Australian dollar

Australian dollar. The official currency of the Commonwealth of Australia, including its external territories such as Christmas Island and the Cocos (Keeling) Islands, as well as the independent Pacific island nations of Kiribati, Nauru, and Tuvalu. Introduced on 14 February 1966, it replaced the non-decimal Australian pound at a rate of two dollars to the pound, a change overseen by then-Treasurer Harold Holt. Managed by the Reserve Bank of Australia under the Reserve Bank Act 1959, it is one of the most traded currencies globally, often used as a proxy in foreign exchange market transactions for commodities and Asian regional economic trends.

History

The move to a decimal currency followed the recommendations of the 1959 report by the Decimal Currency Committee, which was established by the Menzies Government. The transition ended a system that had been in place since the early days of the Colony of New South Wales, which initially used a mix of foreign coinage including the Spanish dollar. Prior to the dollar, Australia used the Australian pound, which was pegged to the Pound sterling until the devaluation of sterling in 1931 during the Great Depression. A significant early test for the new currency was its floatation in December 1983, a decision made by the Hawke Government and Treasurer Paul Keating, which severed its fixed exchange rate link. This period also saw the dollar's value heavily influenced by the 1973 oil crisis and the 1987 stock market crash.

Coins and banknotes

Coins are produced by the Royal Australian Mint in Canberra, with current circulating denominations designed to feature iconic Australian wildlife and historical figures. The one-dollar coin depicts five kangaroos, while the two-dollar coin features an Aboriginal Australian elder and the Southern Cross. Banknotes, printed by Note Printing Australia in Melbourne, are made of a polymer substrate, a technology pioneered by the Commonwealth Scientific and Industrial Research Organisation. The notes feature portraits of notable Australians such as writer Banjo Paterson on the $10 note and businesswoman Dame Nellie Melba on the $100 note, alongside images of architectural landmarks like the Parliament House.

Exchange rate and value

As a freely floating currency, its value is determined by market forces in the foreign exchange market, with key trading pairs including the United States dollar and the Japanese yen. It is considered a commodity currency, with its exchange rate historically correlated to the prices of Australia's major exports such as iron ore, coal, and liquefied natural gas. Significant fluctuations have occurred during events like the 1997 Asian financial crisis, the 2008 global financial crisis, and the COVID-19 pandemic. The currency's high value in the early 2010s, partly driven by the China resources boom, was termed the "Dutch disease" effect by some economists, impacting domestic manufacturing sectors.

Use in international trade

The currency plays a significant role in financing trade within the Asia-Pacific region and is a common vehicle for transactions involving global commodities. It is a popular reserve currency for several central banks in the region, including the Bank of Papua New Guinea and the Central Bank of Samoa. The dollar is heavily used in the swaps market and is a component of the Special drawing rights basket maintained by the International Monetary Fund. Major Australian export industries, from mining giants like BHP and Rio Tinto to agricultural exporters, typically denominate contracts in it, influencing liquidity in financial centers like Sydney and Singapore.

Monetary policy and regulation

The Reserve Bank of Australia is responsible for monetary policy, with its primary mandate being price stability, full employment, and the economic prosperity of the Australian people, as outlined in the Reserve Bank Act 1959. The Bank's main tool is the target for the cash rate, set by the Reserve Bank Board. Regulation of the currency and payment systems also involves other bodies like the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission. Policy decisions are closely watched for their impact on the exchange rate and are often communicated through statements following meetings at the RBA's headquarters in Sydney.

Category:Currencies of Australia Category:Decimal currencies Category:1966 establishments in Australia