What’s hard currency?
Hard currency comes from politically and economically solid nations. Hard currencies are accepted worldwide for goods and services and may be chosen over native currencies.
Understanding
The forex market expects a hard currency to stay stable and liquid for a short period. The top traded currencies worldwide are the USD, EUR, JPY, GBP, CHF, CAD, and AUD. International investors and businesses trust these currencies due to their stability and low volatility.
The U.S. dollar is the world’s foreign reserve currency, making it stand out. This is why many foreign transactions use U.S. currencies. Additionally, if a country’s currency weakens, residents may retain U.S. dollars and other haven currencies to safeguard their wealth.
Hard Currencies in Action
Canadian and Australian currencies are vulnerable to commodity prices, although they weather these drops better than other commodity-dependent economies. The Russian currency suffered more from the 2014 energy price fall than the Australian and Canadian markets. Currency depreciation often results from an increased money supply or a loss of trust in its future worth as a store of value due to economic, financial, or governmental issues. The unstable or soft Argentinian peso lost 34.6% versus the dollar in 2015, making it unappealing to international investors.
Currency values are primarily dependent on GDP and employment. The global strength of the U.S. dollar reflects America’s $21.37 trillion GDP, which ranks #1 worldwide as of 2019. Despite having the world’s second and fifth-highest GDPs at $14.34 trillion and $2.88 trillion, the Chinese yuan and Indian rupee are not considered hard currencies. This highlights the impact of central bank policy and money supply stability on currency rates. Also preferred are developed democracies with transparent legal systems.
Bad Things About Hard Currency
Hard currency is worth more. For example, on Nov. 6, 2020, the FX market traded at 6.61 yuan per U.S. dollar and 73.97 rupees per dollar. These currency rates hurt Chinese and Indian importers but benefit current account balances. A poor exchange rate allows exporters to compete more effectively in global markets, making their products more affordable. Recent claims have accused China of manipulating its currency rate to lower prices and gain market dominance.
Key Takeaways
- Hard currencies are liquid assets and safe havens when domestic currencies fall.
- Countries with a solid economy and governments that issue hard currencies
- The antithesis of hard currency is soft currency.
