EDEN IAS

TYPES OF CURRENCIES| GS ARTICLES

HARD CURRENCY

It is the international currency in which the highest faith is shown and isneeded by every economy. The strongest currency of the world is one whichhas a high level of liquidity. Basically, the economy with the highest as wellas highly diversified exports that are compulsive imports for other countries(as of high-level technology, defence products,lifesaving medicines andpetroleum products) will also create high demand for itscurrency in theworld and become the hard currency. It is always scarce.

Up to the second world war, the best hard currency was the Pound Sterling(£) of the UK, but soon it was replaced by the US Dollar. Some of the besthard currencies of the world today are the US Dollar, the Euro(€), JapaneseYen (¥) and the UK Sterling Pound (£). Meanwhile, by late 2015, the IMFallowed the SDR to be denominated in the Chinese‘Yuan’–paving the wayfor a new hard currency to be implemented in 2016.

SOFT CURRENCY

A term used in the foreign exchange market which denotes the currency thatis easily available in any economy in its forex market. For example, rupee isa soft currency in the Indian forex market. It is basically the opposite term forthe hard currency.

HOT CURRENCY

Hot currency is a term of the forex market and is a temporary name for anyhard currency. Due to certain reasons, if a hard currency is exiting aneconomy at a fast pace for the time, the hard currency is known to be hot. Asin the case of the SE Asian crisis, the US dollar had become hot.

HEATED CURRENCY

A term used in the forex market to denote the domestic currency which isunder enough pressure (heat) of depreciation due to a hard currency’s hightendency of exiting the economy (since it has become hot). It is also knownas currency under heat or under hammering.

CHEAP CURRENCY

A term first used by the economist J. M. Keynes (1930s). If a governmentstarts re-purchasing its bonds before their maturities (at full-maturity prices)the money which flows into the economy is known as the cheap currency,also called cheap money.In the banking industry, it means a period of comparatively lower/softerinterest rates regime.

DEAR CURRENCY

This term was popularized by economists in early 1930s to show the oppositeof the cheap currency. when a government issues bonds, the money whichflows from the public to the government or the money in the economy ingeneral is called dear currency, also called as dear money.

In the banking industry, it means a period of comparatively higher/costlierinterest rates regime.

 

This will close in 0 seconds