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Aussie dollar set to join the big league

The Australian dollar looks set to be classified as an official reserve currency by the International Monetary Fund, in a sign of the dollar's rising importance on global money markets.

With heavy buying by foreign central banks thought to have supported the Aussie dollar in recent months, the fund is considering whether to add it and the Canadian dollar to its list of official reserve currencies.

Today, only the US dollar, euro, pound, yen and Swiss Franc are classified as official reserve currencies – those held in large quantities by foreign governments.

But buried in a statistical report published late last week, the fund said it was considering publishing data on the official reserve holdings of Australian and Canadian dollars because of the growing foreign interest in these currencies.

Both economies have also benefited from resources booms caused by industrialisation in the developing world.

The global head of interest rates strategy at Westpac, Russell Jones, said the IMF's move was recognition of the growing importance of the dollar for global investors.

"Over recent years, the Australian and Canadian economies have proved more stable and their financial sectors more robust than the more traditional safehavens of the US, the eurozone, Japan, the UK and Switzerland," Mr Jones said.

The move was also a "stamp of approval" for how these economies had been managed, and the data would provide more transparency on official holdings of the dollar, he said.

Up to 23 central banks from around the globe have included Australian-dollar assets in their foreign exchange reserves. It's estimated these official holdings of the dollar are worth about $60 billion, but exact figures are not available.

However, Mr Jones also said that reserve currency status also came with risks. For one, it could mean safehaven buying of the dollar, which could distort its value.

"The decision on the part of the international community to hold part of its wealth in a particular currency unit means that a certain amount of control over that currency and over its domestic debt markets is necessarily ceded," Mr Jones said.

As well, he said a reserve currency nation that had an economic "fall from grace" could also suffer a major out-flow of capital, worsening its economic problems.

Other commentators, however, say the IMF's decision is unlikely to have a major impact on the dollar.

Deutsche Bank's foreign exchange strategist, John Horner, said it would not significantly change investors' views.

"It seems a statistical recognition of what is already the reality," Mr Horner said.

"We know that there's been increasing interest in owning Australian dollars by reserve managers – this won't affect investment mandates."


  • Ok, I'll be the first to admit that I know little about this area... but I would think that having the A$ as an official reserve currency would make it even more attractive than it is now, therefore increasing demand, therefore pushing the dollar higher? Do we want this?

    Given the GFC and the Aussie economy we already see the A$ as an unofficial reserve currency of sorts, this would basically give the final tick of approval.

    Date and time
    November 20, 2012, 12:26PM
    • We are told of a 30% drop in demand for coal and move to gas and renewable. If Mongolia develops as a suppler of iron ore what happens then,. Develop Australia as a supplier of value added foods. perhaps..

      Date and time
      November 20, 2012, 1:01PM
    • Sounds like you did not know the days when the Aust Dollar before it was floated. In the 70’s it was anywhere between 1.49us to 1.20us. Great time to travel back then

      Date and time
      November 20, 2012, 1:06PM
    • @foxy,

      Australia as a food supplier, are you sure?

      Date and time
      November 20, 2012, 1:22PM
    • Yor right Lazzer.....we don't want the currency to join the will be high forever & we will never be compeditive.

      Date and time
      November 20, 2012, 1:40PM
    • @PT yep when we tried floating it, it sank. A good think that it has risen from the dead.

      West Footscray
      Date and time
      November 20, 2012, 2:05PM
    • I don't we have a choice here - and it is the wrong question anyway.
      If Federal Govts manage our economy responsibily (and with quite a bit of luck from a resources boom) then officially or not - we will become a reserve currency or safe haven. Particularly under the troubled EU and US economies printing money to save themselves - we on the other hand over pay our mining employees, under tax our miners to get a similar result.
      If things "return to normal" - then in the grand scheme of things we won't matter that much.
      In the meantime the markets couldn't care about the adverse effects a high AUD has on our economy.

      Date and time
      November 20, 2012, 2:10PM
    • Hey, there's no doubt that tinned tomatoes and oranges are facing stiff competition and those that grow such really need to think hard about the future. Maybe there's still opportunity in boutique markets?
      But value adding for grain is the key to the next boom. We really need to make finished grain products here because we are one of the few nations in the world with the land mass to grow bulk grains.
      wheat corn, rice are the boom crops of the future because they can feed the planet.

      I visited a confectioner in Sth Korea a few years back and they had a whiteboard with a map of the grain belt/riverina drawn on it as they were bulk buying our rice to make chip and cracker type products from.
      Now, they don't buy it from us anymore because of our high dollar (they buy thai rice for snacks,lunch crackers and biscuits) but I wonder if we can manufacture the rice crackers, chips etc here and export the finished product to Asia?
      There has to be a cost saving somewhere...

      One thing I'm really not happy about is our civil aviation authority bureaucracy getting its claws into drone helicopter crop dusting just when the industry is set to start- FOR GOODNESS SAKES, IF KIDS CAN FLY REMOTE HELICOPTERS THEN LET FARMERS DO THE SAME !
      # we need to get the cost of helispraying down from the current $1000 per hour and we can do that by NOT letting government departments bureaucratize a new technology.

      ## If we want to compete then this government has to be willing to let us actually COMPETE.

      Date and time
      November 20, 2012, 2:39PM
    • Yes, I think it would mean a continuing high dollar but on the plus side, overseas financing costs should come down.

      Date and time
      November 20, 2012, 2:46PM
  • Australia could get secret banking laws passed too and suck in black money from our region which would put a stop to the Singapore banking monopoly. Its strange the old safe haven currency the Swiss frank is now so strong their government has to weaken it because its creating problems for their other business activities.

    Date and time
    November 20, 2012, 12:46PM

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