HARD
CURRENCY AND SOFT CURRENCY - ECONOMY
News: Conditions Not Ripe to Make INR A
Hard Currency: GTRI
What's
in the news?
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India
should become a middle-income country and then push to make INR (rupee) a hard
currency, and till then, it must promote the settlement of
global trade in the local currency, think tank GTRI said on Sunday. Global
Trade Research Initiative (GTRI) said that transforming a currency into a hard
currency is a complex process that hinges on several pivotal factors.
Hard
Currency:
●
It is the international currency in which the highest faith is shown and is
needed by every economy.
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The strongest
currency of the world is one which has a high level of liquidity.
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Basically, the economy with the highest as
well as highly diversified exports that are compulsive imports for other
countries (as of high-level technology, defence products, life saving medicines
and petroleum products) will also create high demand for its currency in the
world and become the hard currency.
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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.
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Other hard currencies of the world today
are the US Dollar, the Euro (€),
Japanese Yen (¥) and the UK Sterling Pound (£).
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Meanwhile, by late 2015, the IMF allowed
the SDR to be denominated in the ‘Chinese
Yuan' – paving the way for a new hard currency to be implemented in 2016.
Soft
Currency:
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Soft currency is a currency which is hyper sensitive and fluctuates frequently.
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Such currencies react very sharply to the
political or the economic situation of a country.
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It is also known as weak currency due to its unstable nature.
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Such currencies mostly exist in developing
countries with relatively unstable governments.
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Soft currencies cause high volatility in exchange rates as well, making them undesirable
by foreign exchange dealers.
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These currencies are the least preferred
for international trade or holding reserves.
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Example: Zimbabwean dollar is a classic example of soft currency.