What is Soft Currency?
A soft currency is one with a value that fluctuates, predominantly lower relative to other currencies, because there is less demand for that currency in the forex markets. This lack of demand may be driven by a variety of factors, but is most often a result of the country's political or economic uncertainty.
What Soft Currency Means
A soft currency is one that struggles to maintain its value in relation to other currencies. This happens because traders and investors seek to hold other currencies more than the soft currency. This weak demand is most often a result of the country's political or economic instability, which in turn makes the price of the currency more volatile. Under such conditions forex foreign exchange dealers tend to avoid the currency and traders, even on low volume, can produce drastic swings in the exchange rate of the currency.
In financial markets, analysts and traders will also refer to a soft currency as a "weak currency." Currencies from most developing countries are considered to be soft currencies. Often, governments from these developing countries will set unrealistically high exchange rates, pegging their currencies to a currency such as the U.S. dollar. This policy creates an exchange value that is not favorable to investors or traders, and dampens demand for the currency.
Unsurprisingly, soft currencies are more volatile because of the nature of what drives the movements as well a lack of liquidity brought on by lower demand. Soft currenciesare unlikely to be held by central banks as foreign reserves, unlike U.S. dollar, euros and the Japanese yen, a fact which compounds the problems of volatility.
The Zimbabwe dollar and the Venezuelan bolivar are two examples of soft currencies. Both of these countries have experienced political instability. Their governments have instituted monetary policies which have led to hyperinflation. This in turn has led to a sharp devaluation in the currency and the printing of high denominating notes. The annual growth domestic product (GDP) rate in Zimbabwe has fallen most years since 2011, and the Venezuelan economy has been in recession since 2014. This makes it all the more difficult for these countries to pay their debts on loans they may have taken from banks, other countries, or the International Monetary Fund (IMF).
FAQs
A soft currency is a fluctuating currency from an economically or politically unstable country that is not widely accepted in other countries.
What is the definition of soft currency? ›
A soft currency is one with a value that fluctuates, predominantly lower relative to other currencies, because there is less demand for that currency in the forex markets. This lack of demand may be driven by a variety of factors, but is most often a result of the country's political or economic uncertainty.
How do you use soft currency in a sentence? ›
There are many soft currency countries in the world where it is impossible to buy furniture. Are we wise in running such considerable favourable balances with these soft currency countries? It depends on the degree to which we are able to buy our foodstuffs from soft currency sources.
What is an example of a hard and soft currency? ›
Examples of Hard Currency and Soft Currency
The USD is considered the world's primary reserve currency. It is widely accepted for trade and investment globally. Investors often flock to the USD during times of economic uncertainty. Soft Currency Example – The Indian Rupee (INR):
Is Bitcoin a soft currency? ›
Soft money is a type of money, like paper currency or fiat money, which is easy to create and stands in contrast with hard money, like gold, silver and Bitcoin.
Which currency is soft currency? ›
Examples of some of the most known soft currencies are listed below: The Venezuelan bolivar (VEF) The Zimbabwe dollar (ZWL) Syrian pound (SYP)
What countries have soft currency? ›
LIST OF »SOFT CURRENCY COUNTRIES« FOR ECREA MEMBERSHIP
- Samoa. Iran, Islamic Rep. Ethiopia. Albania. Solomon Islands. Iraq. Gabon. Armenia. Thailand. Jordan. ...
- Malawi. Macedonia, FYR. Brazil. Afghanistan. Mali. Moldova. Colombia. Bangladesh. Mauritania. ...
- Guyana. Benin. Somalia. American Samoa. Haiti. Botswana. South Africa. Cambodia. Honduras.
In their simplest form, hard money and soft money are used to describe different kinds of currency in economics. Hard money refers to coins or specie, while soft money refers to paper currency. Hard and soft money can also refer to how clients pay their brokers or financial services providers.
Is soft currency easily available? ›
Soft Currency:
It is the currency that is easily available in any economy in its Forex market. For example, Indian Rupee is the Soft currency in the Indian Forex market.
What is soft in a sentence? ›
Examples of soft in a Sentence
Adjective The ground was soft after the heavy rain. Iron and lead are soft metals. The room was painted in soft pink.
Soft currencies are the most commonly found currencies in free-to-play games. Players can earn them easily and they are widely available from rewards in the core game loop. For example, players may earn coins for finishing levels, which they can then use to buy lives, boosters, or other resources.
What is easy currency? ›
easyCurrency offers a range of valuable currency products, including Currency Cards, International Payments and next day delivery Travel Cash. You can top up the Currency Cards at any time through the accompanying app.
Which currency is hard? ›
The paper currencies of some developed countries have earned recognition as hard currencies at various times, including the United States dollar, euro, British pound sterling, Japanese yen, Swiss franc and to a lesser extent the Canadian dollar and Australian dollar.
What is the hardest money ever created? ›
Throughout history, gold has been the hardest form of money, until 2009, when Satoshi Nakamoto created Bitcoin. With a fixed supply of 21 million and a controlled issuance, Bitcoin is the hardest money we have ever seen.
What are the factors affecting soft currency? ›
The soft currency factors are political instability, currency instability, weak governing bodies, and poor economic infrastructure. It increases export sales but lowers the country's GDP as it invites hyperinflation within the economy. As a result, investors lose confidence in the currency.
Who owns most Bitcoin? ›
Who owns the most Bitcoin in the world? The top Bitcoin holder is still believed to be Satoshi Nakamoto, the anonymous creator of Bitcoin, who reportedly holds around 1.1 million BTC across many wallets. Despite this large holding, the top 10 holders collectively only possess about 5.5% of the total Bitcoin supply.
What is the difference between hard currency and soft currency in games? ›
Hard currencies are offered through in-app purchases made with real money, while soft currencies are available through virtual purchases made with hard currency.
What is the hard currency in the US? ›
The paper currencies of some developed countries have earned recognition as hard currencies at various times, including the United States dollar, euro, British pound sterling, Japanese yen, Swiss franc and to a lesser extent the Canadian dollar and Australian dollar.
What constitutes a hard currency? ›
Hard currency refers to money that is issued by a nation that is seen as politically and economically stable. Hard currencies are widely accepted around the world as a form of payment for goods and services and may be preferred over the domestic currency.
