Hard and Soft Currencies

Topics: Currency, Bretton Woods system, United States dollar Pages: 4 (1318 words) Published: March 11, 2008
The global financing industry is enormous. Warren Hill in his book, Competing in the Global Marketplace suggests that "international financing extended by banks around the world reporting to the Bank for International Settlements is estimated at $6.4 trillion, including $4.6 trillion net international lending. Total world banking assets are put at more than $20 trillion, insurance premiums at $2 trillion, stock market capitalization at over $10 trillion, and market value of listed bonds at about $10 trillion. In addition, practically every international trade in goods or services requires credit, capital, foreign exchange, and insurance" (Hill, page 198). With such vast amounts of money floating in and out of global markets [as in this example], intermingled among numerous currencies, participating governments must have some way of protecting their investments and/or transactions. This paper seeks to discuss through examples, the impact of the use of hard and soft currencies in aiding in the protection of those investments and/or transactions. Hard Currency

According to Investopedia, "hard currency" is defined as "a currency, usually from a highly industrialized country, that is widely accepted around the world as a form of payment for goods and services. Hard currency [by its nature] is expected to remain relatively stable through a short period of time and to be highly liquid in the foreign exchange market. Yet another criterion for hard currencies is that the currency comes from a politically and economically stable country such as the U.S. Europe, England, Australia, and/or Japan" (Investopedia). As hard currencies, the US dollar, European Euro, English pound and Japanese yen are all traditionally backed by hard money policy, e.g., gold, silver, bullion or platinum to support or stabilize the value of its currency with a hard, tangible, and lasting material that retains its value over a longer period. The primary strengths of hard...
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