A commodity currency is a currency that co-moves with the world prices of primary commodity products, due to these countries' heavy dependency on the export of certain raw materials for income. Commodity currencies are most prevalent in developing countries (eg. Burundi, Tanzania, Papua New Guinea). In the foreign exchange market, commodity currencies generally refer to the New Zealand dollar, Norwegian krone, South African rand, Brazilian real, Russian ruble and the Chilean peso. Commodity currencies' nature can allow foreign exchange traders to more accurately gauge a currency's value, and predict movements within markets based on the perceived value of the correlated commodity. Effects Due to the nature of commodity currencies being tied to commodities, being tied to any one good can be beneficial as well as problematic for the country. While falling or rising exports will lead to deflation or inflation respectively in any country, the impacts are more severe in countries with commodity currencies, as their currencies are so heavily tied to a set few commodities. Positive According to a 2009 study on commodity currency titled "Can Exchange Rates Forecast Commodity Prices?" by Yu-Chin Chen, Kenneth Rogoff and Barbara Rossi, exchange rates of commodity currencies can predict future global commodity prices. This is hugely beneficial for economists and policymakers who want a reliable measure of future commodity prices. A currency that is naturally tied to a country’s major commodities can be beneficial if global demand for a commodity increases, naturally strengthening the value of the currency. As seen in Figure 1, as the demand for a commodity shifts out (higher demand) the price increases to p’. This increased demand also is likely to increase GDP, as more exports take place as demonstrated by the equation for GDP below. As exports increase due to higher demand, GDP will also increase greatly as this country relies heavily on this commodity, leading to higher prices causing inflation (indicated in Figure 2’s increase in the price level). Depending on whether the inflation is economically beneficial, this could be positive (see Inflation). It is important to note that while countries with commodity currencies benefit from higher demand, countries that import this commodity face the opposite effects. Negative On the other side, a currency being tied to the major commodities of a country can be problematic, as a decrease in demand for any specific commodity can take a huge toll on the country's currency, leading to