History of the New Zealand Dollar

By Tom Cleveland, Currency Analyst

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In our modern Internet-connected age, it is common to suffer from information overload and to take for granted many things that we see and touch on a daily basis.  Take our national currency, for example, the New Zealand Dollar - Do you know its history and how it is perceived in financial markets?  Currency traders fondly refer to it as the "Kiwi", due to its association with our country and the fact that it is depicted on our one-dollar coin, but its history goes back to 1967.

Prior to 1967, the New Zealand Pound reigned supreme in "the land of the long white cloud", having replaced the British Pound Sterling as far back as 1933.  Gone are the days when pounds, shillings, and pence were legal tender, and you needed two extra fingers and toes to make sense of it all.  The cumbersome nature of this "dozen-ish" way to divide money was dealt with in 1963, when government officials decided to take action to do what is commonly called "decimalization", the act of converting to a "10-based" currency system.

A committee was formed and the "fun" soon began.  The notion of converting to a "dollar" was top of mind, but many felt that this change might be confusing due to the existing prevalence of the U.S. Dollar in international commerce.  Proposals were suggested to actually call it the "Kiwi" or the "Zeal", but supporters of the "Dollar" won out in the end.  The official conversion date was set to be 10 July 1967.  One Pound bought you two Dollars; ten Shillings, one Dollar; and one Shilling, ten cents.  Coins and banknotes were issued with Queen Elizabeth II displayed, after other design ideas met with strong resistance.

In 1967, the "Kiwi" was "pegged" to the U.S. Dollar at NZ$1 = US$1.62, in line with the Bretton-Woods arrangements that limited fluctuations in value to tight bands set daily by central bankers.  In November of the same year, however, the British Pound was devalued, and the impact on the New Zealand Dollar was to drop to US$1.12.  Over the seventies, major currencies gradually transitioned to the "floating" system that we have today.  The Kiwi actually "floated" in 1985 at a rate of US$0.44.  Its relationship to the U.S. Dollar, as depicted on a "NZD/USD" chart, has strengthened slightly and presently hovers around US$0.82.

Foreign exchange, or "forex", traders refer to the Kiwi and its "cousin", the Aussie Dollar, as commodity currencies, due to their respective dependence on the prevailing commodity nature of their export trade.  It is often said that the Aussie Dollar correlates closely with what can be dug out of the ground, while the New Zealand Dollar is more connected with what grows out of the ground or grazes upon it.  Both currencies are highly favored by traders due to their predictable natures and the conservative governments that stand behind them.

Floating in the forex market, however, does present challenges.  The Kiwi is actually the tenth highest traded currency in the world, far in excess of its country's rank as a percentage of Population or Global GDP.  As China, India, and much of Asia has prospered, demand for New Zealand exports has increased dramatically, driving up the value of the Kiwi in its wake.  Interventions by the central bank did little to rein in these rises, but the "Great Recession" did succeed in driving it down to US$0.50.  In the past two years, it has hovered within a range of US$0.72 to US$0.90.

Since floating, the modern Kiwi has managed to fly, something its feathered ancestor could only ponder.

- Bay of Plenty Times

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