Hard currency is a term often used to describe the flow of funds from government agencies or other organizations. Funding flows are a series of ongoing and recurring payments, not one-time grants. Hard currency can be in the form of government daycare allowances or annual scholarships for post-secondary students.
Hard currency is also used to describe a physical currency, such as coins made of precious metals, including gold, silver, or platinum. In addition, the value of the currency in circulation is directly related to the value of a particular commodity is called hard currency. For example, the gold standard The monetary system once used by the United States can be called a hard currency system.
Hard money can be contrasted with soft money, which can refer to credit in physical cash, or fiat money that is not backed by any commodity. Soft money can also mean indirect donations or payments for financial services, such as paying brokerage commissions and research.
Understand hard currency
Hard currency is the preferred form of financing for governments and organizations because it provides a predictable flow of funds. In the case of student scholarships, it provides budget certainty for the student’s plans while in college. In contrast, one-time grants can make long-term planning and budgeting are more challenging.
Hard currency, as it describes the nature of money, is less common in today’s global economy. Most countries use fiat currency. Fiat currency is the process of creating fiat currency by government decree. Without this decree, the thesis itself has no intrinsic value. The value of the hard currency is linked to the price of its underlying commodity. In contrast, the value of fiat currency is only related to supply and demand factors. Using fiat currency allows governments more flexibility in the event of a financial crisis.
- Hard currency refers to physical coins or currencies, usually backed by precious metals such as gold.
- Some believe that hard currency is the only trusted currency on the world stage.
- Hard currency may also refer to cash payments directly used for financial services or political donations.
- In lending, hard money loans are loans secured by the value of physical assets.
Other types of hard currency
Hard money is also a term used in politics and lending.
- In politics, the term hard money refers to money donated directly to politicians or political action committees. Hard money donations have some limitations and regulations, including how much you can donate and the use of the funds. By contrast, donations to parties that don’t have the same restrictions and controls tend to be given names like; soft money; donations. So while individuals can donate up to $2,700 in hard currency to a particular candidate in each 2018 election, they can donate an unlimited amount of hard currency to a political party. The party could reallocate funds to candidates of their choice.
- In terms of borrowing, a hard money loan is an asset-based on the value of a physical asset such as a car or a house. The cost of the asset serves as collateral for the loan. Interest rates on these types of loans are often higher than what borrowers can get through traditional mortgage lenders or other established financing channels. Private investors or individuals often act as lenders of last resort to make hard money loans due to timing or poor financial conditions of the borrower;