Australia has a lot of foreign businesses and it has a lot of immigrants. Both earn Australian dollars and huge amounts would be sent back their country of origin.

His does Australia balance its books on something like this? How do the economics of it work? Would it lower Australian inflation but shortening the money supply, and raise inflation of the destination country as it prints more money to exchange the Australian dollar?

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So all countries account for some amount of currency that is circulating outside their borders, even countries with strong capital controls account for it unless theyre dumb or corrupt.

Australia is a good example, let’s say some guy sends 1000 AUD to Vietnam, his family trades it for Dong, who wants to sell Dong for AUD? Probably someone who wants to buy something from Australia, since that’s the place where people sell goods and services for AUD. The currency exchange markets basically facilitate this roundabout way of getting the money to the person that’s going to spend it in the country it’s from. Whether the guy’s family goes to the airport to trade it or a remittance service trades it, ultimately it winds up in the hands of some guy that is going to spend it in Australia (or the Christmas islands or somewhere that uses AUD).

(Note: this is not exactly the case with USD and EUR and other currencies held by foreign countries as reserves and used by foreign countries as their currency, it’s a little different with regard to those)

What that winds up meaning is that at any given time, some percentage of circulating supply for AUD is outside of the country at all times. Keep in mind, in the above example, the Dong never leaves Vietnam. These relationships with other countries are asymmetrical; the countries one currency is remitted to isn’t reciprocated back and forth. There aren’t a lot of Australians sending Dong to Australia working jobs in Vietnam.

Also bear in mind the weak but existing relationship with export this has. Some portion of those people that want AUD in Vietnam are buying goods from Australia to import to Vietnam (or elsewhere), but not all. And the money is just a representation of wealth, the real wealth is the things we produce. So those imports and exports are what countries are actually concerned about, and what actually affect the economics of a country more than currency movement.

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