Lexi Webster
Australia's currency is the Australian dollar, which was introduced as a decimal currency on February 14, 1966, replacing the Australian pound. The Australian dollar is subdivided into 100 cents and is produced by the Royal Australian Mint and the Reserve Bank of Australia. The country was also the first to transition from paper banknotes to polymer plastic notes, which are stronger, more durable, and harder to counterfeit. Australia's retail banking market is dominated by the 'Big Four' national banks, but several global banks also operate in the country.
| Characteristics | Values |
|---|---|
| Currency | Australian dollar |
| Currency type | Decimal currency |
| Currency conversion | 1 Australian dollar = 100 cents |
| Currency symbol | $ |
| Currency value | 1 AUD = 0.881 USD (highest), 0.4775 USD (lowest) |
| Currency note denominations | $5, $10, $20, $50, $100 |
| Currency coin denominations | 5, 10, 20, 50 cents, $1, $2 |
| Currency producer | Reserve Bank of Australia (notes), Royal Australian Mint (coins) |
| Currency circulation | A$4.4 billion in coins, A$101.3 billion in notes |
| Currency circulation per person | A$6,700 per person |
| Currency backing | Fiat system |
| Currency history | Australian pound, British currency system |
| Banking system | Bank accounts, debit cards, credit cards |
| Banking market | 'Big Four' national banks, global banks |
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What You'll Learn
Australia's banknotes and coins
Historically, Australia's six colonies had separate currencies that closely resembled the British currency system and were often interchangeable. After Federation in 1901, colonial banknotes and coins continued as the primary circulating currencies for a decade. The Australian pound (A£) was established in 1910, equivalent to the British pound sterling. However, in 1931, the Australian currency was devalued, with one pound five shillings Australian now equivalent to one British pound.
The discussion around decimalisation resurfaced in the 1950s, and in 1959, a Decimal Currency Committee was appointed to examine the advantages of decimalisation. The committee supported decimalisation and proposed a new currency modelled on South Africa's transition from the South African pound to the rand. The Menzies government endorsed decimalisation in 1961 but delayed its implementation to refine the process.
Australia's banknotes are produced by the Reserve Bank of Australia, while the Royal Australian Mint is responsible for minting coins. The country was a pioneer in transitioning from paper banknotes to polymer plastic notes, offering enhanced protection against counterfeiting and improved durability. This innovation replaced the previous one- and two-dollar notes with coins in 1984 and 1988, respectively.
Today, Australia's banknotes come in denominations of $5, $10, $20, $50, and $100. The coins include silver 5, 10, 20, and 50-cent pieces, along with gold $1 and $2 coins. Each coin features a unique Australian design on one side and a portrait of Queen Elizabeth II on the other, with newer coins depicting King Charles III.
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History of the Australian dollar
The Australian dollar (AUD) is the official currency and legal tender of Australia. It is also the official currency of several external territories and three independent Pacific Island states: Kiribati, Nauru, and Tuvalu.
Before the Australian dollar was introduced in 1966, the Australian pound was the currency of Australia. The Australian pound was introduced in 1910, at par with the pound sterling.
In February 1959, a Decimal Currency Committee was appointed to investigate the advantages and disadvantages of decimal currency. The committee recommended the introduction of a new currency, which was supported by the Menzies government in July 1961.
On 14 February 1966, the Australian pound was replaced by the Australian dollar at a conversion rate of two dollars to the pound. The $ symbol was intended to have two strokes, but the version with one stroke has always been acceptable.
The first paper notes of the Australian dollar were published in 1966 in denominations of $1, $2, $10, and $20. The $5 note was circulated in 1967, the $50 note in 1973, and the $100 note in 1984.
In 1967, the Australian dollar effectively left the sterling area when the pound sterling was devalued against the US dollar, but the Australian dollar retained its peg to the US dollar.
In December 1983, the Australian Labor government led by Prime Minister Bob Hawke and Treasurer Paul Keating floated the dollar, with the exchange rate reflecting the balance of payments as well as supply and demand on international money markets.
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Taxation and superannuation
In Australia, you are required to pay tax on the money you earn from work. Your employer withholds the tax from your wages and pays it to the government, specifically the Australian Taxation Office (ATO). The money from taxes is used by the government to provide essential community services, such as hospitals, schools, roads, and public transportation. Each individual in Australia has a unique 'tax file number' that is required for working in the country. You can apply for this number through the ATO.
When you receive your wages, you will also get a 'pay slip', which summarises how much you earned, how much tax was paid, and how much was contributed to your superannuation fund, also known as 'super'. Super is money set aside during your working life for your retirement. Your employer contributes to your super fund on top of your regular income, and you can also choose to make additional contributions. It is important to build up your superannuation savings because it will provide you with financial security when you retire.
