Hard Currency
Candlefocus EditorThe most commonly recognized hard currencies are the U.S. dollar, the euro, the Swiss franc, the British pound, the Canadian dollar, and the Japanese yen. These currencies are accepted by the majority of international businesses, states, and citizens as an easy form of transaction and liquid asset. These currencies are also sought after by those seeking safe havens when domestic currencies are suffering from wild fluctuations or economic turmoil.
Investors typically prefer hard currencies during times of crisis or global economic downturns, as it offers a stable alternative to their weaker domestic currencies. Hard currencies are seen as "safe-haven" investments, as their value and liquidity increases when political or financial uncertainties arise in their home countries.
The opposite of a hard currency is a soft currency. Soft currencies are typically issued by economies with weak fundamentals and loose fiscal policies. States with soft currencies tend to experience extreme volatility and devaluation, making them risky investments in foreign markets.
Hard currencies can also be used as a hedge against inflation. Large international investors, such as asset managers and central banks, often use hard currencies to protect their portfolios from currency fluctuations due to inflation. This helps to stabilize their investments and generate higher returns.
In conclusion, hard currencies offer benefits to investors, businesses, and citizens that are seeking safe havens when their domestic currencies struggle. These currencies are seen as reliable stores of wealth and highly liquid assets, and are typically accepted as a medium of exchange internationally. Hard currencies also provide a hedge against inflation, helping to protect investments and generate steady returns.