Across the globe, money can be classified as either hard currency or soft currency. Hard currency is issued by the government that is considered relatively safe and stable in other countries. Depending on the fact that the currency is hard or soft, investors can understand if a particular currency is stable for investment and capital or not. All nations and investors find hard currency tradable and reliable.
If you are curious to know about hard currency, here’s an interesting detailed blog that helps understand the meaning of hard currency, its examples, benefits and the factors that affect the status of hard currency. Read on!
Usually, developed countries issue hard currency, and this currency is easier to trade and receive funds from other countries or investors from other nations. The primary attributes of hard currency are:
Countries and traders from different countries do high-volume transactions and trades using hard currency. A country with a high GDP and employment may not produce hard money currency if it has no political stability in the country. China is one such country that does not produce hard currency even though it is economically strong.
The value of the hard currency does not appreciate or depreciate much even if there are major changes in the country or the world. Dramatic events like civil unrest, a rise in unemployment or a change in the government do not affect the value of the hard currency. When a currency is stable to this extent, you can identify it as hard money currency.
One of the most significant and strongest hard currency examples is the U.S. Dollar. When there was major economic and political unrest in the U.S. in 2020 and events like COVID-19, a failing economy, and nationwide unrest due to the Black Lives Matter movement were affecting the U.S., the U.S. Dollar still stood strong and held a better position than it had in the previous year. Since the U.S. dollar is considered safe and stable globally, international investors and countries were flocking to increase their U.S. dollar reserves during these times of global unrest and chaos, further adding to its value in 2020.
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The hard currency list includes multiple currencies, which are:
These currencies have the faith of businesses and economies across the world because they are not vulnerable to high-volume fluctuations in their valuation.
Among these hard currencies, the Canadian and the Australian dollars are affected by commodity prices, but they are much less volatile than other currencies that depend on commodities. For example, when the energy prices collapsed in 2014, the effect on the Canadian and Australian dollar was much less than the Russian ruble.
A few examples of soft currencies are as follows:
Stability and liquidity are the two primary elements of a hard currency. Investors and countries expect the hard currency to remain unaffected and neutral to events and exhibit short-term and long-term stability. Only an economically and politically stable nation can produce hard currency and several factors affect the hard currency status.
There are several advantages of hard currency:
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There are a few drawbacks of hard currency too:
|Hard Currency||Soft Currency|
|Hard currency is a stable and reliable issued by the government of countries having a stable political and economic setup||Soft currency is an unstable currency that is difficult to convert and fluctuates drastically with changes in the social, political, and economic environment|
|The impact of economic highs and lows is not felt in the long term or in a high magnitude for countries issuing hard currency||The economic highs and lows impose severe and long-term effects on the economy of a soft currency country.|
|The economy of countries issuing hard currency is diversified enough to absorb unfavourable economic impacts||The economy of a country issuing soft currency is not diversified enough to mitigate the negative economic impact on the economy. The currency of such a country is extremely volatile in the forex market|
|When there is a negative sentiment in the market, investors and countries get more hard currency to remain financially safe.||During negative times in the market, investors and nations exchange their soft currency with hard currency that offers less volatility and more liquidity.|
The comparison of hard currency and soft currency can be understood from the following comparison of several Soft currencies against the U.S dollar:
Hard currencies have a higher value than other currencies of the world and are regarded as safer and more tradable than soft currencies. The U.S. dollar is the most widely accepted hard currency. Countries having political and economic stability and strong bureaucracy and legal systems issue hard currencies.
Ans: Hard currency is a type of currency issued by the government which is considered relatively safe and stable than other countries
Ans: There are several strong hard currencies like the Euro and the Pound, but the U.S. dollar is the most used hard currency.
Ans: Company code currency, Group currency, Index based currency, Global company currency, and Hard currency SAP.
Ans: Hard currency debt is a foreign loan that the borrower needs to return in the hard currency of a country with better political and economic setups.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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