‘The much smaller size of NZ’s economy means it would probably be hitching itself to the stronger Aussie dollar.’A CURRENCY union between Australia and New Zealand has been rejected by top economic think tanks in both countries, with Europe’s woes with the euro weighing heavily on the proposal.
For decades a shared currency has been floated by economists as one way of reducing business costs and boosting trans-Tasman trade and investment. The ”Anzac” was suggested as a name.
A joint discussion paper from the productivity commissions of Australia and NZ will dismiss the proposal today. It says that without political integration, the move would give each country less flexibility in managing its economy.
Monetary union would require interest rates to be the same in both countries, giving them less room to respond to local economic conditions. Currencies also tend to act as ”shock absorbers” for economies, by falling in times of weakness, which helps to make exporters more competitive.
But the much smaller size of NZ’s economy means it would probably be hitching itself to the stronger Aussie dollar.
While the paper conceded trade may be increased by a common currency, it added: ”Monetary unions also entail some risks. They imply a loss of autonomy over monetary policy and exchange rate flexibility, which are important tools for macroeconomic stability. There are few instances where monetary union has worked effectively without some degree of political union.”
The proposal for a single currency was examined as part of an inquiry into how to deepen economic relations between Australia and NZ.
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