The money in your super account is taxed at 15%. If your income is $37,000 or less, the tax is refunded to your super account through the low-income super tax offset (LISTO). However, if your income and super contributions combined exceed $250,000, you become liable for Division 293 tax, which is an additional 15%. If you make non-concessional contributions, or contributions from your after-tax income, you do not pay any contributions tax.
When you withdraw money from your super fund, the tax implications depend on your age and the type of super fund. If you are 60 or older, withdrawals from a taxed super fund are typically tax-free. However, if you withdraw from an untaxed fund, such as a public sector fund, you may be subject to tax. If you are under 60, you may be taxed on your super income stream. Additionally, if you withdraw an amount above the 'low-rate cap', currently set at $235,000, you will be taxed at 17% (including the Medicare levy) or your marginal tax rate, whichever is lower.
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The 'Big Four' national banks
Australia's type of money system is a fiat system, where the currency is not backed by a physical commodity but by a directive from the government that makes it legal. The Australian dollar was introduced as a decimal currency on 14 February 1966, replacing the non-decimal Australian pound.
The Big Four National Banks
The Big Four national banks in Australia are the Commonwealth Bank of Australia (also known as CommBank or CBA), Westpac Banking Corporation, National Australia Bank (NAB), and Australia and New Zealand Banking Group (ANZ). These banks are often referred to collectively as the "big banks" or the "big Aussie banks". They dominate Australia's financial landscape, accounting for roughly 75% of the market share in the country's banking sector.
The Big Four have a lengthy history, starting at a local level and gradually increasing their market share by acquiring smaller rivals during periods of financial turmoil. The deregulation of the banking sector several decades ago also played a role in increasing their share of the financial system. Today, they offer a wide range of financial products, including credit cards, loans, and extensive networks of ATMs and branches across the country.
- Commonwealth Bank: It is the largest bank in Australia in terms of deposits held and the size of its home loan lending business. In the 2023 financial year, it was the largest Australian bank by value of total assets, holding assets worth 1,252 billion dollars.
- Westpac: It is the second-largest bank in terms of deposits held and is the second-biggest lender in home loans to owner occupiers and investors.
- National Australia Bank: NAB is the only one of the Big Four that offers an everyday transaction account with no monthly account-keeping fees and no strings attached. It has acquired and divested banking businesses in the UK and US, as well as financial services firms.
- Australia and New Zealand Banking Group: ANZ has been a market leader in digital banking in Australia and was the first of the Big Four to offer Apple Pay. It has acquired several smaller players, including Bank of Adelaide, Grindlays Bank, and New Zealand's PostBank.
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Foreign currency exchange
Australia's current currency is the Australian dollar, which was introduced as a decimal currency in 1966, replacing the non-decimal Australian pound. The Australian dollar is subdivided into 100 cents, and the $ symbol precedes the amount.
Historically, Australia maintained a fixed exchange rate, with the Australian pound being at par with the British pound from 1910 to 1931. In 1931, the Australian currency was devalued, and from 1946 to 1971, Australia adopted a pegged exchange rate under the Bretton Woods system, which tied the value of the Australian dollar to the US dollar via gold. In 1967, Australia broke its peg to the pound sterling, choosing to remain fixed to the US dollar instead. However, with the breakdown of the Bretton Woods system in 1971, Australia transitioned to a floating exchange rate regime, allowing the value of its currency to fluctuate against other currencies.
In 1983, the Australian Labor government floated the Australian dollar, allowing its exchange rate to be determined by market forces of supply and demand. This decision marked a significant shift in Australia's exchange rate policy, as the value of the Australian dollar would now be influenced by international money markets.
Online foreign exchange services have also gained popularity in Australia. Individuals can utilise digital platforms to compare exchange rates, purchase foreign currency, and even arrange for home delivery or pickup at designated locations. These online services offer convenience and competitive rates, providing individuals with efficient options for their currency exchange needs.
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Frequently asked questions
Australia has a fiat money system, where the currency is not backed by a physical commodity but by the government. Australia's official currency is the Australian dollar, which was introduced as a decimal currency in 1966.
Before Federation in 1901, the six colonies that comprised Australia had separate currencies, all modelled on British currency. The Australian pound was introduced in 1910, at par with the pound sterling. In 1937, a recommendation was made to adopt a system of decimal coinage, but this was not accepted. In 1959, a Decimal Currency Committee was appointed to examine the merits of decimalisation and eventually supported the move. The Australian dollar was introduced in 1966, with the conversion rate of two dollars to the pound.
The retail banking market in Australia is dominated by the 'Big Four' national banks, but there are also several global banks operating in the country. When working in Australia, you get paid and have to pay tax on your earnings. Your employer also pays some of your money into superannuation ('super'). Your wages are usually paid into your bank account, and you receive a 'pay slip' that shows how much money you earned, how much tax was paid, and how much went into your super fund.
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