AUD – NZD Currency Union Rejected

A monetary union between Australia and New Zealand will not generate net benefits for both countries and should not proceed, a joint study by the Australian and New Zealand Productivity Commissions released on Tuesday found.

In the discussion draft, the Commissions concluded that the costs of a monetary union with a common currency and monetary policies outweighed the benefits.

“They imply a loss of autonomy over monetary policy and exchange rate flexibility, which are important tools for macroeconomic stability,” the report said.

“Overall, the Commissions do not consider that the prerequisite conditions for a trans-Tasman monetary union exist — a view that is shared by most participants in the study.”

The report said tying New Zealand’s fortunes to Australia’s currency would result in monetary policy being driven by Australian conditions with decisions made by the Reserve Bank of Australia.

It said making an effective monetary union would require some degree of political union, which was unlikely and there was little popular support for such integration.

via Xinhua

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza