THE global credit crisis has cut a swathe through stock markets and financial systems around the world.

What started as a collapse in the US sub-prime mortgage sector has spread like a virus to infect entire economies, threatening to plunge many into recession.

Australia has felt the pinch as international credit lines have dried up and share values have slumped in line with other major bourses.

Our economy has faltered, prompting big interest-rate cuts, financial-sector guarantees and a hefty fiscal-stimulus package.

Given we live in a global economy, it's not surprising we've been affected.

But what is surprising is the dramatic slump in the Australian dollar.

In less than four months, the currency has lost a whopping one third of its value, plunging from US98c to about US66c this week. At one stage last week it was threatening to fall below US60c.

On balance, this is good news for farmers. They get better returns on export sales and a buffer against lower prices, with only a partial offset from higher import costs.

And it's not just the "greenback" we've slumped against, but other major currencies as well.

Why has this happened? There are several reasons.

One is the world economic downturn.

When major industrial economies start slowing sharply, as they have recently, so too does demand for, and prices of, farm and mineral commodities. Countries such as Australia, which are heavily dependent on these exports, are seen as vulnerable. Investors get nervous, elsewhere, selling their Aussie dollar investments.

Another factor is the fact we are a net borrower on global capital markets.

We have always spent more on imports of goods and services than we earn from exports, requiring us to rely on overseas credit. We've also historically relied on foreign investment for much of our development.

So when there's any sort of global credit problem, we're among those countries seen as a risky proposition by investors.

And of course there are interest-rate movements.

The Reserve Bank of Australia has cut official rates twice this year, more than most other countries.

The last cut was a massive 1 per cent, and another cut of as much as 0.5 per cent was expected yesterday.

What this means is financial investors see potential returns here falling compared with what than can get elsewhere.