Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


USD replacement of other currencies inevitable

A de-facto currency union with the US will in the end simply bypass any interim union with Australia, says Victoria University Economist, Professor Roger Bowden.

Writing in the latest issue of Victoria Economic Commentaries, Professor Bowden says that while some may view the prospect of a currency union with the US as yet another dose of cultural imperialism and therefore not on the agenda, time and tide wait for no one and circumstances that force such reconsideration will be as much political as economic in nature.

"The plain fact is that separate currencies are an economic Tower of Babel. As international monetary regimes increasingly converge, it's only to be expected that the tower must eventually give way. One would like to see it go gracefully, rather than fall in a disordered heap", Bowden says.

There are many good arguments both for and against currency union and these can be expected to impact unequally depending upon whether it is Australia or the US that we have in mind as the partner, he says.

"So far as currency partners are concerned history and sentiment may favour Australia but economics definitely favour the US."

However, he says common currencies do not make stronger economies. If the real problems of the New Zealand economy are structural, then tinkering with around with currencies will not fix them.

Bowden believes that in order to chose the most suitable partner for any currency union one must look at some simple facts. New Zealand exports a narrow range of commodities to a wide range of countries and many of these goods, including most or all of our dairy, forestry, sheep and beef are priced in US dollars (USD).

"The USD is our largest trading partner by a country mile, and the US itself is a significant trading partner."

While much investment in New Zealand comes from Australia, on the larger scene investors tend to think in terms of the USD. Both problems could be solved if New Zealand and Australia joined their currencies to the USD. This would also help to solve the 'noticeability' problem, whereby New Zealand assets are too small to figure in world index funds.

He also believes Australia would find the idea of a shared dollar far more attractive if it included a union with the USD. Both countries could also be driven to link with the USD, as the possibility of a South East Asia Trade Zone is more likely to be linked with the USD than the Japanese yen, which is perceived to have troubles of its own, he says.

The New Zealand economy is less diversified than even the Australian, which means there is more potential for instability in the trade account to be amplified into the domestic economy.

If one was to join a currency partner you would want it to be a partner who was much more diversified in its own response to world trade and capital market shocks. Thus, while Australia was not affected too badly by the Asian crisis, the US arguably was affected not at all, making it a more suitable currency partner for New Zealand, says Bowden.

© Scoop Media

Business Headlines | Sci-Tech Headlines


Frog Recruitment: Kiwi Workers Reluctant To Make Business Trips Across The Ditch Despite Trans-Tasman Bubble Opening

When the trans-Tasman travel bubble opens today, many Kiwi companies won't be rushing to buy an air ticket, reluctant to cross the ditch to do business. The latest survey conducted by leading recruitment agency, Frog Recruitment of nearly 1,000 New Zealand ... More>>

Tourism: Employers Welcome Back Working Holidaymakers

Tourism businesses gearing up for the return of Australian visitors from next week will be relieved to learn that they will also have access to an offshore pool of much-needed job candidates, Tourism Industry Aotearoa says. Tourism employers around ... More>>

Commerce Commission: Latest Broadband Report Confirms Improved Performance Of Premium Fibre Plans

The latest report from the Commerce Commission’s Measuring Broadband New Zealand programme shows that the performance of Fibre Max plans has improved substantially. This follows a collaboration between the Commission, its independent testing partner, ... More>>

Air New Zealand: Capital Raise Deferred

Air New Zealand has decided to defer its planned capital raise to later in 2021 allowing more time to assess the impacts of recent developments on the airline’s path to recovery. 'We’ve seen some clearing of COVID-19 clouds recently, with ... More>>

Stats NZ: New Report Shows Impact Of Demands On Land In New Zealand

A new environmental report released today by the Ministry for the Environment and Stats NZ, presents new data on New Zealand’s land cover, soil quality, and land fragmentation. The land cover data in the report, Our land 2021 , provides the most ... More>>


Stats NZ: March Card Spending Rebounds Despite COVID

There was a lift in retail card spending in March following a fall in the lockdown-disrupted February month, Stats NZ said today. Seasonally adjusted retail card spending rose by $53 million (0.9 percent), compared with February 2021. Visit our website to read ... More>>

PwC: Outcome Of Review Into Air New Zealand Gas Turbines Business

Air New Zealand has received the report into its Gas Turbines business from independent external advisers PwC. Air New Zealand Chairman Dame Therese Walsh says the report identified a range of effective controls in the Gas Turbines revenue contracting ... More>>