What is a National Currency?

A national currency is simply the currency issued by a country's central bank. Currency is a medium of exchange for goods or services within an economy.

How Does a National Currency Work?

For example, in the United States, the national currency is the dollar. In Britain, the national currency is the pound.

Theoretically, anything can be currency, but coins and paper notes are the most generally accepted forms. In most cases, each country in the world has its own currency, but in many cases several countries use the same currency (such as the euro or the U.S. dollar). A country's government (usually its central bank -- the Federal Reserve in the United States, for example) designs and manufactures that country's currency.

Why Does a National Currency Matter?

A country's national currency is its common denominator for all things commercial and financial. In some cases, a national currency can become almost a global currency, as the dollar has become—other countries and citizens of other countries may purchase the currency as a means of storing extra money in a safer, more stable currency than their own national currency.

This isn't to say that a national currency is the only forms of viable currency in a country. Quite often, companies use shares of their own stock as currency to acquire other companies, and anybody who has ever watched a crime show knows that cigarettes can buy a lot in prison.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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