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macroeconomics Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and ...
, hard currency, safe-haven currency, or strong currency is any globally traded
currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general ...
that serves as a reliable and stable store of value. Factors contributing to a currency's ''hard'' status might include the stability and reliability of the respective state's legal and bureaucratic institutions, level of
corruption Corruption is a form of dishonesty or a criminal offense which is undertaken by a person or an organization which is entrusted in a position of authority, in order to acquire illicit benefits or abuse power for one's personal gain. Corruption m ...
, long-term stability of its
purchasing power Purchasing power is the amount of goods and services that can be purchased with a unit of currency. For example, if one had taken one unit of currency to a store in the 1950s, it would have been possible to buy a greater number of items than would ...
, the associated country's
political Politics (from , ) is the set of activities that are associated with making decisions in groups, or other forms of power relations among individuals, such as the distribution of resources or status. The branch of social science that studi ...
and fiscal condition and outlook, and the policy posture of the issuing
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a centra ...
. Safe haven currency is defined as a currency which behaves like a
hedge A hedge or hedgerow is a line of closely spaced shrubs and sometimes trees, planted and trained to form a barrier or to mark the boundary of an area, such as between neighbouring properties. Hedges that are used to separate a road from adjoi ...
for a reference portfolio of risky assets conditional on movements in global
risk aversion In economics and finance, risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even if the average outcome of the latter is equal to or higher in monetary value than the more ...
. Conversely, a weak or soft currency is one which is expected to fluctuate erratically or depreciate against other currencies. Softness is typically the result of weak legal institutions and/or political or fiscal instability.


History

The paper currencies of some
developed countries A developed country (or industrialized country, high-income country, more economically developed country (MEDC), advanced country) is a sovereign state that has a high quality of life, developed economy and advanced technological infrastruct ...
have earned recognition as hard currencies at various times, including the
United States dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
,
euro The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
,
Japanese yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the ...
, British
pound sterling Sterling (abbreviation: stg; Other spelling styles, such as STG and Stg, are also seen. ISO code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound ( sign: £) is the main unit of sterling, and ...
,
Swiss franc The Swiss franc is the currency and legal tender of Switzerland and Liechtenstein. It is also legal tender in the Italian exclave of Campione d'Italia which is surrounded by Swiss territory. The Swiss National Bank (SNB) issues banknotes and the ...
and to a lesser extent the
Canadian dollar The Canadian dollar (symbol: $; code: CAD; french: dollar canadien) is the currency of Canada. It is abbreviated with the dollar sign $, there is no standard disambiguating form, but the abbreviation Can$ is often suggested by notable style g ...
and
Australian dollar The Australian dollar ( sign: $; code: AUD) is the currency of Australia, including its external territories: Christmas Island, Cocos (Keeling) Islands, and Norfolk Island. It is officially used as currency by three independent Pacific Is ...
. As times change, a currency that is considered weak at one time may become stronger, or vice versa. One barometer of hard currencies is how they are favored within the
foreign-exchange reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
of countries:


Turmoil

The
US dollar The United States dollar ( symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the officia ...
(USD) has been considered a strong currency for much of its history. Despite the Nixon shock of 1971, and the United States' growing fiscal and trade deficits, most of the world's monetary systems have been tied to the US dollar due to the
Bretton Woods system The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretto ...
and
dollarization Currency substitution is the use of a foreign currency in parallel to or instead of a domestic currency. The process is also known as dollarization or euroization when the foreign currency is the dollar or the euro, respectively. Currency subs ...
. Countries have thus been compelled to purchase dollars for their
foreign exchange reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
, denominate their commodities in dollars for foreign trade, or even use dollars domestically, thus buoying the currency's value. The
euro The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
(EUR) has also been considered a hard currency for much of its short history. However, the
European sovereign debt crisis The European debt crisis, often also referred to as the eurozone crisis or the European sovereign debt crisis, is a multi-year debt crisis that took place in the European Union (EU) from 2009 until the mid to late 2010s. Several eurozone memb ...
has partially eroded that confidence. The
Swiss franc The Swiss franc is the currency and legal tender of Switzerland and Liechtenstein. It is also legal tender in the Italian exclave of Campione d'Italia which is surrounded by Swiss territory. The Swiss National Bank (SNB) issues banknotes and the ...
(CHF) has long been considered a hard currency, and in fact was the last paper currency in the world to terminate its convertibility to gold on May 1, 2000, following a
referendum A referendum (plural: referendums or less commonly referenda) is a Direct democracy, direct vote by the Constituency, electorate on a proposal, law, or political issue. This is in contrast to an issue being voted on by a Representative democr ...
. In the summer of 2011, the European sovereign debt crisis led to rapid flows out of the euro and into the franc by those seeking hard currency, causing the latter to appreciate rapidly. On September 6, 2011, the Swiss National Bank announced that it would buy an "unlimited" number of euros to fix an exchange rate at 1.00 EUR = 1.20 CHF, to protect its trade. This action temporarily eliminated the franc's hard currency advantage over the euro but was abandoned in January 2015.


Demand

Investors as well as ordinary people generally prefer hard currencies to soft currencies at times of increased inflation (or, more precisely, times of increased inflation differentials between countries), at times of heightened political or military risk, or when they feel that one or more government-imposed
exchange rate In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of t ...
s are unrealistic. There may be regulatory reasons for preferring to invest outside one's home currency, e.g. the local currency may be subject to
capital control Capital controls are residency-based measures such as transaction taxes, other limits, or outright prohibitions that a nation's government can use to regulate flows from capital markets into and out of the country's capital account. These measure ...
s which makes it difficult to spend it outside the host nation. For example, during the
Cold War The Cold War is a term commonly used to refer to a period of geopolitical tension between the United States and the Soviet Union and their respective allies, the Western Bloc and the Eastern Bloc. The term '' cold war'' is used because t ...
, the
rouble The ruble (American English) or rouble (Commonwealth English) (; rus, рубль, p=rublʲ) is the currency unit of Belarus and Russia. Historically, it was the currency of the Russian Empire and of the Soviet Union. , currencies named '' ...
in the
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen nationa ...
was not a hard currency because it could not be easily spent outside the Soviet Union and because the exchange rates were fixed at artificially high levels for persons with hard currency, such as Western tourists. (The Soviet government also imposed severe limits on how many roubles could be exchanged by Soviet citizens for hard currencies.) After the fall of the Soviet Union in December 1991, the rouble depreciated rapidly, while the
purchasing power Purchasing power is the amount of goods and services that can be purchased with a unit of currency. For example, if one had taken one unit of currency to a store in the 1950s, it would have been possible to buy a greater number of items than would ...
of the US dollar was more stable, making it a harder currency than the rouble. A tourist could get 200 roubles per US dollar in June 1992, and 500 roubles per dollar in November 1992. In some economies, which may be either
planned economies A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, par ...
or market economies using a soft currency, there are special stores that accept only hard currency. Examples have included
Tuzex Tuzex was a series of state-run shops in Czechoslovakia from 1957 to 1992 which did not accept normal Czechoslovak koruna currency but only vouchers which could be purchased from banks using foreign currency. They supplied luxury items: local ...
stores in the former
Czechoslovakia , rue, Чеськословеньско, , yi, טשעכאסלאוואקיי, , common_name = Czechoslovakia , life_span = 1918–19391945–1992 , p1 = Austria-Hungary , image_p1 ...
, Intershops in
East Germany East Germany, officially the German Democratic Republic (GDR; german: Deutsche Demokratische Republik, , DDR, ), was a country that existed from its creation on 7 October 1949 until German reunification, its dissolution on 3 October 1990. In t ...
, Pewex in
Poland Poland, officially the Republic of Poland, is a country in Central Europe. It is divided into 16 administrative provinces called voivodeships, covering an area of . Poland has a population of over 38 million and is the fifth-most populou ...
, or Friendship stores in
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...
in the early 1990s. These stores offer a wider variety of goods many of which are scarce or imported than standard stores.


