Broadsides: Should NZ have a common currency with Australia?

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Labour MP Jacinda Ardern and National MP Nikki Kaye.
Labour MP Jacinda Ardern and National MP Nikki Kaye.

We asked Labour's Jacinda Ardern and National's Nikki Kaye: Should New Zealand have a common currency with Australia?



JACINDA ARDERN

Just like half of the kiwis my age it seems, I used to live in London. I worked in the Cabinet Office - the department in the United Kingdom responsible for supporting the Prime Minister. It was never a very easy job to explain. I once told my Kiwi neighbour what I did, and he asked what kind of cabinets I made. Somehow it just seemed easier to reply "dining and occasional".

At work one day I remember being told by one of my British colleagues that the largest and by far the toughest project he had ever led was investigating whether the UK should adopt the Euro. As he told me about the long drawn out process they went through, I immediately thought about the debate that had always popped up from time to time back home: "should New Zealand and Australia have a common currency?" My view on the question was the same then as it is now: No.



I know that sounds definitive but for me it is. The question of our currency being subsumed into another is not just about net economic benefit, it's also about our sovereignty, our ability to control our own monetary policy and, ultimately, I believe it's also about our identity.

We don't have to look too far to learn a few cautionary tales on this issue. Right now there's probably no better illustration of the wider impact a loss of economic sovereignty can have than Greece. Alan Bollard, our Governor of the Reserve Bank, probably summed it up when he said that "...Countries like Ireland and Greece are in a lot of trouble at the moment, and one of the reasons is that they don't have their own currency. They can't inject their own liquidity, and they can't see the currency dropping to reflect their own individual trading conditions. I think it's going to point to the importance of having your own exchange rate to help insulate the country."

There are definitely some people who won't agree with me; the Prime Minister being one of them. He has said in the past that sharing a currency with Australia was a "mildly sensible idea", based on the fact that it would make it simpler for New Zealand businesses exporting to the larger market of Australia and remove risks around currency movements. He has a point, but he's also missing the point. Our exporters are struggling, they've been telling us that for a while, but they've also been asking us to do something about it.

Currently, our currency is one of the most traded in the world, and that's one of the things contributing to our high and pretty volatile dollar. For a country our size, that really hurts those who could be generating not only more wealth for New Zealand, but more jobs, those people being our manufacturers and exporters.

No one is saying that the answer to this issue is easy, but it is within the reach of the Government. Last year, we made the pretty bold move of saying that the consensus over monetary policy in New Zealand was over. We're no longer being well served by the single policy goal that governs the Reserve Banks' decision making (inflation). Of course the Reserve Bank should remain independent, but they can do that while taking into account a broader set of objectives, such as a stable currency, and full employment. This may be bold, but it's not new, and is an approach many of our counter parts already take.

But none of these arguments factor in the most memorable part of my British friend's cautionary tale. He warned me to never underestimate the sentiment that a currency can carry. I may not favour a common currency, but I do favour some pretty bold action, and the difference it could make is much much more than sentimental - it's step change.

Jacinda Ardern is on Facebook and Twitter @jacindaardern



NIKKI KAYE

As much as I value our relationship with Australia, when I first started living in London I remember being really wound up when I was first asked by a UK colleague which part of Australia I was from.

In retrospect I probably didn't need to get out a map of the world and show them exactly where NZ was and give them a wee bit of a list of NZ achievements but at the time it really seemed like the right thing to do and it made me feel much better.

I think my reaction was a mixture of a pang of national pride and being homesick, but also a bit of the old Aussie/NZ rivalry kicking in. I realised throughout my travels across the world, whether I was in London or Los Angeles or Moscow, many people see our countries as intertwined even if we instinctively understand that there are some significant differences between us.

The strength of our relationship with Australia lies in some of the things our people have been through together. Throughout the many wars of the last century we have fought alongside each other to fight for our freedom and the freedom of others. Many of us also have close family living in both countries.

We are both democratic countries with free markets, and prosperous economies. While we have common ties we have some big differences, particularly in the diversity of our people. The huge number of kiwis who identify themselves as Maori, Pacific Island and Asian ethnicity is a strength.

The reception that both our Prime Ministers received addressing our respective Parliaments for the first time in history shows the strength of the current relationship.

On these occasions, both Prime Ministers reinforced our joint commitment to progress the Single Economic Market. Following on from the success of CER, successive New Zealand and Australian governments have committed to the long-term goal of establishing a more seamless trans-Tasman business environment - the Single Economic Market.

The initiative aims to address the 'behind the border' barriers to flows of goods, services, capital and people, to ensure that trans-Tasman markets operate effectively to maximise opportunities and economic growth in both countries.

The philosophy is that a more integrated trans-Tasman economy will also enable us to be better positioned to address challenges and opportunities in regional and global markets. Our ambition is that a New Zealand company can conduct its business as easily in Australia as it can at home, and vice-versa.

We believe the easier that we can make it for companies to operate in the trans-Tasman environment by removing unnecessary barriers, the greater the opportunities for business to make substantive productivity gains and take up new opportunities that will underpin long-term business growth.

A framework of principles and outcomes has been identified to drive this. The SEM agenda also includes the wider coordination efforts under way in investment and tax policy and portability of superannuation. To have a common currency is not something we are progressing. A relationship is a two way thing so even if we wanted a common currency, it would take both countries to agree it.

I also note in 2009 the Governor of our Reserve Bank did not see a common currency as likely, noting the European experience. He highlighted that some members of the European Community that were tied to the euro were "under quite a bit of stress" and that the peripheral countries were suffering from tighter conditions dominated by the bigger countries in Europe. He also noted their inability to inject their own liquidity and inability to see their currency dropping to reflect their own individual trading conditions. I think we would also need to seriously consider the potential damage we could do to our export sector with an Australian dollar worth more than $1 US at the moment.

This whole debate also raises a question I was asked earlier this year: Where does NZ's economic future lie - with China or the United States? While I value our traditional and close ties with Australia, the UK and the US, I understand that for some of our export markets there may be greater economic opportunities with countries like China and India.

Of course the global economic powerhouses of China and India pose challenges from a social perspective as our shared history, political systems and cultures are much further apart than Australia and the US. I think the independent stances that New Zealand as a country has shown from time to time are valued around the world. I think it would be wrong to progress a common currency without better understanding and more debate about where our economic and social futures lie.

Nikki Kaye is on Facebook and Twitter @nikkikaye

Do you have a topic you would like Nikki Kaye and Jacinda Ardern to tackle? Email us.

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