Global Business Strategies - Globalization

Many Faces of Currencies

MGT/448 – Global Business Strategies

January 14, 2008

Whenever people hear the word currency, they immediately relate it to money or cash. Many often wonder how currencies are made and gain recognition. A currency is money or a general and common medium of exchange facilitating services and transfer of goods. However, there is just not one type of currencies, there a few forms of currencies in the economic world today, for example, hard currencies and soft currencies. How are currencies categorized as hard and soft?

A hard currency is a medium of exchange of goods, services and transactions and is recognized and accepted all over the world. In addition, a hard currency is only considered a hard currency only if it is from a politically and economically stable country (Investopedia- Hard Currency). The US dollar and the British pound are good examples of hard currencies. Many websites and readings describe soft currencies the total opposite of hard currencies. Soft currencies are not considered as a medium of exchange worldwide. The Investopedia website explains that currencies from unstable or developing countries and often fluctuates (Investopedia – Soft Currencies). Many countries do not want to do business with countries that are underdeveloped and have soft currencies because of their unstable economy and politics. Gold, silver and other precious metals or coins are examples of soft currencies.

Centuries ago, many types of currencies were used in one economy or country like using hard currencies as well as soft currencies like gold, copper, and silver were used during the barter system era. After the era of using soft currencies as a medium of exchange for goods and services, currencies like dollars and pounds were created. The newly created currencies are not consumer products and are now institutional rights (How Currencies are Created, 2001). The institutional right guarantees that a currency is guaranteed to buy monetary funds. Furthermore the central banks find the best rate for the currencies so that the can be easily turned into goods (How Currencies are Created, 2001). The rates placed on currencies rise and fall based on scarcity and abundance of goods. Inflation comes about when good are in demand and the interest rate goes higher.

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