencies as reserve currencies reserve currency helps these nations support investments complete international business transactions and pay international debt obligations these banks may also hold key currency to influence their domestic exchange rate a large percentage of commodities such as gold and oil are priced in the key and reserve currency causing other countries to hold this currency to pay for these goods however a currency used as a reserve currency may not be considered a key currency as a monetary practice countries with weaker economies will align their exchange rates with a dominant trading partner the central bank of some developing nations may fix their exchange rate to a key currency known as currency pegging this practice has the effect of limiting monetary policy flexibility but can increase confidence in a country s economy by fixing their own currency exchange rates to key currency rates central banks in some developing nations hope to make their own economy more stable and make international transactions easier examples of key currencieswhile the term key currency is not precisely defined by any quantitative threshold for use or reference as a benchmark some key currency examples can be identified based on their characteristics these include 