HARD CURRENCY

 

Hard currency can be termed as any global circulated in demand currency that doesn’t depreciate suddenly in its value. Hard currency is also a currency no doubt but is also reliable and doesn’t fluctuate with the global economic activities.

Currency like Dollars, Great Britain Pounds, Euros and Japanese yen have a longer stable exchange rate and are generally termed as hard currency. Currency issued by the country which are economically and politically stable are considered as hard currency. For global trade, hard currency are widely accepted compared to their domestic currency while processing the payment for goods and services.

 

Characteristics of hard currency.

·       Hard currency is relatively less volatile in terms of exchange rate compared to other currencies.

·       Hard currency value is supposed to remain stable for short period of time at least and enables the transaction to undergo in a hassle free manner.

·       It is supposed to have more liquidity (Easy to get cashed) and never becomes obsolete in foreign exchanges.

·       They also have a strong political and financial economy and doesn’t fluctuate to any of the minor hiccups in the economy.

·       Hard currency have the confidence of the international investors and are easy to do business once agreed on.

·       Hard currency acts a safe haven for parking funds when the domestic currency struggles in global market.

 

 

Examples of hard currency

US dollar is one of the prominent and widely accepted hard currency across the globe. For the same reason most of the international transaction is negotiated over dollar. It is also regarded as world’s foreign currency. Other hard currencies like Euros, Great Britain Pounds, Australian Dollar and Japanese Yen have relatively less global share compared to the widely accepted US dollars. A currency will get to be recognised as hard currency if the global acceptance of the same for transaction in more. It is the trust of the currency built over the years will earns the title of hard currency to that particular currency.

 

 

 

 

 

Hard currency VS Soft currency

·       Hard currency is stable and doesn’t fluctuate with values related to other currencies. Whereas soft currency if very volatile and fluctuates with other currencies fluctuating.

·       It is easy to convert hard currency in the market and its value doesn’t depreciate whereas soft currency conversion carries a cost which is incurred due to volatile and less demand of the currency.

·       Usually hard currencies are related to the country where that currency is in circulation and the government has sound fiscal and monetary policies. But soft currency circulating countries are high on inflation and irregular monetary policies.

·       Hard currency has investor’s trust in terms of using the currency for investments whereas investor’s never choose soft currency to complete their investment project or even execute them.

·       Countries with developed economy has hard currency as their currency where developing and underdeveloped countries have soft currency for their local circulation.

Advantages of hard currency

·       Hard currency is more stable thus very helpful for investor’s to carry out their transactions using hard currency.

·       Globally accepted currency, can be converted across the globe to any soft currency but the other way is not possible.

·       Hard currency doesn’t fluctuate with other valued fluctuating, thus all business transactions can be carried out using hard currency.

·       Hard currency reduces the cost of imported goods due to their stability thus it brings down the inflation and enables lower prices for the consumer to buy the goods and services.

·       Hard currency are used as common currency by two developing countries to facilitate their international trade transaction.

·       Goods imported using USD from the global markets will cost less compared to the same goods bought using different currency.

·       People travelling the globe will choose to have hard currency instead of their local currency to facilitate their transactions and affairs during the travel.

·       Hard currency carries the trust of the investor’s thus executing all the international investing and trading activities using the hard currency for its stability and resistance towards the turmoil in the economy.

·       Lower cost incur for importers when they use hard currency.

·       Hard currency gives a sense of wealth and companies from developing countries can buy companies in developing countries using hard currency.

·       Hard currency reduces the import cost for a product in the developing economy if the importer uses hard currency for transaction.

·       Hard currency also makes the funding (to run the country) for the government a lot cheaper due to the demand of the currency.

 

 

Disadvantages of hard currency

A hard currency even after all the specialities mentioned above can have limitations and is not invincible. The same are discussed below

·       Exchanging other soft currencies for hard currency can be a costly affair and so will be going on vacation to developed countries.

·       Imports become cheaper with hard currency and this results in exports going down due to incompetency of lower prices.

·       Companies based out of developed countries earning from developing countries in terms of soft currency are subjected to currency volatility and profitability hit.

·       Developing countries with emerging economies will end up paying more to obtain dollar thus taking a hit out of it.

·       Exports will become a costly affair in developing countries this in turn will slow down the economy due to a hard currency dominating the global market and decreasing the price on the imported goods.

·       Reduced imports cost will discourage the domestic production of goods and products.

 

 

CONCLUSION

Hard currency in common terms can be referred as the global currency. A currency which has the trust of the investors and is used widely across the globe to carryout business and other various transaction. This currency is stable and doesn’t fluctuate to the minor fluctuation in the economy as in case of soft currencies which are very volatile. Usually developed countries like US, Japan and UK have stronger stable currency and US dollars, Japanese Yen and UK pounds are considered are hard currencies. The usage of hard currency in Ex-Im will reduce the import cost and decrease the price of imported goods. This currency is used and widely accepted for all international trade and commerce. The loss incurred due to usage of hard currency is less and it had many advantages as discussed above. As these currencies belong to developed countries, excess of usage in developing countries trade can hamper the country’s growth and slowdown the economy.