THE DAILY TELEGRAPH: The Australian dollar is one of the strongest currencies in the world because it is a commodity -backed currency. That’s why it hit a 29-year high against the US dollar today – and it’s all related to the gold price.
The gold price is hitting new all-time highs on a daily basis because many investors have lost faith in paper money. They believe that central bank printing presses are devaluing currencies on a daily basis.
It is the same lack of belief in paper money that has been boosting the Aussie dollar. Paper money used to be backed by gold held in a central bank, but this was abandoned all over the world, allowing central banks to print money via processes such as quantitative easing.
Today, no currency in the world is on the gold standard – all money is “fiat” money.
However, Australia has significant resources of gold, uranium, iron ore, coal and many other important and valuable commodities. They are in the ground, not in a central bank, but this is the nearest thing the world has to the old gold standard. That’s why the Australian currency is so strong.
The same is also true of currencies in Canada, South Africa and Russia. They are effectively backed by commodities in the ground. » | Garry White | Friday, April 08, 2011