Australia and New Zealand propose single currency

Apr 5, 2012

Increased economic integration would be beneficial, but eurozone woes will count against the idea

AUSTRALIANS and New Zealanders are being asked their opinion on proposals to introduce a single currency across the two countries.

The two governments outlined the benefits of adopting a common currency in a paper published today, according to The Daily Telegraph.

It has been suggested that a single currency would result in lower transaction costs for businesses and increased economic integration between the nations.

The discussion paper, which will take public submissions until 31 May, outlines the current troubles of the eurozone as a possible disadvantage to the scheme.

“Where business cycles and economic changes affect the two countries differently, there could be costs in not having independent exchange rates. The recent experience of countries in the eurozone is instructive in this respect," the paper points out.

The issue of a single currency between the two nations is not a new one: as recently as 2009 the Governor of the Reserve Bank of New Zealand dismissed the idea as “unlikely” – noting that the euro was “under quite a bit of stress”.

One of the biggest pitfalls of a unified currency would be mismatched business. The New Zealand and Australian economies are unequal, with Australia counted as New Zealand's biggest trading partner in recent years while New Zealand represents only Australia's fifth biggest trading partner.

However, the Australian dollar has underperformed recently, experiencing a second month of trade deficit in February, reports The IB Times. The strength of the Aussie dollar is causing manufacturers to complain it is putting off foreign trading partners.

However, the New Zealand dollar rose to a six-month high of 79.45 cents against the Aussie dollar on Wednesday and a strategist for Westpac told the IB Times the two currencies were moving closer to aligning and this would reduce Australia’s interest rate advantage over New Zealand.

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Ridiculous idea, the only ones that benefit in these arrangements are private banks as they force Governments of countries into budget restrictions, as is happening in Europe, trying to force people into borrowing from private banks making the banks even wealthier, starving the people, etc