Definition – What does Basket Currency mean?
A basket currency is a currency that is used as a reference point for a currency peg .Currency pegs tie the value of a currency to another currency rather than allowing it to float on the market. Instead of being tied to a single currency, some pegged currencies follow a collection of currencies, known as a basket of currencies. Major currencies like the U.S. dollar are often included as basket currencies.
ForexTerms explains Basket Currency
An individual basket currency has less impact on the pegged currency than a single peg. By essentially setting the value of the pegged currency by averaging the values of several currencies, a pegged currency can reduce the volatility and constant adjustments that are necessary with a single peg.
