What Is a Commodity Currency?

Commodity money refers to currencies with physical support, gold and silver, and currencies under the gold standard, such as the US dollar under the Bretton Woods system. Commodity currency is another type of currency other than fiat currency. Besides the government's guarantee, currency itself has its inherent basic value.

Commodity currency

Mainly high interest rates, a high proportion of exports in GDP, major producers and exporters of some important primary products,

(1) The so-called dollar group refers to those countries that have very close relations with the US economy. This mainly includes countries that implement free trade zones with the United States or sign free trade agreements. Canada, Latin American countries, and Australia are the main representatives. At the same time, Singapore, Asia, will become the currency of the US dollar group. As we all know, the United States and Singapore have signed a bilateral free trade agreement. Singapore s economy will further increase its dependence on the United States in the future. Influence, but the future may follow the trend of the US dollar to a large extent.

These countries have a very close relationship with the US economy. In view of the extremely limited data on Latin American countries in our hands, and these currencies are basically not related to us, so we will not analyze them. Here we mainly take Canada as an example. Canadian trade with the United States accounts for about 81.6% of Canada s total foreign trade. 40% of its GDP, in other words, that is, one third of Canada s total GDP was purchased by the United States. Relatively speaking, Australia and the United States have relatively low economic dependence, so in the subsequent series In the question, we will see the impact of this on the exchange rate.

We usually say that there are some differences between the US dollar group currency and the commodity currency. This difference is mainly reflected in whether these countries are extremely close to the US economy and in the exchange rate. The trend of the Canadian dollar against the major currencies is the same as that of the US dollar against the major currencies. The trend is basically the same, so in a strict sense, the Canadian dollar is a particularly typical currency of the US dollar group. For example, we can find that the graph of the euro against the US dollar and the euro against the Canadian dollar maintains good isotropy, but the dollar has generally fallen since last year. In the process, this connection slowly weakened. At the same time, given that the economic relationship between Australia and the United States is relatively smaller than that of Canada, and its exchange rate and commodity prices are more related, the attributes of its commodity currency are greater than the Canadian dollar, but the Canadian dollar and the Australian dollar are generally considered to be both commodity currencies and US dollar currencies .

In addition, although they belong to the US dollar group, or have similar characteristics and attributes, the economic cycles of each country are not exactly the same as those of the United States, and sometimes they are slightly behind and sometimes they are earlier. Therefore, the trend of commodity currencies, especially the connection between the Canadian dollar and the Australian dollar, is not the same.