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.
How hard currency is used today
Hard currency, also known as a “fiat currency,” is a type of currency that has been declared by a government to be legal tender. In other words, it is a currency that can be used to pay for goods and services within a country. Paper money and coins are the most common examples of hard currency.
Hard currencies are typically backed by reserves of gold or other metals, which gives them intrinsic value. In contrast, soft currencies, such as cryptocurrency, are not backed by any physical reserves. Hard currencies are also more stable than soft currencies, due to the fact that they are regulated by governments. For these reasons, hard currencies are still widely used around the world. However, their use has diminished in recent years due to the rise of softer currencies, such as the Euro and Bitcoin.
Advantages and disadvantages of using hard currency
There are several advantages to using hard currency. First, hard currencies are relatively stable, meaning that their value does not fluctuate too much from day to day. This makes them ideal for large purchases or for investments that will be held over a long period of time. Second, hard currencies can be easily exchanged for other currencies, making them ideal for international trade. Finally, hard currencies tend to be more widely accepted than other types of currency, such as cryptocurrency.
However, there are also some disadvantages to using hard currency. First, hard currencies are subject to inflationary pressures, meaning that their purchasing power can decline over time. Second, hard currencies are often controlled by central banks, which can devalue the currency if they deem it necessary. Overall, hard currency has both advantages and disadvantages, but it remains one of the most popular types of currency around the world.
What the future of hard currency looks like
For centuries, hard currency has been a mainstay of the global economy. But as we move further into the digital age, there is growing speculation about the future of hard currency. Some believe that we will eventually move to a cashless society, where all transactions are completed electronically.
Others believe that hard currency will continue to play a role, but that it will take on a new form, such as plastic notes or digital tokens. Whatever the future may hold, it is clear that the concept of hard currency is evolving. As our world becomes increasingly interconnected, the way we exchange value is also changing. The future of hard currency is still being debated, but one thing is certain: it will be fascinating to see how this important part of the global economy evolves in the years to come.