Eco-Economy: Common Currency – The ANZAC Dollar?
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Common Currency – The ANZAC Dollar?
By Deidre Kent
During the late nineties, there began a debate in New Zealand about the merits of adopting an ANZAC currency. In April 2000 neoliberal economists Arthur Grimes, Frank Holmes and Roger Bowden provided fresh impetus when they published a book entitled ‘An Anzac Dollar’ in which they argued that a common currency would reduce costs for businesses who traded with Australia and be the next logical step in Closer Economic Relations with Australia (CER). It would lift export performance and everyone would benefit. Their survey showed that 58% of businesses were strongly in favour of a common currency, which eliminates uncertainty created by volatile exchange rates. New Zealand, they said, is the smallest industrialised country in the world to run an independent monetary policy.
By September the Prime Minister Helen Clark seemed not averse to the discussion, saying the New Zealand economy was ‘too small to register on the radar screens of financial markets and investors’. The Dominion editorial favoured dumping our dollar and a One News Colmar Brunton poll in September 2000 found that 51 percent of people were in favour of a common trans-Tasman dollar. Meanwhile the ACT Party was proposing the adoption of the US dollar instead.
Since such a step would be hard to reverse, it is important to think it out properly.
The main arguments against the common
A distant Melbourne central bank would make decisions for our country and monetary (and therefore economic) sovereignty would be surrendered. New Zealand would effectively give over control of its inflation rate and its interest rates to foreign bankers. If inflated house prices in Sydney caused the new Australasian central bank to increase interest rates that could make things worse for New Zealand if it were in a recession. It would mean greater centralisation where unelected bankers will override the democratic decisions of member countries.
Even with a small country like New Zealand centralisation of decision making has to ignore the fact that different parts of the country require different solutions. When Auckland house prices rose rapidly during 1992-1997, the Governor of the Reserve Bank stepped in and raised interest rates, infuriating people in Southland. But a one-size-fits all approach is never found in natural systems. Centralisation like this didn’t work for communism and it won't work for Europe, the interdependence which stabilises a system. So it isn’t an either/or decision. It is both, and that requires a new mindset.
Let’s look to see what happened with the Euro. Eurosceptics have argued that the economy required for Spain is quite different to that needed in Germany and one central bank can’t be all things to all countries. Take the case of Ireland, for instance. When Ireland adopted the Euro its economy was experiencing high inflation and stronger growth than most of the other ten countries. But did the central bank raise interest rates and dampen down the economy? No, the interest rate in June 2000 was a low 4.25 percent, and Ireland experienced double doses of a consumer boom. Its house prices rose and unemployment dropped, bringing inflation to 20 percent.
Before I discuss the proposal to adopt the US dollar, let's look at the Federal Reserve Bank. The US FED is 20% owned by the US Government and 80% owned by the Regional FED banks which are in turn privately owned by their member banks. The only physical money ever put up for the FED was the Government's 20%. The FED then promptly created loans to finance the 80% private banks' shares. A bank can loan money into existence, and the Fed did it for its own shareholders.
So if New Zealand adopted the US dollar, we would be giving away our sovereignty to the Federal Reserve of US which is 80% privately owned. That means our money supply could be contracted and expanded by the decisions of private international bankers. The so-called business cycle, the inevitable result of debt-based financial system, can then be used to the financier's advantage.
The power to decide on the size of the money supply is an awesome power. Of the Federal Reserve system, economist Milton Friedman once said: 'Any system which gives so much power, so much discretion to so few men such that mistakes, excusable or not, have such far-reaching effects, is a bad system. It is a bad system to believers in freedom just because it gives so few men such power without any effective check by the body politic.'
The case of Argentina provides a salutary warning for those who favour New Zealand adopting the greenback. Argentina pegged their peso to the US dollar and when the American dollar appreciated, Argentina’s exports were priced off the world market, forcing the state and the private sector to borrow more and more US currency from international financial institutions. Unemployment soared, pensions were cut, spending on health, education and welfare was slashed as Argentina struggled to service its US$132 billion debt. When President Fernando de la Rua forbade citizens to withdraw more than US$250 from the banks, Argentines poured on to the streets in open revolt and the government changed yet again.
The two options currently debated are the ANZAC currency or New Zealand dollar. But there is a third option, that we need both a NZ dollar and an ANZAC dollar. These could all co-exist.
What is known is that traders are more likely to trade in their currency zone than their geographical zone. Thus each currency has its role, and each economy should have its centre of control. Local currencies encourage local trade, national currencies encourage national trade and supranational currencies encourage trading within that supranational zone.
Retaining a NZ currency would enable New Zealanders to trade with each other without using valuable Anzac or US currency. It would help us keep our integrity as an economy and the Government wouldn't lose the $150 million a year gained from seignorage, the difference between the actual cost of printing the notes and the prices paid when they are sold to banks. An Australasian economy currency would enable trading within Australasia to be done with more convenience and lower costs .
Answering the inflation objection One major argument against multiple currencies is that two Reserve Banks won’t together be so easily able to control inflation. But we can’t control it now. One New Zealand dollar in 1950 was worth a mere 4 cents in 2000, scarcely evidence that the Reserve Bank has been competent in controlling inflation over the past fifty years. Even the last decade has seen a steady erosion of the value of the NZ dollar.
This is because the way we allow money to be issued now will always bring inflation. The bulk of the money we have now actually creates inflation.
Currently almost all the money we use is interest-bearing debt money. In New Zealand in 2001 98.3% of our money was issued by the banks and only 1.7% by Government as notes and coins. Since all businesses and governments have to pay interest on their debt and have to build repayment of this interest into their prices for goods and services or taxes, the money system itself is inflationary.
It is true that too much money brings inflation. For example in Germany after the First World War there was hyperinflation money was created at such a pace that by 1923 people had to take their money to the stores in wheelbarrows and a ham sandwich cost 24,000 marks. But while it is important to keep the money supply sufficient to buy the goods and services in the economy, it is equally important to issue the right sort of money.
It is not too much money which causes inflation, it is too much interest-bearing debt money.
If governments were serious about controlling inflation they would issue debt-free money themselves rather than allowing commercial banks to issue their inflation-causing money. If groups of citizens in green dollar and time dollar systems can do this and previous governments in various countries at various time have done it, so can governments today.
Answering the objection
‘We will lose central control’
It is true that if there were to be multiple currencies, no one agency would have complete control. If a government allows local currencies, to keep prices constant their central bank would have to be in constant negotiation with the agencies of local communities. In the same way with an Anzac dollar the central bank of Australasia would be in constant negotiation with the other players.
And we will need further convincing that central control works anyway. After the crash of 1929 during the Depression years 1929-33 the Federal Reserve shrank the money supply to one third of its former size, causing a tragic drop in prices and terrible hardship, hardly evidence that they were delivering stable prices and serving the people.
If there were a variety of currencies at all levels of organization – international, supranational, national and local – and it is perfectly possible given the advances of modern technology to have dual currency smart cards or other cards – the challenge to those who monitor the system at any level of complexity would be to have them all coexisting without inflation.
It is clear there are benefits from both an ANZAC currency and a New Zealand currency. So why not have both currencies, surely a win-win solution? The either/or mentality does not serve us well - we end up throwing out the baby with the bathwater. In the last few decades we have seen enough radical change and political reversals of the policies of successive governments. It is far less disruptive to keep what works and change what doesn't.
Deirdre Kent February, 2002