Mixed currencies

Because hard currencies may be subject to legal restrictions, the desire for transactions in hard currency may lead to a
black market A black market, underground economy, or shadow economy is a clandestine market or series of transactions that has some aspect of illegality or is characterized by noncompliance with an institutional set of rules. If the rule defines the ...
. In some cases, a central bank may attempt to increase confidence in the local currency by pegging it against a hard currency, as is this case with the
Hong Kong dollar The Hong Kong dollar (, sign: HK$; code: HKD) is the official currency of the Hong Kong Special Administrative Region. It is subdivided into 100 cents or 1000 mils. The Hong Kong Monetary Authority is the monetary authority of Hong Kong ...
or the
Bosnia and Herzegovina convertible mark The convertible mark ( Bosanski: , sign: KM; code: BAM) is the currency of Bosnia and Herzegovina. It is divided into 100 or (/) and locally abbreviated ''KM''. While the currency and its subunits are uniform for both constituent polities of ...
. This may lead to problems if
economic An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with th ...
conditions force the government to break the currency peg (and either appreciate or depreciate sharply) as occurred in the
1998–2002 Argentine great depression The Argentine Great Depression was an economic depression in Argentina, which began in the third quarter of 1998 and lasted until the second quarter of 2002. It followed the fifteen years stagnation and a brief period of free-market reforms. ...
. In some cases, an economy may choose to abandon local currency altogether and adopt another country's currency as
legal tender Legal tender is a form of money that courts of law are required to recognize as satisfactory payment for any monetary debt. Each jurisdiction determines what is legal tender, but essentially it is anything which when offered ("tendered") in ...
. Examples include the adoption of the US dollar in
Panama Panama ( , ; es, link=no, Panamá ), officially the Republic of Panama ( es, República de Panamá), is a transcontinental country spanning the southern part of North America and the northern part of South America. It is bordered by Co ...
,
Ecuador Ecuador ( ; ; Quechua: ''Ikwayur''; Shuar: ''Ecuador'' or ''Ekuatur''), officially the Republic of Ecuador ( es, República del Ecuador, which literally translates as "Republic of the Equator"; Quechua: ''Ikwadur Ripuwlika''; Shuar: ' ...
,
El Salvador El Salvador (; , meaning " The Saviour"), officially the Republic of El Salvador ( es, República de El Salvador), is a country in Central America. It is bordered on the northeast by Honduras, on the northwest by Guatemala, and on the south ...
and
Zimbabwe Zimbabwe (), officially the Republic of Zimbabwe, is a landlocked country located in Southeast Africa, between the Zambezi and Limpopo Rivers, bordered by South Africa to the south, Botswana to the south-west, Zambia to the north, and ...
and the adoption of the
German mark The Deutsche Mark (; English: ''German mark''), abbreviated "DM" or "D-Mark" (), was the official currency of West Germany from 1948 until 1990 and later the unified Germany from 1990 until the adoption of the euro in 2002. In English, it was ...
and later the
euro The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...
in
Kosovo Kosovo ( sq, Kosova or ; sr-Cyrl, Косово ), officially the Republic of Kosovo ( sq, Republika e Kosovës, links=no; sr, Република Косово, Republika Kosovo, links=no), is a international recognition of Kosovo, partiall ...
and
Montenegro ) , image_map = Europe-Montenegro.svg , map_caption = , image_map2 = , capital = Podgorica , coordinates = , largest_city = capital , official_languages = ...
.


See also

*
Currency strength Currency strength expresses the value of currency. For economists, it is often calculated as purchasing power, while for financial traders, it can be described as an indicator, reflecting many factors related to the currency; for example, fundament ...
*
Fiat money Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was sometim ...
*
Gold reserve A gold reserve is the gold held by a national central bank, intended mainly as a guarantee to redeem promises to pay depositors, note holders (e.g. paper money), or trading peers, during the eras of the gold standard, and also as a store ...
*
Gold standard A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from th ...
*
Silver standard The silver standard is a monetary system in which the standard economic unit of account is a fixed weight of silver. Silver was far more widespread than gold as the monetary standard worldwide, from the Sumerians 3000 BC until 1873. Following ...
*
Reserve currency A reserve currency (or anchor currency) is a foreign currency that is held in significant quantities by central banks or other monetary authorities as part of their foreign exchange reserves. The reserve currency can be used in international tr ...
*
Commodity currency A commodity currency is a currency that co-moves with the world prices of primary commodity products, due to these countries' heavy dependency on the export of certain raw materials for income. Commodity currencies are most prevalent in develop ...
*
Private currency A private currency is a currency issued by a private entity, be it an individual, a commercial business, a nonprofit or decentralized common enterprise. It is often contrasted with fiat currency issued by governments or central banks. In many coun ...
* Representative money *
Black Friday (1869) The Black Friday gold panic of September 24, 1869 was caused by a conspiracy between two investors, Jay Gould and his partner James Fisk, and Abel Corbin, a small time speculator who had married Virginia (Jennie) Grant, the younger sister of ...
also referred to as the ''Gold Panic of 1869''


References

{{DEFAULTSORT:Hard Currency Currency Monetary hegemony Progressive Era in the United States