Business backing for Anzac dollar turns up the heat

By David Barber

Friday 28th April 2000

The business community's overwhelming support for currency union with Australia and an Anzac dollar will put pressure on the government and the Reserve Bank to rethink their opposition on the concept.

A report published this week found 80% of 400 firms surveyed were "strongly positive" toward an Anzac currency union and the authors said it "must be taken seriously by all those who seek to boost conditions for economic development within New Zealand."

The report said a prima facie case existed for genuine consideration of a shift away from the New Zealand dollar toward the adoption of a currency based on either the Australian or US dollar.

Little, if any, harm would result and there was potential ("albeit not assured") for significant gains, the Institute of Policy Studies at Victoria University of Wellington, said.

Arthur Grimes, former chief economist at the Reserve Bank and now director of the institute, and Closer Economic Relations expert Sir Frank Holmes were commissioned to study the issue by the Australia New Zealand Business Council.

They said an Anzac dollar was a logical next step in the CER process, could boost transtasman trade and inward investment in New Zealand and appeared politically feasible.

They recommended negotiating a joint central bank with a common Anzac dollar as more politically acceptable than just adopting the Australian currency, saying that economically the difference was slight.

The authors said the only significant drawback was it would make it difficult to adopt the US dollar later unless the Australian government could be persuaded to do so.

They did not specifically study adopting the US dollar, but said that was the only other realistic choice for New Zealand other than retaining the New Zealand dollar.

Washington was unlikely to agree to negotiate a new common currency, at least in the near term, they said, and New Zealand would have to accept the greenback "as is" although it might want some input into US monetary and exchange policy.

"At this stage, we accept it as unlikely that New Zealand would have any leverage over policy. This is not necessarily economically disadvantageous but could be a political drawback."

The study was released amid a flurry of recent activity and comment about currency union with Australia, New Zealand's biggest trading partner with two-way trade worth $11.6 billion last year.

In March, the Manufacturers' Federation said there could be distinct advantages in preventing floating exchange rates which would destabilise trade and investment in its members' biggest market.

Earlier this month, Parliament's foreign affairs, defence and trade select committee said it would investigate a common currency as part of an inquiry into the trade relationship with Australia.

And Trade and Agriculture Minister Jim Sutton has come out in favour of exploring the concept, the first coalition minister to endorse government consideration of it.

But Prime Minister Helen Clark is cool on the idea, saying recently: "Europe's going to a single market and harmonisation of law but there's still questions about whether the single currency was the right thing to do and not everyone's gone into it.

"At a certain point, you have to ask, 'do you want to continue to exercise national sovereignty over your economic policy?'"

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