Damon Mcknight
Money is a fundamental part of everyday life in Australia, as it is in most countries. It is used as a medium of exchange to purchase goods and services and is integral to the functioning of the financial system and the economy. Australia's first gold coins were minted in 1855, and the country transitioned to decimal currency in 1966, introducing the Australian dollar as legal tender. Today, the Australian dollar remains the country's official currency, with coins produced by the Royal Australian Mint and notes printed by the Reserve Bank of Australia. The value of the Australian dollar is influenced by various factors, including international money markets and the balance of payments, and it has fluctuated over the years relative to other currencies.
| Characteristics | Values |
|---|---|
| Currency | Australian dollar |
| Currency symbol | $ |
| Currency code | AUD |
| Coins | 5 cents, 10 cents, 20 cents, 50 cents, one dollar, two dollars |
| Banknotes | $5, $10, $20, $50, $100 |
| Currency producer | The Royal Australian Mint |
| Currency introduction date | 14 February 1966 |
| Currency type | Decimal currency |
| Currency conversion rate | A$2 = A£1 |
| Currency status in external territories | Legal tender in Christmas Island, Cocos (Keeling) Islands, and Norfolk Island |
| Currency status in other countries | Official currency in Kiribati, Nauru, and Tuvalu |
| Previous currency | Australian pound |
| Previous currency status | Replaced by the kina in Papua New Guinea in 1975, and by the Solomon Islands dollar in the Solomon Islands in 1977 |
| First gold coins | Minted in 1855 |
| First currency | Spanish dollars, introduced in 1788 |
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What You'll Learn
Australia's transition to decimal currency
The idea of decimalisation had been proposed as early as 1902, when a committee recommended a single, national decimal currency. However, this idea was not acted upon, and the Australian pound was introduced in 1910, at par with the pound sterling. In the years following World War II, Australia's ties with Britain weakened, and the need for a more efficient, modern currency system became apparent. In 1957, the Decimal Currency Council was formed, and in 1959, the Decimal Currency Committee was established to examine the merits of decimalisation. Despite some delays, the Currency Act of 1963 was passed, nominating 14 February 1966, as Changeover Day or 'C-Day'.
The transition to the new currency was carefully planned, with a two-year period during which both currencies were legal tender. The Royal Australian Mint in Canberra played a crucial role, producing and stockpiling about one billion coins before C-Day. The new coins depicted Australian wildlife, while the notes reflected the country's history and contribution to the world. The decimal denominations were designed to match their pound/shilling/pence counterparts, with the $1 bill, for example, replacing the 10-shilling note. This made the transition easier for the public, who were also provided with informational booklets and brochures explaining the changes.
The introduction of the Australian dollar was a logistical triumph, with banks, businesses and the public adapting smoothly to the new currency. It was a pragmatic decision that also allowed Australia to assert its independence and forward-thinking attitude. Today, the Australian dollar is the official currency and legal tender in Australia and its external territories, as well as in Kiribati, Nauru, and Tuvalu.
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The Australian dollar
The $ symbol is used to denote the Australian dollar, and it precedes the amount. On the introduction of the currency, the $ symbol was intended to have two strokes, but the version with one stroke has always been acceptable. The Australian dollar is subdivided into 100 cents, with coins in circulation in denominations of 5, 10, 20, 50 cents, one dollar, and two dollars. The $1 and $2 coins are gold-coloured, with the $2 coin being smaller than the $1 coin.
The Royal Australian Mint, located in Canberra, produces Australia's coins. It has an international reputation for producing quality numismatic coins. The Mint has produced over 14 billion circulating coins since its opening in 1965 and has the capacity to produce more than two million coins per day. Australia's first gold coins were minted in 1855 during the gold rushes, which spurred the development of banking and the issuance of banknotes backed by gold reserves.
In 1983, the Australian Labor government floated the dollar, allowing its exchange rate to be determined by market forces of supply and demand. This resulted in fluctuations in the value of the Australian dollar relative to other currencies, such as the US dollar. The Australian dollar reached its highest value compared to the US dollar in December 1988, with an exchange rate of $0.881 to the US dollar.
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Currency and deposits
The Australian dollar is the legal tender in Australia and its external territories: Christmas Island, Cocos (Keeling) Islands, and Norfolk Island. It is also the official currency in Kiribati, Nauru, and Tuvalu. In Australia, the banknotes are available in denominations of $5, $10, $20, $50, and $100, with special security features and colours. When shopping, cash transactions are rounded to the nearest five cents. For example, if an item costs $1.99 or $1.98, the amount paid is $2. However, if the price is $1.97 or $1.96, the amount paid is $1.95.
