Australian dollar

The Australian dollar (sign: $; code: AUD) is the currency of the Commonwealth of Australia, including Christmas Island, Cocos (Keeling) Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu. Within Australia it is almost always abbreviated with the dollar sign ($), with A$ sometimes used to distinguish it from other dollar-denominated currencies.^[1][2] It is subdivided into 100 cents.

The Australian dollar is currently the fifth-most-traded currency in the world foreign exchange markets behind the US dollar, the euro, the yen and the pound sterling.^[3] The Australian dollar is popular with currency traders, because of the comparatively high interest rates in Australia, the relative freedom of the foreign exchange market from government intervention, the general stability of Australia's economy and political system, and the prevailing view that the Australian dollar offers diversification benefits in a portfolio containing the major world currencies, especially because of its greater exposure to Asian economies and the commodities cycle.^[4] The currency is commonly referred to by foreign-exchange traders as the "Aussie."

History

With pounds, shillings and pence to be replaced by decimal currency on 14 February 1966, many names for the new currency were suggested. In 1965, the Prime Minister, Sir Robert Menzies, a monarchist, wished to name the currency the royal. Other proposed names included more exotic suggestions such as the austral, the oz, the boomer, the roo, the kanga, the emu, the digger, the kwid, the dinkum, the ming (Menzies' nickname). Owing to Menzies' influence, the name royal was settled on, and trial designs were prepared and printed by the Reserve Bank of Australia. The choice of name for the currency proved unpopular, and it was later dropped in favour of the dollar.^[5]

The Australian pound, introduced in 1910 and officially distinct in value from the pound sterling since devaluation in 1931,^[6] was replaced by the dollar on 14 February 1966.^[7] The rate of conversion for the new decimal currency was two dollars per Australian pound, or ten Australian shillings per dollar. The exchange rate was pegged to the pound sterling at a rate of 1 dollar = 8 shillings (2.50 dollars = 1 pound sterling). In 1967, Australia effectively left the Sterling Area when the pound sterling was devalued against the U.S. dollar and the Australian dollar did not follow. It maintained its peg to the U.S. dollar at the rate of 1 Australian dollar = 1.12 U.S. dollars.

Coins

In 1966, coins were introduced in denominations of 1, 2, 5, 10, 20 and 50 cents. The initial 50 cent coins contained high silver content and were withdrawn after a year for fear that the intrinsic value of the silver content would exceed the face value of the coins. One-dollar coins were introduced in 1984, followed by two-dollar coins in 1988. The one- and two-cent coins were discontinued in 1991 and withdrawn from circulation. In commemoration of the 40th anniversary of decimal currency, the 2006 mint proof and uncirculated sets included one- and two-cent coins. Cash transactions are rounded to the nearest five cents. As with most public changes to currency systems, there has been a great amount of seignorage of the discontinued coins. All coins portray the reigning Australian Sovereign, Queen Elizabeth II, on the obverse, and are produced by the Royal Australian Mint.

Australia has regularly issued commemorative 50-cent coins. The first was in 1970, commemorating James Cook's exploration along the east coast of the Australian continent, followed in 1977 by a coin for Queen Elizabeth II's Silver Jubilee, the wedding of Charles, Prince of Wales and Lady Diana Spencer in 1981, the Brisbane Commonwealth Games in 1982, and the Australian Bicentenary in 1988. Issues expanded into greater numbers in the 1990s and the 21st century, responding to collector demand. Australia has also made special issues of 20-cent and one-dollar coins.

All Australian coins produced thus far have featured Queen Elizabeth II on the obverse side, as she has been the reigning Sovereign for the entire issue of the currency; however, the portrait has been changed several times to match changing official portraits of the Queen as she ages. The first change was when the decimal system was introduced in 1966, the next facelift came in 1985, with a new crown and pose, and finally the most recent in 1999, showing a more age-appropriate portrait of the queen. In 2000, the Royal Australian Mint circulated a commemorative 50c coin marking the Royal Visit of Queen Elizabeth. Exceptionally, this coin bore a different portrait of the Queen to that used on other Australian coins. It was the first occasion on which an Australian coin bore a representation of the Sovereign which was not synchronous with that used in the other Commonwealth Realms. In 2001, the normal portrait was restored to 50c coins.

There are many five-dollar coins, of aluminium/bronze and bi-metal, and many silver and gold bullion coins in higher denominations. These are not normally used in payment, although they are legal tender.

Current Australian 5-, 10- and 20-cent coins are identical in size to the former Australian, New Zealand and British sixpenny, shilling and two shilling (florin) coins. In 1990, the UK replaced these coins with smaller versions, as did New Zealand in 2006 - at the same time discontinuing the five-cent coin. With a mass of 15.55 grams and a diameter of 31.51 mm, the Australian 50-cent coin is one of the largest sized coins used in the world today. In circulation New Zealand 5-, 10- and 20-cent coins were often mistaken for Australian coins of the same value, owing to their identical size and shape.

Banknotes

First series

The first paper issues of Australian dollars were issued in 1966. The $1, $2, $10 & $20 notes had exact equivalents in the former pound banknotes. The $5 note was issued in 1967, after the public had become familiar with decimal currency. There had not previously been an equivalent £2 10s note.

The $50 note was introduced in 1973. The $1 note was replaced by a coin in 1984, while a $100 note was also introduced. In 1988 the $2 note was replaced by a coin.

