Leslie Massey
The Australian dollar was floated on the foreign exchange market in December 1983, marking a significant shift in the country's economic policy. Prior to this, Australia maintained a fixed exchange rate, with the Australian pound pegged to the British pound and later, the US dollar. The decision to float the currency was driven by a series of global economic shocks in the 1970s, including the oil crisis and a progressive increase in inflation, which made it challenging for the Reserve Bank to stabilise the dollar. By moving to a floating exchange rate, determined by supply and demand in world currency markets, Australia laid the groundwork for economic stability and a series of deregulations, including the licensing of foreign banks and the loosening of loan restrictions.
| Characteristics | Values |
|---|---|
| Date of floating | 9 December 1983 |
| Decision made by | Hawke Government |
| Supported by | Reserve Bank |
| Previous exchange rate | Fixed rate |
| Previous rate of Australian dollar | 90 US cents |
| Highest rate of Australian dollar | US$1.4875 |
| Lowest rate of Australian dollar | 47.75 US cents |
| Current trading range | $0.63 to $0.68 |
| Global ranking in 2024 | Sixth most-traded currency |
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What You'll Learn
- The Australian dollar was floated in 1983
- Floating the dollar stabilised domestic monetary conditions
- The Reserve Bank could now conduct monetary policy more effectively
- Floating the dollar was one of Australia's most significant economic policy decisions
- The Australian dollar is now the sixth most-traded currency in the foreign exchange market
The Australian dollar was floated in 1983
The Australian dollar was floated on 12 December 1983, marking one of the most significant economic policy decisions in the country's modern history. Before 1983, Australia maintained a fixed exchange rate, with the Australian pound at par with the British pound from 1910 to 1931. From 1946 to 1971, the country operated under the Bretton Woods system, a fixed exchange rate regime that pegged the US dollar to gold.
The decision to float the Australian dollar was made by the Hawke Government, led by Prime Minister Bob Hawke and Treasurer Paul Keating. They were supported and encouraged by the Reserve Bank, which sought to stabilise domestic monetary conditions and enhance its ability to conduct monetary policy effectively. The float meant that the Australian dollar's value would now be determined by the supply and demand of money within world currency markets, giving up any control over the amount of cash in those markets.
The idea of a floating exchange rate had been considered since the 1950s, but it was in the 1970s that the concept gained momentum due to global economic shocks, including oil crises and recessions. These events created an unstable environment for financial regulators, and the Reserve Bank increasingly favoured a floating exchange rate to address the challenges. By 1981, the Campbell inquiry recommended a float, but it was not until the election of the Labor government in 1983 that the decision was implemented.
The floating of the Australian dollar had a significant impact on the country's economy. It created the groundwork for a series of deregulations, including the licensing of foreign banks, loosening restrictions on loans, lowering tariffs, and moving away from centralised wage regulation. The float also integrated Australian markets with the world, increasing confidence in the economy. While there was initial volatility in the exchange rate after the float, the overall fluctuation was not unusual compared to other floating exchange rates.
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Floating the dollar stabilised domestic monetary conditions
The Australian dollar was floated in December 1983, marking a shift from a fixed exchange rate system to a floating exchange rate regime. This decision was made by the newly elected Labor government, led by Prime Minister Bob Hawke and Treasurer Paul Keating. Prior to 1983, the Australian dollar was pegged to other currencies, primarily the US dollar, which meant that its value was determined by the government or central bank.
Floating the dollar had a stabilising effect on domestic monetary conditions in Australia. Firstly, it removed the burden from the Reserve Bank of Australia (RBA) of trying to control the amount of cash in money markets and directly influence the dollar's exchange rate. By the mid-1970s, there was already so much cash in global markets that the RBA was losing its capacity to regulate the exchange rate. By letting go of this responsibility, the RBA could focus on more effectively managing inflation through interest rate adjustments, contributing to the economic stability observed in the 1980s and 1990s.
Secondly, the floating exchange rate provided more flexibility in responding to global economic shocks and business cycles. The 1970s witnessed a series of economic upheavals, including oil crises in 1973 and 1979, a global recession, and rising inflation. These events created a highly unstable environment for financial regulators, and the fixed exchange rate system struggled to adapt to these rapid fluctuations. A floating exchange rate, determined by market forces of supply and demand, allowed the Australian dollar to adjust more dynamically to such external shocks.
Thirdly, the floating of the dollar reduced the impact of exchange rate speculation and the actions of speculators. Under a fixed exchange rate, speculators would bet against the authorities, taking advantage of any discrepancies between the set rate and market forces. This could lead to significant losses for the authorities. By contrast, with a floating exchange rate, speculators bet against each other, reducing the potential negative impact on the Australian economy.
Finally, the floating exchange rate facilitated the integration of Australian markets with the world, increasing confidence in the economy. This integration paved the way for a series of deregulations, such as the licensing of foreign banks, the loosening of loan restrictions, and the reduction of tariffs. These reforms contributed to a more dynamic and open Australian economy, better equipped to navigate global economic trends.
In conclusion, floating the Australian dollar in 1983 stabilised domestic monetary conditions by empowering the RBA to focus on inflation management, enhancing flexibility in response to global economic shocks, reducing the impact of exchange rate speculation, and fostering the integration of Australian markets with the world. These factors collectively contributed to a more robust and adaptable Australian economy.
