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Currencies
AUSTRALIAN DOLLAR
Introduction | Overview | Structure | History | Factors affecting change in exchange rates | Daily trend of Australian dollar | Weekly trend of Australian Dollar
Introduction


Australian dollar is yet another dollar currency that stands among the six important most currencies in the world. As the name suggests, Australian dollar serves as the national currency of the Commonwealth of Australia and also of Christmas Island, Cocos (Keeling) Islands, Norfolk Island, Heard and Mc Donald Islands, Australian Antarctic Territory and pacific island states that include Kiribati, Nauru and Tuvalu. Sometimes also called the "Pacific Peso" and "Aussie battler", the currency is denoted with the sign of dollar i.e. $. In daily transactions, the Australian dollar is also sometimes denoted as A$, $A, AU$ or $AU so as to distinguish it from the other dollar currencies.

The Australian dollar was introduced in 1966 replacing the Australian pound. It is the first complete polymer note based currency and is subdivided into 100 equal cents. The currency and the numeric codes for Australian dollar the ISO 4217 regulation has described are AUD and 036 respectively.

Overview


Australian dollar has been the most impressive currency in the world in the recent times. It is the sixth most heavily traded currency in the world after United States dollar, Euro, Japanese yen, the British pound and the Swiss franc. Statistically, it accounts for approximately 5% of the total volume of foreign exchange transactions around the globe i.e. around 1.9 trillion dollars a day. The facts that Australia has arguably one of the most stable economies in the world and intervention of the government is negligible when it comes to country’s currency, provide with the reason for this staggering demand of Australian dollar in the world market. The currency is also entitled as the first currency in the world that transformed its currency system into a system totally based on polymer banknotes. Few of the below mentioned economies have even dollarized their currencies in terms of the Australian dollar

  • Kiribati

  • Nauru
  • Tuvalu

Australia being the second largest producer of gold in the world, its currency also is greatly affected from it and hence it is said that the Australian dollar is a commodity based currency. Any fluctuations in the sales of gold directly influence the value of the currency. Though currently, the value of the currency operates upon a floating rate regime but still it stays related to the value of gold. It was pegged to the US dollar on fixed basis soon after its inception but when the Bretton Woods system collapsed, it moved to a floating peg to the US dollar. Soon after the peg was made to a basket of currencies and finally the currency was floated in 1983. Australian dollar is able to attract the investors and speculators as the value is expected to fluctuate with the market sentiments. In a portfolio having the major currencies of the world, having the Australian dollar provides diversification to the investor as it is comparatively closely related to the Asian economies as well. The import and export of the currency is totally free, but a declaration has to be made if the amount imported or exported exceeds 10000 Australian dollars.

Structure

The inception of the Australian dollar in the year 1966 not only provided for a new currency to the country but it also introduced the decimal system in the currency, as Australian pound that was used prior to the dollar did not have subdivisions according to the decimal system. The smaller denominations in the currency are issued in coinage totaling up to 6 denominations that are 5, 10, 20, 50 cents, 1 dollar and 2 dollars, coins minted by the Royal Australian mint. All the coins depict an image of Queen Elizabeth II on their front sides. Previously 1 and 2-cent coins were also issued but their circulation was halted in the year 1991-92. That is why the current transactions are rounded to nearest 5 cents. With this currency coinage, many commemorative coins of various denominations including 20˘, 50˘ and $1 had also been produced in the past and are still produced. The recent addition to the long list of commemorative coins was the set of coins proof and uncirculated that was issued by the royal mint.

The bank notes are printed under the authority of the central bank of the country i.e. Reserve Bank of Australia. It also watches over the circulation of the currency as well as the coinage. Initially at the time of introduction of the currency in the country, whole series of paper bank notes was issued showing portraits of important persons in the history of Australia. These notes had exact exchange rates in terms of pounds excluding the $5 note and that’s why it was issued much later. In 1988, for the first time, the reserve bank issued polymer notes, though not as currency bank notes but as commemorative note. Due to the edge the polymer currency notes have over the paper currency notes security and strength wise, a whole series of bank notes was produced from polymer and is still used. The bank notes are issued in 5 denominations namely $5, $10, $20, $50 and $100, the size of the note getting bigger with the value of the currency. The colors of the notes also vary with different denominations such as the $5 note is violet pink in color, $10 note is blue, the $20 note is orange in color, $50 note is yellow in color and the $100 note is green in color.

History


Australia, in terms of currency, has a long history as the country had been using various currencies and the Australian dollar was incepted much later on 14th February 1966. When the country was at its establishment phase, much of the exchange was done through barter and the currency situation was much chaotic. Till the 20th century the Australian colony was dependent upon the currencies of foreign countries mostly the British pound, but in 1901, with the independence of the country, the government started to make way for a new currency. In 1910, Australian pound was adopted as the national currency of the new nation that was supported by the establishment of the Commonwealth Bank in 1911. It was based on the British shilling pence system of subdivisions. Early attempts were made to issue banknotes of the new currency and even some notes but on the whole the newly formed country was not really prepared to issue banknotes of standard quality. In 1920s, the commonwealth bank was provided with extra banking powers including the responsibility to print banknotes according to the reforms taken due to deteriorating financial and economic conditions of the country.

In 1960, a new separate bank came into existence with the adoption of decimalization concept in the currency that was called the Reserve Bank of Australia. It started to prepare to make way for a new decimal currency and after six years, the Australian dollar was incepted on 14th February 1966. During these six years, a new controversy arose regarding the name of the currency to be incepted. Even a public naming competition was held to suggest the name of the currency in which suggestions like 'Oz', 'Boomer', 'Roo', 'Kanga', 'Emu', 'Koala', 'Digger', 'Zac', 'Kwid', 'Dinkum' and 'Ming'. As there was no clear consensus about the name, the government suggested it to be "Royal", but even that name was opposed as the "Royal" designs were not completed on time. finally a quick decision in 1963 was taken and dollar was decided as the currency’s name. The value of the Australian dollar was set at $2 = 1 or 10 shillings = $1. The dollar maintained a fixed peg to the US dollar till 1971 when Bretton Woods sytem collapsed. Australian currency shifted to a moving peg to US dollar for a few years, then to a basket of currencies and at last in 1983, adopted a floating rate regime. From 1988 onwards, the reserve bank started making efforts to switch over to polymer bank note based currency system and earned success in 1992 when a complete series of notes was issued.

Factors affecting the exchange rates between two countries


The volatility in the foreign exchange rates depends upon a numerous macro economic factors that have different degrees of importance to different economies of the world. Some special and exceptional factors affecting the rates may also exist in the case of different countries. Following are shown the common factors on which the foreign exchange rate depends

  • Flow of imports and exports between the countries
  • Flow of capital between the countries
  • Relative inflation rates
  • Fluctuation limits on exchange rate imposed by the governments of the countries
  • Merchandise trade balance
  • Rate of inflation in the country
  • Flow of funds between the countries for the payment of stock and bond purchases
  • Relative growth
  • Short term and long term interest rate differentials
  • Cost of borrowings
 
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