Hard currency is mandatory to transact international business. Hard currency inspires confidence, in that these notes exchanged for goods and services will likely hold value over time. Hard currencies are largely associated with home nations that promote free markets, technological innovation, and strong legal systems that protect individual rights. The U.S. Dollar is still the world’s leading currency.
A Textbook Definition
The Glossary of International Economics defines hard currency simply as “a currency that is widely accepted around the world, usually because it is the currency of a country with a large and stable market.” This definition implies that hard currency represents a viable storage of value that will not fluctuate wildly with market conditions and remain susceptible to hyperinflation, which destroys purchasing power.
Hard currency is always an accepted medium to transact business and deliver price quotes internationally. Hard currency is readily available at major banks for exchange and the rates are the most often quoted by the financial media. Although exchange rates and values of competing currencies will fluctuate from day to day, hard currency buying power is relatively stable in the short term.
The Group of Seven (G7) always serves as the ideal reference point for hard currency nations. The G7 is comprised of the finance ministers and top officials from the industrialized nations of Canada, France, Germany, Italy, Japan, United Kingdom, and the United States. Currencies identified with these countries would be the Canadian Dollar, Euro, Yen, British pound, and U.S. Dollar, respectively.
The U.S. Dollar
The U.S. Dollar is the model for hard currency. The Central Intelligence Agency identifies the United States as “the largest and most technologically powerful economy in the world.” This status is based upon gross domestic product figures that have led the world into the modern era.
The U.S. Dollar is the language of business. Oil is quoted and delivered in dollars; multinational corporate annual reports are broken down into U.S. dollars, and numerous emerging markets, such as Venezuela, Panama, and Saudi Arabia have pegged their home currencies to the dollar.
Conveying Hard Currency Status
The BRICs (Brazil, Russia, China, and India), although growing rapidly, have yet to achieve hard currency status. These emerging markets must all confront civil rights, graft, sub-standard accounting, and corruption issues, before demanding a real seat at the table next to the G7. For its part, China has been often accused of manipulating and devaluing its yuan, in order to prop up its export economy.
Be advised further that hard currencies, such as the U.S. Dollar typically strengthen amid global economic turmoil, when investors flee risky assets, in exchange for safety. Going forward, however, Americans may be forced to stare down and work off towering deficits, in order to preserve the value of the Dollar.