Deposits, on the other hand, are a digital form of money held in accounts with financial institutions. They are created when funds are credited to a deposit account. For instance, when a business deposits its cash revenue into a bank, it exchanges the currency for an increase in its deposit balance. Deposits can include various types of accounts, such as savings accounts, fixed-term deposits, and sight deposits, which allow immediate withdrawals but not third-party transfers.
The Reserve Bank plays a crucial role in maintaining the stability of the Australian dollar's purchasing power, both in currency and deposits. This is achieved by keeping inflation low and stable, ensuring that authorised deposit-taking institutions (ADIs) can meet their depositors' demands. Additionally, Australia has a well-capitalised and regulated banking system, providing depositors with protection through the Financial Claims Scheme, which guarantees household deposits of up to $250,000.
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Monetary aggregates
The monetary aggregates are mainly derived from the consolidated balance sheet of the monetary financial institution (MFI) sector, which can also be regarded as the money-issuing sector. They consist of short-term liabilities to the money-holding sector (i.e. non-MFI euro area residents, excluding central government).
The types of liabilities included in the monetary aggregates are defined on the basis of liquidity – i.e. how quickly and easily they can be converted into cash or used for payments.
In the US, the monetary aggregates are labelled as:
- M0: Paper money and coin currency in circulation, plus bank reserves held by the central bank; it’s also known as the monetary base.
- M1: Currency held by the public and transaction deposits (such as checking account balances) at US depository institutions and foreign bank branches operating in the US, plus traveler’s checks.
- M2: All of M1, plus money market shares and savings deposits (in amounts of less than $100,000).
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The history of Australian money
Before the arrival of European settlers, Aboriginal trade was based on exchange and bartering. However, with the establishment of the colony of New South Wales in 1788, the lack of an adequate supply of coinage from Britain meant that various foreign coins were in circulation, and the real means of exchange during the first 25 years was rum. In 1800, Governor Philip Gidley King attempted to bring order to the economy by setting the value of the various foreign coins in circulation, but this did not solve the problem.
The discovery of gold in Australia in 1851 led to the opening of the Royal Mint branches in Sydney in 1854 and Melbourne in 1872, which issued half sovereigns and sovereigns. The gold sovereign was intended to become the imperial coin, but this plan was thwarted as India was already entrenched in the Rupee system. At federation in 1901, the currency used in the Australian colonies consisted of British silver and copper coins, Australian-minted gold sovereigns and half sovereigns, locally minted copper trade tokens, and private bank notes.
In 1910, the federal Labor Government introduced the Australian Notes Act, which introduced a national currency, the Australian pound, and prohibited the circulation of all state notes. This Act also imposed a tax of 10% per annum on all bank notes issued by any bank in the Commonwealth, effectively ending the production of private currency in Australia. The first federal government-issued banknotes were printed in 1913.
In 1924, responsibility for issuing banknotes passed to the Board of Directors of the Commonwealth Bank, and in 1945, the Commonwealth Bank Act formally established this bank as the sole legal issuer of Australian banknotes. In 1960, this responsibility passed to the Reserve Bank of Australia, which began producing Australia's polymer banknotes in 1988.
In 1966, Australia introduced its first decimal series of banknotes, with denominations of $1, $2, $10, and $20, and in 1983, the Australian Labor government floated the dollar, allowing the exchange rate to reflect the balance of payments as well as supply and demand on international money markets.
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Frequently asked questions
The currency of Australia is the Australian dollar, which is subdivided into 100 cents.
Australian currency comes in the form of both coins and notes. Coins are available in 5, 10, 20, and 50 cents, and 1 and 2 dollars. Notes are available in 5, 10, 20, 50, and 100 dollars.
Australian coins are made of materials like bronze, cupronickel, silver, and aluminium bronze. The $1 and $2 coins are gold-coloured, with the $2 coin being smaller than the $1 coin. The 50-cent coin has 12 flat sides. Each coin has a different design on its tails side, which is the side that shows the amount the coin is worth. Notes are coloured and have special security features.
Australia's first gold coins were minted in 1855. In 1910, Australia created its own currency—the Australian pound. In 1966, the Australian pound was replaced by the Australian dollar, with the conversion rate of A$2 = A£1. In 1984, the one-dollar note was replaced with a coin, and the two-dollar note was replaced with a coin in 1988.
