The NZ dollar has been flirting with parity with the Australian currency for weeks, and experts say it will probably get there if the RBA cuts interest rates in May. It's also fired up a long running debate—if you can swap one Australian dollar for a kiwi dollar, why not go the whole hog and forge a trans-Tasman currency union?
The reason why we're now going towards parity is exactly the reason we shouldn't talk about monetary union.
‘I don't think there's any appetite in New Zealand at the moment to go into a currency union with Australia,’ says Oliver Hartwich, executive director of The New Zealand Initiative, the country’s peak business lobby group.
‘The idea is of course nothing new, it comes up every few years. I recently heard our Prime Minister John Key talk about it at a business function, and he dismissed it out of hand and said we should stop talking about it, there are far more important issues for us to tackle here.’
The problem, according to Hartwich, is that our economic cycles are too out of sync. While Australia is struggling to adjust to the end of the mining boom, the New Zealand economy is now outperforming that of every other OECD nation.
That’s down to a few factors, including a massive increase in trade with China and an enormous appetite for the soft commodities produced by NZ—dairy, meat and fish—in Asia. Hartwich also points to the Key government’s economic reforms, including massive income tax cuts which were granted as compensation after the NZ Government lifted the GST to 15 per cent.
‘The reason why we're now heading towards parity is exactly the reason we shouldn't talk about monetary union,’ says Hartwich. ‘Australia had a massive commodity boom for 20 years and we're now seeing a phase where Australian commodities are on the way down while New Zealand’s soft commodities are on the way up. We will never have the two economies completely in sync.’
Fixing the currencies to each other would mean importers and exporters into Australia from New Zealand would be able to better manage the uncertainty over exchange rate volatility, but it would remove an important tool from the central banks’ toolbox for managing the fluctuations in the economy, says Hartwich.
‘We all know that in Australia there are massive disparities between the resource states and the eastern seaboard, for example, we know that Tasmania is a special case of its own. We have exactly the same disparities in New Zealand: we have a buoyant Auckland property market, we've got a Christchurch recovery boom and we’ve got struggling regional economies. It's difficult enough to make monetary policy just for New Zealand or just for Australia.’
It seems like the idea of the Anzac dollar has sunk to the bottom of the Tasman. Oh well, at least we can still pass off their 20 cent coins at the corner shop.
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