{"id":343,"date":"2012-06-13T22:28:58","date_gmt":"2012-06-13T22:28:58","guid":{"rendered":"http:\/\/www.knowfinance.com\/?page_id=343"},"modified":"2012-06-13T22:28:58","modified_gmt":"2012-06-13T22:28:58","slug":"australian-dollar-aud","status":"publish","type":"post","link":"https:\/\/www2.stockmarketwatch.com\/learn\/australian-dollar-aud\/","title":{"rendered":"Australian Dollar-AUD"},"content":{"rendered":"

The Australian dollar is a legal tender used in commonwealth of Australia, together with Christmas Island, Cocos Island and Norfolk Island. This currency is also used in some independent states like Pacific Island States of Kiribati, Nauru and Tuvalu. In Australia, this currency is symbolized as $ or A$ -if it has to be differentiated from other dollar dominated currencies. A dollar is subdivided by 100 cents.<\/p>\n

In 2012, the Australian dollar was the third most traded currency in the foreign exchange market. In 2010, the Australian dollar was the fifth most traded currency in the financial markets, preceded by the U.S. dollar, euro, Japanese yen, and Swiss Franc.<\/p>\n

Among currency traders, the Australian dollar is very popular because of relatively higher interest rates in Australia. As the Australian dollar also benefits from its strong exposure to Asian economies, it provides diversification in a portfolio containing global major currencies.<\/p>\n

In currency exchange market, the Australian dollar is more commonly known as the \u201cAussie\u201d.<\/p>\n

History<\/p>\n

As Pounds, Sterling and Pence had to be replaced by decimal currencies on 14th<\/sup> February 1966, many new names were suggested for Australia\u2019s new official currency.<\/p>\n

In 1965, the\u00a0Prime Minister of Australia,\u00a0Sir Robert Menzies, a monarchist, suggested to name the official legal tender as the royal. Some other names recommended sounded more exotic, such as the austral, the boomer, the oz, the Kanga, the emu, the roo, the digger, the dinkum, the kwid, and the ming, (which was Menzies nick name)<\/p>\n

However, the name royal was finally agreed upon as Menzies was very influential figure. Subsequently, experimental designs were prepared and printed by the\u00a0Reserve Bank of Australia.<\/p>\n

The choice of name for the currency proved to be out of favor, and it was later changed in favor of the dollar.<\/p>\n

The\u00a0Australian pound, launched in 1910 was officially different in value from the\u00a0pound sterling\u00a0since its devaluation in 1931. \u00a0The Pound was later replaced by the dollar on 14 February 1966.The rate of exchange for the new decimal currency was two dollars per Australian pound, or ten Australian shillings\u00a0per dollar.<\/p>\n

The Australian dollar\u2019s exchange rate was pegged to the pound sterling at a rate of $1 = 8 shillings ($2.50 = UK \u00a31).<\/p>\n

Later in 1967, Australia selected to leave the\u00a0Sterling Area\u00a0when the pound sterling was devalued against the U.S. dollar. The Australian dollar did not devalue and subsequently, it was pegged to the U.S. dollar at the rate of A$1 = US$1.12.<\/p>\n

Coins<\/p>\n

In 1966, coins were circulated in different denominations of 1, 2, 5, 10, 20 and 50 cents. In the beginning, 50 cent coins carried high silver content and were replaced after a year due to an apprehension that the fundamental value of the silver content would go above the face value of the coins.<\/p>\n

One-dollar coins were launched in 1984, which was followed by two-dollar coins in 1988. However, the denominations of 1 cents and two cents were discontinued and withdrawn from circulation in 1991.<\/p>\n

While commemorating the 40th anniversary of\u00a0decimal currency in 2006, mint\u00a0proof,\u00a0and\u00a0uncirculated\u00a0sets included one- and two-cent coins.<\/p>\n

