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Home / Business / Economy / Official Cash Rate

Kiwi's a goner in Anzac bond

By Lawrence Watt
Herald on Sunday·
19 Sep, 2009 04:00 PM3 mins to read

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Kiwi bucks have no chance against Aussie dollars.

Kiwi bucks have no chance against Aussie dollars.

Forget a shared Anzac currency. The Government's transtasman taskforce is to investigate scrapping the Kiwi dollar and adopting an Aussie one.

Don Brash, chairman of the 2025 Taskforce and former governor of the Reserve Bank, confirmed he would report back in November on whether a common currency would help raise
New Zealand living standards to Australian levels.

Prime Minister John Key sparked discussion about a common currency during his recent Australian visit.

But because New Zealand's economy is only a fraction of Australia's, a shared "Anzac" dollar is out of the question.

Brash said New Zealand would be more likely to cancel the Kiwi currency, replacing it with cash stamped "Reserve Bank of Australia".

The notes would probably retain images like those of Sir Edmund Hillary and Sir Apirana Ngata, so they would look Kiwi - apart from that vital difference in the fine print.

A major benefit would be a fall in interest rates to Australian levels, making business more productive. But economic authorities would be concerned this cheap money would spark a property boom. Currency union would mean New Zealand could no longer adjust interest rates to control booms.

Brash pointed to Ireland's recent troubles. When Ireland converted to the euro in 2002, interest rates fell to German levels. House prices went crazy, then crashed.

It would be one less tool in the New Zealand Reserve Bank's toolbag, Brash said. The Government would have to resort to fiscal policies like adjusting taxes instead.

A common currency has some support among economists. Professor Tim Hazeldine, head of Auckland University's Economics Department, says the obvious comparisons are the Australian states, the United States and the European Union.

When the euro currency was set up in 1991, most member states joined, although Britain did not. None has pulled out, so he reckons the advantages override the problems.

In practice, a common currency could suit exporters to Australia, the Prime Minister told the Q+A show. It would make the two countries one big domestic market.

But exporters to markets further afield might not gain much.

Derek Rankin, partner in Auckland-based Rankin Treasury Advisory, said Australian exporters had similar problems with a fluctuating currency.

Furthermore, the New Zealand Reserve Bank would lose the estimated $200 million it earns from investing our money. And why stop with Australia? Rankin suggests New Zealand join a bigger, less-volatile currency say, a new one based on a series of Pacific Rim countries or the EEC.

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