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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.


Further Reading




Q&A About Hard Currency


How does a hard currency remain stable?

A hard currency remains stable because it comes from a nation with strong economic and political situations.

Who are eight most tradable currencies in the world?

The U.S., Euro, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar, Australian New Zealand Dollar and South African Rand are eight most tradable currencies in the world.

What is a hard currency?

A hard currency is a form of payment that is widely accepted around the world.

What makes one measure of a hard currency liquidity in the FX market?

The ability to be traded easily for other currencies makes one measure of a hard currency liquidity in the FX market.

Why do these eight currencies have high value?

These eight currencies have high value because they are used as reserve currencies by many countries around the world. This means that they can be used to trade with other nations without using their own national money which would be more expensive for them to use than another country's money. For example if China wanted to buy something from France but did not want to pay for it using Chinese Yuan then they could use US dollars instead because both China and France know that they will always be able to exchange their US dollars back into Chinese Yuan at any time so there is no risk involved when trading this way compared to if China had just tried buying something from France using Chinese Yuan straight away without first exchanging their Chinese Yuan into US Dollars first which would mean taking on more risk because if anything went wrong then China would not get its money back into Chinese Yuan again until after having exchanged it back into US Dollars first which could take some time depending on how quickly someone was willing to exchange it for them or even whether anyone was willing or able at all due to lack of demand or supply etc.. So basically