Should NZ have a common currency with Australia? NZ Herald online

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Jul 6, 2011 No Comments ›› 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.

For more on this debate visit the NZ Herald Online