Functional currency
Functional currency is the monetary unit of account of the principal economic environment in which an economic entity operates.
Statement of Financial Standards No. 52 (SFAS 52) is the primary source of GAAP for translation of foreign currency financial statements. SFAS 52 introduced the concept of functional currency, defined as "the currency of the primary economic environment in which the entity operates; normally, that is, the currency of the environment in which an entity primarily generates and expends cash."
The functional currency is money. An item is only money in an economy when it fulfills all three functions of money in that economy. Thus, foreignn currency is not money in an economy with a national monetary unit as the functional currency. Foreign currency is only money or the functional currency in those countries that have dollarized their economies, for example, Panama, Ecuador and El Salvador.