The Aussie dollar as a desired currency

I previously featured an article from Ben Diokno who described a country’s currency as a WMD. Here’s another view of how one’s currency has become a desired commodity by other countries central banks. I had featured another about the same subject that the Philippines had taken the same position and has around 3% of its foreign reserves in Australian dollars.


From the Sydney Morning Herald

Australian dollar’s appeal stretches far and wide


UP TO 23 central banks from around the globe have included Australian dollar assets in their foreign exchange reserves, underlining the wide appeal the currency holds among overseas investors.

In a sign this interest goes beyond major trading partners, central banks that hold the dollar range from the National Bank of Kazakhstan to Sweden’s Sveriges Riksbank, an internal Reserve Bank document shows.

The document, released yesterday under freedom of information laws, said 15 central banks held Aussie dollar assets and a further eight could possibly be holding the currency. Some of the larger institutions holding the dollar include Germany’s Bundesbank and the central banks of Switzerland, Hong Kong and Russia.

Central banks that may have invested in the dollar include those of Indonesia, Iceland, Jordan and Moldova, the document said.

Central banks, which have historically invested heavily in euros and US dollars, are looking to diversify in response to the dour outlook in these economies.

The chief currency strategist at Westpac, Robert Rennie, said Australia’s AAA credit rating and strong economic outlook was an attractive combination for investors, when compared with many other nations.

“It’s entirely logical that central banks are looking away from the traditional US dollar and euro cores in their portfolios,” he said.

Such strong interest among foreign investors is one reason for the dollar’s resilience despite a weaker economic outlook and falling commodity prices, economists say.

Foreigners held 77 per cent of Australia’s $245 billion government debt in the June quarter, just below a record 79 per cent in March.

In a separate document, written in April and released yesterday, Chris Potter from the Reserve’s international department wrote: “The apparent preference shift and resulting portfolio shift of foreign investors towards Australian dollar government securities has increased Australian dollar demand.”

Yesterday’s documents, released after an FOI request from Bloomberg News, also show the bank has been examining if the dollar may be overvalued – a complaint of some manufacturing employers and unions.

A briefing titled “Is the Australian Dollar Overvalued?” was prepared in February, but was redacted except for a comment that “strong $A demand from foreign central bank purchases” had supported the currency.

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