Economics

What is the Currency of Nauru?

The official currency of Nauru is the Australian dollar.

The Australian Dollar whose currency code is AUD and symbol is A$ is the official currency of the Republic of Nauru. The country does not have its own currency. The currency is divided into 100 cents. There are no ATMs in the country so credit or debit cards are usually not accepted. The only means of payment in Nauru is cash. The importation of foreign and local currencies is not restricted as long as they are declared upon arrival. The exportation of local currency is limited to no more than A$2,500 and is also not restricted. The Republic of Nauru does not impose restrictions on the exportation of foreign currency. People visiting the country are advised to bring Australian Dollars in cash. The Bank of Nauru located in the district of Aiwo is the place where money is exchanged. At present, the Australian dollar against the US dollar trades at 1 AUD= 0.76 USD.

Overview of the Australian dollar

With 6.9% of the world's daily share, the Australian dollar was the world's fifth most traded currency in 2016, a decrease from 8.6% in 2013. The Australian dollar trades behind the euro, the sterling pound, the US dollar, and the yen in the world foreign exchange markets. One of the reasons the Australian dollar is so popular to trade is because the currency has significant expose to the commodities cycle and Asian economies which offers diversification benefits. Other reasons include the general stability of the Australian political system and economy, and the fact that the Australian government does not intervene in the foreign exchange market thus giving it relative freedom. Foreign exchange traders commonly refer to the Australian dollar as the Aussie dollar.

Benefits of Using the Australian Dollar

One of the major advantages of using the Australian dollar is that the Republic of Nauru gets to ally its economy with a stronger and larger economy. Since the country's largest trading partner is Australia, there is no conversion of currencies, therefore, using the Australian dollar significantly simplifies trade between the two nations. Due to the stability of the Australian dollar and economy in general, Nauru has had low levels of inflation for long. However, since the monetary policy of Nauru is connected to changes in the Aussie dollar which have dramatically decreased in value against the US dollar, this can be a significant disadvantage to Nauru.

Nauru's Financial Situation

During the 1990s, the island was a tax haven that issued passports for a fee to foreign nationals. Nauru was accused of acting as a center for money laundering and for that the island was internationally blacklisted. Since 2004, the country has been a cash economy because the government revoked all offshore banks following the closure of the Republic of Nauru Finance Corporation and the Bank of Nauru as a result of bankruptcy. All transactions in the country are done using cash and savings for the members of the community are also held in cash form. There are no deposit-taking institutions in Nauru at the moment. Periodically, the government of Nauru is required to fly in the Australian dollar for the sole purpose of maintaining liquidity. In 2006, the banking system in Nauru was shut down by the government of Australia. At present, the island is heavily dependent on Australia since it is the primary source of financial support for Nauru.

More in Economics