Tags: Australia | New | Zealand | Currency

Australia, New Zealand Consider Common Currency

By    |   Monday, 16 Apr 2012 07:57 AM

The productivity commissions of both Australia and New Zealand are in talks about a “shared Trans-Tasman currency” which could reduce business costs between the two countries.

No doubt that would be true. But ask Germany or any other eurozone country that “saved money” on cross-border transactional costs are happy that the euro exists today. Then ask them if you think there was a savings overall.

I don’t think so. Just in what Greece has cost the eurozone alone has been huge and has potentially already wiped out any savings that the common currency brought about.

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There are also other factors that have to be considered too…such as the different business cycles of the countries and the nature of what they deal in.

Remember, what on Earth did Germany and Greece have in common economically? Not much! And now we see how bad it’s hurt them because interest rates are set for what’s best for Germany, whether it’s best for the other smaller countries or not.

It would be no different with Australia and New Zealand. While they are common trading partners, they’re on different economic cycles that respond very differently.

For instance, New Zealand is largely an agriculture-based economy. But Australia is known for being a huge miner of things like iron ore and copper.

What does mining and agriculture have in common? Not much economically. So could you imagine the price of metals running up and Australia raising interest rates to deal with the inflation and what it might do to New Zealand and its agricultural based economy which may not be experiencing anywhere near the same rate of inflation?

So while there may be “cost savings” in having a common currency, there may be other “costs” associated with not having their own independent currencies which I believe would be greater.

Then of course there are the political aspects too.

Today, Germany calls the shots on what goes on in Greece, Portugal, Spain, etc. The political clout of the smaller players went away when they joined up with the “big boy,” Germany.

And so it would be with Australia and New Zealand. Since Australia’s economy is many, many times bigger than that of New Zealand’s…New Zealand would give up its political power to that of the stronger Aussies.

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Essentially, it’s almost like Australia gains control of another country and practically takes it over. This cannot be appealing to New Zealanders at all, especially since they see how well it’s worked out in the eurozone. Ha-ha.

You’ve also got to remember that while these two countries are trading partners…they don’t matter equally to each other.

For instance, from New Zealand’s perspective, Australia is its largest trading partner. However, from Australia’s perspective, New Zealand is only its fifth largest trading partner.

In the end, a common currency would almost be like a corporate takeover with Australia “buying up” New Zealand essentially because Australia would all but control what goes on in New Zealand and “the acquired company” wouldn’t have much say in how the “new company” was run.

Now I know that some people may think that none of this would ever happen…and maybe they won’t join currencies. Like I said…in my opinion, it would be a bad idea anyway.

However, it doesn’t seem that Australia’s Prime Minister, Julia Gillard thinks so. During a visit to New Zealand as recent as last year she mentioned that she wanted the countries to move toward a single economic market but wouldn’t push for a single currency.

I’m not sure how they would have a “single economic market” without having a single currency and only one of the entities calling most of the shots…namely Australia.

So I certainly don’t see where this ultimately benefits New Zealand but ultimately, I don’t think either country is truly benefiting if they were to form a single currency for the two nations.

Nonetheless, I thought it was interesting that they were even talking about doing such a thing…especially at this point in history where the eurozone is having nuts and bolts pop off of their economic machine right and left right now.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.

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2012-57-16
Monday, 16 Apr 2012 07:57 AM
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