Polymer series

The first polymer banknotes were issued in 1988 by the Reserve Bank of Australia, specifically polypropylene polymer banknotes (produced by Note Printing Australia), to commemorate the bicentenary of European settlement in Australia. All Australian notes are now made of polymer.

Notes are sized according to their denomination, for the visually impaired. They are the same height but of different lengths, in order of their value - $5 being the smallest, $100 the largest. Notes are also colour coded: $5 pink (there are two designs); $10 blue; $20 red; $50 yellow; and $100 green.

As a security feature, these notes contained a transparent window with an optically variable image of Captain James Cook. Every note also has a seven-pointed star which has only half the printing on each side as well as an image of the Australian Coat of Arms only visible when held up to the light. Australian banknotes were the first in the world to use such features.

Value of the Australian dollar

In 1966, when the Australian dollar was introduced, the international currency relationships were maintained under the Bretton Woods system, a fixed exchange rate system using a U.S. dollar standard. The Australian dollar, however, was effectively pegged to the British pound at an equivalent value of approximately 1 gram of gold.

The highest valuation of the Australian dollar relative to the U.S. dollar was during the period of the peg to the U.S. dollar. On 9 September 1973, the peg was adjusted to US$1.4875, the fluctuation limits being changed to US$1.485 - US$1.490^[9]; on both 7 December 1973 and 10 December 1973, the noon buying rate in New York City for cable transfers payable in foreign currencies reached its highest point of 1.4885 U.S. dollars to one Australian dollar.^[10]

On Monday 12 December 1983, the Australian dollar was floated, allowing its value to fluctuate dependent on supply and demand on international money markets. The decision was made on 8 December 1983 and announced on 9 December 1983. ^[11]

In the two decades that followed, its highest value relative to the US dollar was $0.881 in December 1988. The lowest ever value of the Australian dollar after it was floated was 47.75 US cents in April 2001.^[12] It returned to above 96 US cents in June 2008,^[13] and reached 98.49 later that year. Although the value of the Australian dollar fell significantly from this high towards the end of 2008, it gradually recovered in 2009 to 94 US cents.

On 15 October 2010, the Australian dollar reached parity with the US dollar for the first time since becoming a freely traded currency, trading above US$1 for a few seconds.^[14] The currency then traded above parity for a sustained period of several days in November, and fluctuated around that mark into 2011.^[15] On 27 July 2011 the Australian Dollar hit a record high since the floating of the dollar. It traded at a $1.1080 against the US Dollar. ^[16] Some have even suggested the dollar could rise as high as 1.70 USD by 2014. ^[17]

Some commentators claim that the value of the dollar in 2011 is related to Europe's sovereign debt crisis, and Australia's strong ties with material importers in Asia and in particular China.^[18]

Economists posit that commodity prices are the dominant driver of the Australian dollar, and this means changes in exchange rates of the Australian dollar occur in ways opposite to many other currencies.^[19] For decades, Australia's balance of trade has depended primarily upon commodity exports such as minerals and agricultural products. This means the relative value of the dollar varies significantly during the business cycle, rallying during global booms as Australia exports raw materials, and falling when mineral prices slump or when domestic spending overshadows the export earnings outlook. This movement is in the opposite direction to reserve currencies, which tend to be stronger during market slumps as traders move value from falling stocks into cash.

Although not considered a reserve currency, high volatility and its unorthodox movement in exchange rates has contributed to the AUD's status as one of the most traded currencies in the world.^[4] Other factors include a relative lack of central bank intervention, and general stability of the Australian economy and government.^[20]

Exchange rate policies

Prior to 1983, Australia maintained a fixed exchange rate. The first peg was between the Australian and British pounds, initially at par, and later at 0.8 GBP (16 shillings sterling). This reflected its historical ties as well as a view about the stability in value of the British pound. From 1946 to 1971, Australia maintained a peg under the Bretton Woods system, a fixed exchange rate system that pegged the U.S. dollar to gold, but the Australian dollar was effectively pegged to sterling until 1967.

With the breakdown of the Bretton Woods system in 1971, Australia converted the traditional peg to a fluctuating rate against the US dollar. In September 1974, Australia valued the dollar against a basket of currencies called the trade weighted index (TWI) in an effort to reduce the fluctuations associated with its tie to the US dollar.^[21] The daily TWI valuation was changed in November 1976 to a periodically adjusted valuation.

On 12 December 1983, the Australian Labor government led by Prime Minister Bob Hawke and Treasurer Paul Keating floated the Australian dollar, with the exchange rate reflecting the balance of payments and other market drivers.

See also

• Banking in Australia
• Brass razoo
• Coins of Australia
• Economy of Australia
• Note Printing Australia

References

Notes

External links

• Sound recording of 1966 Decimal Currency radio advertisement held at the National Archives of Australia
• Australian Decimal Currency
• Reserve Bank of Australia: Current Banknotes
• The Perth Mint is Australia's precious metals mint, making non-circulating/collector coins in silver, gold, and platinum.
• Note Printing Australia is the printer of Australia's notes, and also inventor of the abovementioned polymer banknotes, and world exporter of this technology.
• Current value of the Australian dollar (as measured by CPI) (source is RBA) (Note that a higher CPI figure indicates a reduction of value for the Australian dollar.)
• The Money Tracker site allows users to track Australian banknotes as they circulate around Australia.
• Images of historic and modern Australian bank notes
• Reserve Bank of Australia - daily value of AUD against 13 currencies, special drawing right and trade weighted index
• Reserve Bank of Australia - historical data of AUD since 1969 (various .xls files)