A hard currency is expected to remain relatively stable through a short period of time, and to be highly liquid in the forex or foreign exchange (FX) market. The most tradable currencies in the world are the U.S. dollar (USD), European euro (EUR), Japanese yen (JPY), British pound (GBP), Swiss franc (CHF), Canadian dollar (CAD) and the Australian dollar (AUD).1 All of these currencies have the confidence of international investors and businesses because they are not generally prone to dramatic depreciation or appreciation.
The U.S. dollar stands out in particular as it enjoys status as the world’s foreign reserve currency.2 For this reason, many international transactions are done in U.S. dollars. Moreover, if a country’s currency begins to soften, citizens will begin holding U.S. dollars and other safe haven currencies to protect their wealth.
KEY TAKEAWAYS
- Hard currencies act as a liquid store of wealth and a safe haven when domestic currencies struggle.
- Hard currencies come from countries with stable economies and political systems.
- The opposite of hard currency is a soft currency.