I think it works as a sort of reverse local currency, that the federation administration exchanges at given rates, for trade outside the federation, but has no direct value to its citizens.

We also know that at least energy credits / transporter rations exist, so my guess is the actual currency is the power required to do things, like transport or replication. Average people in the federation probably have a fairly large allotment of energy to spend for themselves and rarely need any extra, so they have no real use for the currency aside from interacting with other cultures or possibly exchanging it with the federation’s external commerce administration.