The Reserve Bank of Australia (RBA) anticipates a substantial increase in foreign investments in Australia as the mining boom persists, says The Australian newspaper. Based on the report, foreign capital is expected to rise by as much as $120 billion.

A June 2010 paper by RBA economist Kristina Clifton says that this inflow of investments could boost Australia's gross domestic product (GDP) by 10 percent as overseas investors find the country's local resources projects attractive for export. According to the paper, this level of investment would further increase the Australian dollar, which is already trading above par with its US counterpart.

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Now that interest in the US currency is waning, Australia will be able to attract more investments, according to the paper. It also says that the possibility of the increase in inflows to Australia coincides with the drop in shares of the US economy in the global GDP.

However, aside from being flooded with direct foreign investments, this growth could also create a cycle which might lead to a drop in the Australian dollar funds by portfolio investors.

RBA governor Glenn Stevens suggests for the government to set up a fund to make sure that the country does not waste the proceeds of the resources boom and that the Australian economy is not affected by sharp fluctuations in national income.

According to the paper, Australia can offset this escalating pressure by investing offshore through a new future fund such as a sovereign wealth or stabilisation fund. This strategy can reduce the upward pressure on the real exchange rate and the negative outcome on the tradable import-competing sectors. Important industry and business figures have also supported this call.

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