Xenocurrency

The term xenocurrency refers to banknotes, treasury notes, coins in circulation, which are legal tender in the territory of the relevant foreign state or group of foreign states, as well as withdrawn or withdrawn from circulation, but subject to exchange; funds in monetary units of foreign states and international monetary or accounting units in the accounts with banks.

Xenocurrency explained

The term xenocurrency was firstly used by Fritz Machlup in 1974. The Austrian-American economist used it to name the deposits and loans denominated in foreign currencies.

Investing in the xenocurrency often comes amid high risks. Xenocurrency trading is complicated due to various reasons, for example, world economy conditions and conversion risks. Conversion risks with the xenocurrency occur when domestic currency and the national market are rising. That means that the xenocurrency results in lower returns when converting foreign currency back into domestic one. Risks listed above are usually referred to as foreign currency effects.

The xenocurrency is also influenced by politics. Authorities usually place restrictions on movement of the xenocurrency inside the country and the amount of money that can be taken out of the country during a crisis. It helps to reduce the inflation growth and stabilize the economy of the country. 

Hard currency

A hard currency is a term that is commonly used alongside xenocurrency. It is a monetary unit characterized by a stable high purchasing power and the absence of sharp changes in exchange rates over a long period of time. Often gold and other precious metals, real estate, cars, etc. are called hard currency. This is incorrect. In fact, hard currency is an ordinary monetary unit which has the following characteristics:

• Country issuing this currency has had a stable political situation for many years.
• Government of the country has a consistent and stable financial policy.
• Currency is secured: there are large stocks of precious metals in the country.
• Country has relatively low inflation.
• Exchange rate has been stable for many years.
• Issuing country has a developed and stable economy.

These are the key parameters by which a currency can be considered a hard currency. Also some financiers add free convertibility to this list. Hard currency can serve as a means of payment not only in the issuing country, but also in other countries.

The main advantage of hard currency is its stability and, therefore, the ability to reduce losses to a minimum during periods of high market volatility.