What is the meaning of currency Basket?

Basket of currencies or currency basket means a currency in the basket (group) can be freely convertible to another currency of the basket without the special approval from the Central Bank of that country. The resulting exchange rate can be fixed or variable according to the demand for that currency in the international market.Majority of the economists worldwide opine that printing unlimited currency notes without matching proper source of reserve shall cause inflation in the economy. In this regard economists vouch for ‘Quantity Theory of Money’ which says that the money supply in an economy is directly proposal to price of the commodity and give live example of Zimbabwe’s disaster in 2008 which destroyed its local currency Zimbabwe Dollars.

Zimbabwe adopted the multi-currency system in 2009 to curb runway inflation which peaked at 500 billion percent in 2008 and destroyed its local currency.Besides, US dollar which has become the main medium of exchange in that country after 2008, the Currencies of South African Rand, Botswana Pula, British Pound, Euro is part of multi-currency system of that country. Now Chinese Yuan, Indian Rupee, Japanese Yen’ and Australian Dollar are treated as legal tender in Zimbabwe. The general public could trade and open bank accounts in the various currencies in the basket.