Hard Currency

Hard currency is a type of currency issued by countries that all investors and nations can rely on. Developed nations and the world’s major global powers are the ones mostly issuing it since they are more stable, strong and reliable in their political and economic activity.

The money in any country can be classified as hard or soft to signal the investors if it is stable for investment and capital. Countries with a hard currency usually have an easier time receiving funds and trading with other countries or international investors since the monetary values do not fluctuate wildly.

• Hard currency is a type of currency issued from the world’s most dependable, influential, and powerful countries. An important example is the U.S. dollar.
• In contrast, soft currencies are issued by unreliable, unstable countries still in the developing stage.
• Hard currency money can be much more liquid and retain its value no matter what events occur on a national and global stage.

Hard currency is a highly liquid form of currency since countries and international traders use it for massive transactions. However, the richest countries in terms of GDP and employment may not necessarily produce hard currency as the political environment in these countries may be highly unstable. The country of China is an example of this. 

Hard currencies receive their status when their value remains relatively steady no matter what happens in the respective country or world. Power can transition from party to party, unemployment may rise, and civil unrest may occur. Still, none of these problems will significantly impact their value. That is how you can recognize they have hard currency money.

For example, in July 2020, the U.S. was experiencing a falling economy, a failed COVID-19 response, and major protests in all 50 states regarding the Black Lives Matter movement. Yet, despite all these chaos, frustration, and global downfalls, the U.S. dollar was still higher than it was during most of 2019. Much of the increase in the U.S. dollar value in 2020 was due to other countries and international investors flocking to invest in the U.S. dollar at the start of the COVID-19 pandemic because of its stability and status as hard currency money.

The U.S. dollar is one of the most trusted hard currencies in the world. Most international investors and countries regard the U.S. dollar as a safe reserve to transact on during adverse economic conditions. Furthermore, its reputation as a reliable money type attracts further investments making the U.S dollar more steady and strong.

The other examples include:

• European Union (the Euro)
• Canada (the Canadian dollar)
• Switzerland (the Swiss franc)
• Australia (the Australian dollar)
• Japan (the Japanese yen)
• Britain (the British pound sterling)
• New Zealand (the New Zealand dollar)

In contrast, the soft currency largely belongs to developing nations or nations with a dwindling political environment. The differences between the two money types depend on their stability, reliability, international acceptability, and conversion. Whereas hard money is stable and retains its value, the other one tends to fluctuate and depreciate against others. 

Soft currencies may have an economy that is not diversified enough to weather an economic impact. It will tend to cause high volatility in exchange rates because it can be sensitive to any activity within a country. (political, economic, or otherwise). These countries typically face problems like corruption, poverty, rigged elections, high inflation, etc.

All countries will react to economic declines, but countries with soft currencies will face severe impacts and long-term catastrophic effects. For example, in 2016, when there was an attempted coup and horrific violence in Turkey, the Turkish lira currency fell nearly 20% against the U.S. dollar, enough to declare a currency crisis. The problem with developing countries that experience turmoil is that investors will tend to take part in capital flight (the exodus of money out of its own country and into international assets). A country with no capital, a shaky money system, and political or economic unrest is a trifecta of extreme crisis.

Some examples of soft currencies include:

• Turkey (the Turkish lira)
• Iran (the Iranian rial)
• Vietnam (the Vietnamese dong)
• Indonesia (the Indonesian rupiah)
• Sierra Leone (the Sierra Leonean Leone)
• Venezuela (the Venezuelan bolivar)
• Syria (the Syrian pound)
• China (the Chinese yuan)
• India (the Indian rupee)

This has been a Guide to hard currency meaning, its examples, and explanation. We also give a brief comparison between the two currency types. You may also have a look at the following articles to learn more –

• Currency Pair
• Reserve Currency
• Monetarism