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{{Original research|date=May 2012}}
{{also|Hard money (policy)}}
{{Economics sidebar}}

'''Hard currency''', '''safe-haven currency''' or '''strong currency''' is any [[Foreign exchange market|globally traded]] [[currency]] that serves as a reliable and stable [[store of value]]. Factors contributing to a currency's ''hard'' status might include the long-term stability of its purchasing power, the associated [[sovereign state|country]]'s [[political]] and [[Fiscal policy|fiscal]] condition and outlook, and the policy posture of the issuing [[central bank]].

Safe haven currency is defined as a currency which behaves like a [[Hedge (finance)|hedge]] for a reference portfolio of risky assets conditional on movements in global [[risk aversion]].<ref>{{Cite journal|last=Habib|first=Maurizio M.|last2=Stracca|first2=Livio|date=2012-05-01|title=Getting beyond carry trade: What makes a safe haven currency?|journal=Journal of International Economics|series=Symposium on the Global Dimensions of the Financial Crisis|volume=87|issue=1|pages=50–64|doi=10.1016/j.jinteco.2011.12.005|hdl=10419/153722}}</ref>

Conversely, a '''soft currency''' indicates a currency which is expected to fluctuate erratically or depreciate against other currencies. Such softness is typically the result of political or fiscal instability within the associated country.

== History ==
The paper currencies of some [[developed country|developed countries]] have earned recognition as hard currencies at various times, including the [[United States dollar]], [[Euro]], [[Swiss franc]], British [[pound sterling]], [[Japanese yen]], and to a lesser extent, the [[Canadian dollar]] and [[Australian dollar]].  As times change, a currency that is considered weak at one time may become stronger, or vice versa.  However, countries that consistently run large trade surpluses tend to have hard currencies.{{Citation needed|date=May 2012}}

One barometer of hard currencies is how they are favored within the [[foreign-exchange reserves]] of countries:

{{Reserve currencies plot}}

== Turmoil ==
The [[US dollar]] (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]] and [[dollarization]]. Countries have thus been compelled to purchase dollars for their [[foreign exchange reserves]], denominate their commodities in dollars for foreign trade, or even use dollars domestically, thus buoying the currency's value.

The [[euro]] (EUR) has also been considered a hard currency for much of its short history, however the [[European sovereign debt crisis]] has partially eroded that confidence.

The [[Swiss franc]] (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. 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&nbsp;=&nbsp;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]]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]]s which makes it difficult to spend it outside the host nation.

For example, during the [[Cold War]], the [[Soviet ruble|ruble]] in the [[Soviet Union]] 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 rubles could be exchanged by Soviet citizens for hard currencies.)  After the fall of the Soviet Union in December 1991, the ruble depreciated rapidly, while the [[purchasing power]] of the US dollar was more stable, making it a harder currency than the ruble. A tourist could get 200 rubles per US dollar in June 1992, and 500 rubles per USD in November 1992.

In some economies, which may be either [[planned economies]] or [[market economies]] using a '''soft currency''', there are special stores that accept only hard currency.  Examples have included [[Tuzex]] stores in the former [[Czechoslovakia]], [[Intershop]]s in [[East Germany]] or [[Friendship store]]s in [[China]] in the early 1990s. These stores offer a wider variety of goods{{snd}} many of which are scarce or imported{{snd}} than standard stores.{{Citation needed|date=October 2011}}

== Mixed currencies ==
Because hard currencies may be subject to legal restrictions, the desire for transactions in hard currency may lead to a [[black market]].  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]] or the [[Bosnia and Herzegovina convertible mark]].  This may lead to problems if [[economic]] conditions force the government to break the currency peg (and either appreciate or depreciate sharply) as occurred in the [[1998–2002 Argentine great depression]].

In some cases, an economy may choose to abandon local currency altogether and adopt another [[Fiat money]] as [[legal tender]] in a process known as [[dollarization]]. Examples include the adoption of the US dollar in [[Panama]], [[Ecuador]], [[El Salvador]] and [[Zimbabwe]] and the adoption of the [[German mark]] and later the [[euro]] in [[Kosovo]] and [[Montenegro]].

== See also ==
{{Portal|Money}}
{{div col|colwidth=30em}}
* [[Currency strength]]
* [[Fiat money]]
* [[Gold reserve]]
* [[Gold standard]]
* [[Silver standard]]
* [[Reserve currency]]
* [[Commodity currency]]
* [[Private currency]]
* [[Representative money]]
* [[Black Friday (1869)]]{{snd}}also referred to as the ''Gold Panic of 1869''
{{div col end}}

== References ==
{{reflist|30em}}


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[[Category:Currency]]
[[Category:Monetary hegemony]]
[[Category:Progressive Era in the United States]]