A commodity currency is the currency of a country whose economy is primarily dependent on natural resources and the export of raw materials.
The value of commodity currencies is either partly or fully dependent on the value of specific commodities. If demand for a commodity increases, demand for the currencies of countries which produce that commodity increases as well because buyers need the currency in order to purchase that commodity.
Example: A country’s primary export is copper. As demand for copper increases, copper buyers are forced to either directly or indirectly purchase the currency of the copper-producing country in order to purchase copper from mines in that country. This demand drives the value of that currency up. If, on the other hand, demand for copper declined, demand for that currency would also decline, so its value would decrease.
Some diversified commodity-based economies export many different commodities. It this case, the value of their currencies is linked to demand for each of these commodities.
Major currencies which are generally classified as commodity currencies include the Australian dollar (AUD), the Canadian dollar (CAD) and the New Zealand dollar (NZD). Other currencies which are largely considered to be commodity currencies include the Russian ruble (RUB), the Brazilian real (BRL) and the South African rand (ZAR).
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