Working Papers

The Australian Dollar’s Carbon Footprint

As the Australian dollar makes new 18-year highs against the greenback, Terry McCrann suggests we ponder the relationship between the currency, the terms of trade and carbon emissions:

The core driver of our rising dollar—and pretty much everything else in and around our economy—is the explosive growth in China’s demand for, and consumption of, commodities.

Principally, so far as we are concerned, iron ore to make steel and coal to generate power. Along with pretty much everything else—globally importantly, oil and copper.

In short, not to put too fine a point on it: our dollar is pivoting on a truly momentous eruption of greenhouse gases. Yet we and the world are—at least hypothetically—committed to not just capping that eruption, but reversing it.

Let me spell that out a little more specifically. We have a dollar challenging conventional currency gravity; on the promise of pumping more and more commodities into the Chinese “greenhouse gas factory”. Yet we want to in effect burn that factory down.

Add on the certainty that even on the assumption that the factory keeps on belching, our dollar will overshoot; what happens if we actually “succeed” in persuading China to please let us leave all the stuff in the ground?

posted on 24 July 2007 by skirchner in Economics, Financial Markets

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