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What Are Safe Haven Currencies?

Safe haven currencies, also commonly called “hard currencies,” are those that are globally traded in high volume and tend to hold their value. The term “safe haven” is used to describe them because investors like to park funds in these currencies when markets are volatile. In good and bad market times, investors will turn to safe haven currency investments as a hedge against riskier investments.
In the investing world today, there is wide consensus that the U.S. dollar, euro, Japanese yen, British pound, and Swiss franc are the only true safe haven currencies. Occasionally, the Australian or Canadian dollars will get added to the list. However, historical inclusion on the list doesn’t make them equal or indicate they might stay on the list.
Characteristics of Safe Haven Currencies
There are a number of characteristics that typify safe haven currencies. It isn’t necessary to have all of these attributes to be considered a safe haven currency, but the more it has, the safer it’s considered.  They:

– are highly liquid.  The easy availability of these currencies contributes to their high trading volume. The fact that an investor can also count on being able to buy them means they are also easy to sell.

– aren’t greatly affected by political turmoil.  While political and economic events in a country can directly affect the value of its legal tender, safe haven currencies are less reactive to these external factors than those in countries that are less politically stable.
This doesn’t mean that the value of safe haven currencies can’t be affected by external events. However, the types of events that would most affect their value are those taken by the central banks responsible for the issuing country’s monetary policy.
– are the legal tender of politically and economically stable countries. When the world has confidence in the political and economic stability of a country, it makes it easier to have confidence in its currency. Indeed, it’s the country’s own stability that helps protect the value of its money from the political or economic instability elsewhere in the world. This is the reason that the events that most affect a safe haven currency’s value are those taken by its own government or central bank.
Status of Safe Haven Currencies
As noted above, not all safe haven currencies are created equal. Nor does their status as safe havens insulate them entirely from fluctuating values.
The U.S. dollar is the ultimate safe haven currency. It has the ironic distinction that even when U.S. economic indicators are weak, the U.S. dollar is strengthened. There is some thought that increased U.S. debt and quantitative easing by the Federal Reserve may weaken the U.S. dollar as a safe haven currency. However, monetary values are all relative, which means the value of the U.S. dollar as a safe haven currency can be boosted by the challenges of the other safe havens.
Actions by other governments of safe haven currencies, such as challenges of the European Union to manage E.U. countries’ debts and the Swiss National Bank introducing a floor on its value against the euro, have helped the U.S. dollar maintain its status as the ultimate safe haven.

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