IMF reserve currency status will be Australia’s reward for a long term strategy which started decades ago, writes Jeremy Cook, Chief Economist at UK based foreign exchange company World First.
It’s testimony to how far Australia’s economy has come: In a relatively short span of time the IMF is poised to add the Aussie dollar to its much coveted list of global reserve currencies. This move, which is tipped to happen as early as the spring of 2013, will have a significant symbolic significance for the Australian economy. Their national currency joins the major reserve currencies of the US dollar and the euro as well as other reserve currencies, including British pound sterling, Japanese yen and Swiss franc, as one of the primary currencies held in large quantities by governments and institutions around the world.
The Australian government has wasted no time in celebrating this development, claiming that this decision “confirmed Australia as a safe haven for global capital” which would “consolidate the country’s position as one of the most attractive places for investment in the world”. They went on to make the point that Australia was currently one of the only countries in the world with a stable outlook and AAA rating from all three of the main global ratings agencies, in what has been a turbulent climate for the international economy.
Of course, the truth is that although this is undoubtedly a feather in the cap for Australia’s continuing strength reserve currencies have come and gone over the years. If you consider that at one time the now defunct Greek drachma was once one of the world’s leading international currencies, it will give you an idea about how transient the strength of each currency can be.
However, this news certainly serves to highlight how much progress Australia’s economy has made over the last few decades. In the modern global age, the country’s location on the other side of the world has become less and less of an issue for Australian businesses, as the global economy has become more connected and fluid.
It was really as far back as the middle of the last century when Australia began to relax its reliance on the traditional economic powerhouses in Western Europe and North America, and refocused its trade to Japanese and other Asian markets. This decision has really born fruit in the last 20 years as the global economic landscape has changed quite dramatically.
While other Western nations have struggled in the last few years, Australia has been able to continue to grow relatively unaffected. To the contrary, it has benefitted from China’s emergence as a world leader, exporting mining and agricultural goods to East Asia at an increasing rate. Well over 100,000 Chinese students now study in Australia and China is currently the largest purchaser of Aussie debt and a primary investor in its industry.
So this “Asian influence” has actually been hugely beneficial for Australia and a driving factor in its economic growth. The IMFs move to give the Australian dollar reserve status will be the result of a long evolution which has accelerated in the last decade.
Picture source: Photographer: Rhombur – Fotolia