¶ … Soft Currencies
The online encyclopedia of financial terms known as Investopedia puts it quite bluntly. A soft currency is simply another, a 'softer' or less pejorative name for a weak or unstable currency. "There is very little demand for this type of currency" amongst investors, because its values often fluctuate, making international businesses unwilling to invest in countries with soft currencies. ("Soft Currency," 2005) Soft currency nations make it difficult for companies to make money, because goods are sold in a currency with an unstable value, and local financing is difficult to obtain. Currencies from most developing countries are considered to be soft currencies. A soft currency is also called a vulnerable currency because tends to fall in value on foreign-exchange markets.
Often, countries such as Latin American nations with heavy debt, or the former Soviet Block countries are used as the paradigmatic examples of soft currency nations. Their currencies became unstable because of political uncertainty, such as the question of how to reconfigure a formerly command economy, and economic uncertainty, such as the hyperinflation incurred by many South American nations. "Governments are unwilling to hold soft currencies in their foreign-exchange reserves, preferring strong or hard currencies, which are easily convertible." ("Soft Currency," Hutchinson's Encyclopedia, 2005)
In contrast, a hard currency is usually the major means of monetary exchange in a highly industrialized country, such as the United States,...
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