Hard Currency

Quick Summary of Hard Currency

A currency in which investors have confidence, such as that of an economically and politically stable country.

Hard currency is a widely accepted form of payment received against goods and services offered or sold. In the foreign exchange market, hard currency is expected to remain extremely liquid. Another important criterion of hard currency is that it must stable in short run. Hard currency ideally should be accepted in most parts of the globe and should originate from an economically and politically stable nation. British pound and US dollar are perfect examples of hard currency examples. The Swiss franc, Swedish krona, Canadian dollar, Australian dollar, and Japanese yen are other examples of hard currency.

Previously, hard currency was backed by metal, usually gold. This security is no longer used, but the term for currency is still popular.

Investors confide immensely on stable hard currency as it does neither depreciate nor appreciate frequently. Its convertibility makes its acceptance universal among investors and travellers. Hard currency is money that can be trusted.

Importance of hard currency

During times of inflation, investors prefer to use hard currency. Also in times of political or military crisis, investors opt to deal with hard currency, as their exchange rates remain realistic. It is quite likely, that investors prefer dealing in hard currency than local soft currency because of the latter’s instability. There are instances where hard currencies are preferred over local currencies even for local transactions. For instance, in El Salvador or Ecuador, the US dollar is accepted as legal currency for all their monetary transactions.

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