ANZAC Currrency Would Pose Risks For Exporters

MEDIACOM-RELEASE-LINCOLN-UNIVERSITY

ANZAC CURRRENCY WOULD POSE RISKS FOR EXPORTERS

By Keith Woodford

Professor of Farm Management & Agribusiness

Lincoln University

SHARING a common currency with Australia could pose a major risk to export industries.

Much of the push for a common currency seems to be linked to the idea that one New Zealand dollar should have the same value as one Australian dollar. This is very appealing for importers, but it would create large problems for exporters. It would immediately make many export industries unprofitable.

The Australian economy beats to a different drum than the New Zealand economy. Australian exports are dominated by commodity trade in minerals such as coal, iron and gold. If the New Zealand dollar were tied to the Australian dollar, then the value of the shared dollar on world markets would be determined by what was happening in these commodity markets.

The idea of an ANZAC currency as a partnership between the countries is nave. The Australian economy is seven times larger than the New Zealand economy. The New Zealand economy is now smaller than the Queensland economy, and much smaller than the economies of New South Wales or Victoria. In reality it would be an Australian currency with New Zealand tagging along.

Any such arrangement would mean that New Zealand monetary policy would be determined by Australia.

The idea that by a common currency New Zealand could somehow participate in higher economic growth is also nave. The high growth rates in Australia are largely restricted to the three big eastern seaboard cities of Sydney, Melbourne and Brisbane. Much of rural and regional Australia has been in decline for many years.

Those people who think that New Zealand would benefit from spillover effects should look at what is happening to Tasmania. All of the economic and demographic forecasts for Tasmania are for ongoing decline relative to the rest of Australia. A common currency with mainland Australia does not magically create any jobs in Tasmania.

Regardless of whether or not New Zealand and Australia have a common currency, there will still be exchange rate fluctuation s with the rest of the world. Businesses can remove exchange rate uncertainty though the use of futures contracts. For example, any New Zealand importer or exporter can `lock in' current exchange rates for more than a year ahead. This can be done for minimal cost.

This is the strategy used by large agribusiness organisations such as the New Zealand Dairy Board. It is because of this currency hedging that the dairy companies are already able to predict with high accuracy what their payments to farmers will be in the current year.

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RELEASE/COMMENT PIECE FROM LINCOLN UNIVERSITY

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