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Hard Currency

Definition

Hard currency, safe-haven currency or strong currency is any globally traded currency that serves as a reliable and stable store of value. Factors contributing to a currency's hard status might include the long-term stability of its purchasing power, the associated country's political and fiscal condition and outlook, and the policy posture of the issuing central bank.

What is 'Hard Currency'

Hard currency is a currency widely accepted around the world as a form of payment for goods and services. A hard currency is expected to remain relatively stable through a short period of time, and to be highly liquid in the forex, or foreign exchange (FX), market. A hard currency generally comes from a nation with a strong economic and political situation.

Explaining 'Hard Currency'

One measure of a hard currency is liquidity in the FX market. The eight most tradable currencies in the world are the U.S. dollar (USD), European euro (EUR), Japanese yen (JPY), British pound (GBP), Swiss franc (CHF), Canadian dollar (CAD), Australian/New Zealand dollar (AUD/NZD) and South African rand (ZAR). The U.S. dollar enjoys status as the world's foreign reserve currency, the reason it is used in 70% of international trade transactions.

Downsides of a Hard Currency

Hard currencies are more valuable than other currencies. For instance, as of May 27, 2016, the FX market trades at a rate of 6.56 yuan per U.S. dollar and 67.01 rupee per dollar. These exchange rates are detrimental for Chinese and Indian importers but positive for current account balances. A weak exchange rate helps a country's exporters because it makes exports more competitive, or cheaper, in international commodity and other markets. In recent years, China has faced accusations of manipulating its exchange rate to deflate prices and seize a greater share of international markets.


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