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The Reserve Bank could now conduct monetary policy more effectively
The Australian dollar was floated in 1983, marking a significant shift in the country's economic policy. Prior to this, Australia maintained a fixed exchange rate, with the Australian pound pegged to the British pound or the US dollar. The decision to float the currency was made by the Hawke Government, with the support and encouragement of the Reserve Bank.
Floating the Australian dollar had a significant impact on the Reserve Bank's ability to conduct monetary policy. By removing its responsibility to set the dollar's value, the Reserve Bank could focus on other aspects of monetary policy, such as regulating interest rates and managing inflation. This shift helped create the economic stability that characterised the 1980s and 1990s.
Before the float, the Reserve Bank faced challenges in stabilising the Australian dollar due to the large movements of currency. The fixed exchange rate regime made it difficult to control the money supply, as the Reserve Bank was required to meet all requests to exchange foreign currency for Australian dollars at the prevailing exchange rate. This meant that the supply of Australian dollars and, consequently, the domestic money supply were influenced by fluctuations in demand for the currency.
With the float, the Reserve Bank gained greater flexibility in managing the exchange rate and could respond more effectively to market dynamics. The bank could now allow supply and demand in the world currency markets to determine the value of the dollar. This approach aligned with the global trend towards floating exchange rates and enabled the Reserve Bank to better support Australia's economic objectives.
Additionally, the floating of the Australian dollar played a crucial role in integrating Australian markets with the world, increasing confidence in the economy, and setting the groundwork for a series of deregulations. These included the licensing of foreign banks, loosening restrictions on loans, lowering tariffs, and moving away from centralised wage regulation. The Reserve Bank's ability to conduct monetary policy was significantly enhanced, contributing to the country's overall economic stability and resilience.
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Floating the dollar was one of Australia's most significant economic policy decisions
Prior to 1983, Australia maintained a fixed exchange rate, with the Australian pound initially pegged to the British pound at parity in 1910. Over time, this peg was adjusted, and from 1946 to 1971, Australia followed the Bretton Woods system, pegging the Australian dollar to the US dollar. However, the breakdown of the Bretton Woods system in the early 1970s led to discussions about floating the Australian dollar.
The decision to float the dollar was made by the Hawke Government, with Bob Hawke as Prime Minister and Paul Keating as Treasurer. They were supported by the newly appointed Governor of the Reserve Bank, Bob Johnston, who recognised the challenges of maintaining a fixed exchange rate in a volatile global economic environment. By the mid-1970s, there was already so much cash in global markets that the Reserve Bank of Australia (RBA) was losing its capacity to regulate the exchange rate.
Floating the dollar had several important implications for Australia's economy. Firstly, it meant that the value of the Australian dollar would now be determined by market forces of supply and demand within world currency markets, rather than being pegged to another currency. This gave the Reserve Bank more flexibility in conducting monetary policy and allowed it to focus on controlling inflation through interest rate adjustments.
Secondly, the floating of the dollar helped integrate Australian markets with the world, increasing confidence in the economy and setting the groundwork for a series of deregulations. These included the licensing of foreign banks, the loosening of loan restrictions, lowering tariffs, and moving away from centralised wage regulation.
Finally, the floating exchange rate provided Australia with greater resilience during economic downturns. When the Australian economy slowed or contracted, the floating dollar fell in value, making Australian exports more competitive in foreign markets. This dynamic helped cushion the impact of economic crises, such as the Asian financial crisis and the global financial crisis, on the Australian economy.
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The Australian dollar is now the sixth most-traded currency in the foreign exchange market
The Australian dollar has been the country's official currency since 1966, when it replaced the Australian pound. Before 1983, Australia maintained a fixed exchange rate, with the Australian pound at par with the British pound.
In 1983, the newly elected Labor government, led by Prime Minister Bob Hawke and Treasurer Paul Keating, floated the Australian dollar. This meant that the dollar's value was now determined by supply and demand within world currency markets. The decision was influenced by the Reserve Bank Governor, Bob Johnston, who encouraged Hawke and Keating to move to a floating exchange rate.
Floating the Australian dollar had a significant impact on the country's economy. It created the groundwork for a series of deregulations, including the licensing of foreign banks, the loosening of loan restrictions, and the reduction of tariffs. The Reserve Bank was also able to focus on controlling inflation through interest rate regulation, contributing to the economic stability of the 1980s and 1990s.
Since the float, the Australian dollar has fluctuated significantly. In April 2001, it reached a low of 47.75 US cents, while in July 2011, it hit a record high of US$1.10. As of 2024, it has traded in a range of $0.63 to $0.68.
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Frequently asked questions
The Australian dollar was floated on 12 December 1983.
Prior to 1983, Australia maintained a fixed exchange rate. The Australian pound was initially pegged to the British pound from 1910 to 1931. From 1946 to 1971, Australia adopted the Bretton Woods system, pegging the Australian dollar to the US dollar.
Floating the Australian dollar had a significant impact on the country's economy. It stabilised domestic monetary conditions and allowed the Reserve Bank to conduct more effective monetary policies. The float also integrated Australian markets with the world, increasing confidence in the economy.
