Home' acuity : Acuity Aug 14 Contents rate with the currency of another
country. So what's happening in that
other country will also affect your
Which is partly why our currencies
have drifted as our commodity prices
and interest rates have taken different
The other factor involves how
the world's big money movers and
shakers perceive us. And, to put it
diplomatically, they've got a lot of other
things on their minds.
"People who trade in global finance
markets in currencies and money flows
in NY and London and parts of Europe
don't spend a lot of time doing their
homework about what's happening in
the Australian economy or the Kiwi
economy," Gittins says.
"So they tend to 'bracket', they don't
put much time into Australia and
they put even less into New Zealand,
so they tend to bracket the two
commodity currencies and think of us
"One of the things that means is that
the two currencies are never going to
get very far apart."
So if they're usually never going to get
too far apart, should we revisit the idea
of monetary union, pegging the Kiwi
to the Aussie, maybe even an Anzac
Well, no, for a couple of good reasons.
The Productivity Commissions of
Australia and New Zealand considered
that idea as part of the 30th anniversary
of the Closer Economic Relations
Under the not-so-subtle headline
"Options that should not proceed", the
report concluded: "...the Commissions
do not consider that the prerequisite
conditions for a trans-Tasman monetary
Gittins says says such a move could
get messy and cites the recent currency
kerfuffle involving the Euro and
countries such as Spain and Greece.
"Their problems would be very much
reduced if only they could say or do
what a normal country does, which is:
'I know what we'll do, we'll devalue our
"But they can't do that, they're
"Europeans and the rest of the world
have realised the disadvantage of that
common currency. "
common market, not a common
currency, and a common market is
pretty much what they've got, and
"It's a great value to the Kiwis to
have ready, unfettered access to the
Australian market, which is much
bigger than theirs.
"Kiwis get the best of all worlds, they
get ready access to the bigger Australian
economy, yet they get to stay Kiwis with
their own politics, their own foreign
policy and their own exchange rate.
"Their problem is that they lack
sufficient economies of scale and
something that helps them with that
problem -- it doesn't solve the problem
but it helps them -- is that they have
pretty much unfettered access."
In comparing New Zealand's and
Australia's situation, Gittins says it's
important to not just look at NZ's recent
interest rate hike but to follow the
momentum or direction.
"The Kiwi economy is growing very
strongly, it's booming. The prospect
for the Australian economy is to grow
below trend, whereas the Kiwi economy
is growing well above trend.
"If you look back over the past
decade, the Kiwis have had much
slower growth, and they've had more
recessions than we've had, so they are
just pulling themselves up.
"They're in the good situation where
their central bank is starting to worry
about inflation, whereas our central
bank says it's not worried about
inflation, it's worried about rising
unemployment because growth isn't
"The Kiwi is looking stronger than our
currency at the moment," concludes
"The other factor
the world's big
money movers and
us. And, to put it
they've got a lot
of other things on
It means that much more of the
adjustment that has to take place has
to happen through nasty things like
cutting wages rather than relatively
easy things like changing exchange
rates and having different rates of
"New Zealand would be better off
being able to have that currency 'valve'
of adjustment open and being able to
use that rather than being locked in to a
single currency with Australia.
"What New Zealand needs is a
is an award-winning freelance journalist.
FOCUS AUS-KIWI DOLLARS
acuity | AUGUST
Links Archive Acuity Sept 14 Acuity July 2014 Navigation Previous Page Next Page