Cash transactions in Australian dollars are\u00a0rounded up to the nearest five cents. Just like most public changes to currency systems, there has been a great amount of\u00a0seignorage\u00a0of the withdrawn coins. All coins represent the reigning Australian Sovereign, Queen\u00a0Elizabeth II, on the obverse, and are minted by the\u00a0Royal Australian Mint.<\/p>\n

Australia has fairly regularly issued commemorative 50-cent coins. The first was in 1970, honoring\u00a0James Cook’s exploration along the east coast of the Australian continent, followed in 1977 by a coin for Queen Elizabeth II’s\u00a0Silver Jubilee, the wedding of\u00a0Charles, Prince of Wales\u00a0and\u00a0Lady Diana Spencer\u00a0in 1981, the\u00a0Brisbane Commonwealth Games in 1982, and the\u00a0Australian Bicentenary\u00a0in 1988. Issues expanded into greater numbers in the 1990s and the 21st century, responding to collector demand. Australia has also made special issues of 20-cent and one-dollar coins.<\/p>\n

.Australian 5-, 10- and 20-cent coins which are currently under circulation, are very identical to former Australian, New Zealand and British sixpenny, shilling and two shilling (florin) coins. In 1990, the UK substituted these coins with smaller versions, while New Zealand replaced in 2006 \u2013along with discontinuing the five-cent coin.<\/p>\n

Weighing 15.55\u00a0grams alongside a diameter of 31.51\u00a0mm, the Australian 50-cent coin is one of the largest sized coins used in the world today. In circulation New Zealand 5-, 10- and 20-cent coins were often mistaken for Australian coins of the same value, due to their indistinguishable size and shape.<\/p>\n

Banknotes<\/p>\n

First series<\/p>\n

The first paper issues of Australian dollars were introduced in 1966. The $1, $2, $10 & $20 notes corresponded with the former pound banknotes.\u00a0 Later in 1967, the $5 note was launched in 1967, as the public had become comfortable using the decimal currency. .<\/p>\n

Polymer series<\/p>\n

The Reserve Bank of Australia, issued the first polymer notes in 1988.<\/p>\n

To commemorate the bicentenary of European settlement in Australia, special polypropylene\u00a0polymer banknotes\u00a0\u2013 which were produced by\u00a0Note Printing Australia-, were printed.\u00a0 At present, all Australian notes are now made of polymer.<\/p>\n

The Value of Australian Dollar<\/p>\n

In 1966, when the Australian dollar was launched, the worldwide exchange relationships were controlled under the\u00a0Bretton Woods system- which was fixed exchange rate system using a U.S. dollar standard.<\/p>\n

However, The Australian dollar was in effect pegged to the British pound at an equivalent value of approximately 1\u00a0gram of gold.<\/p>\n

The maximum valuation of the Australian dollar compared to the U.S. dollar was during the period of the peg to the U.S. dollar. On 9 September 1973, the peg was altered to US$1.4875, the currency oscillation limits being changed to US$1.485 – US$1.490.<\/p>\n

Subsequently, both \u00a0on 7 December 1973 and 10 December 1973, the noon buying rate in New York City for cable transfers payable in foreign exchanges hit its highest point of 1.4885 U.S. dollars to one Australian dollar.<\/p>\n

Later, On Monday 12 December 1983, the Australian dollar was no more pegged as Australia decided to float its currency, allowing its value to swing, dependent on forces of supply and demand in international money markets. The decision was reached on 8 December 1983 and made public on 9 December 1983.<\/p>\n

Following The Reserve bank of Australia\u2019s decision to float its currency in 1983, the Australian dollar\u2019s highest value compared to the US dollar was $0.881 in December 1988.<\/p>\n

On the other hand, the lowest ever value of Australian dollar against U.S. dollar after the implementing the currency float policy was at 47.75 US cents in April 2001.<\/p>\n

In June 2008, the Australian dollar traded above 96 US cents,\u00a0and climbed further, reaching at 98.49 later that year. Even though the exchange value of the Australian dollar dropped significantly from this high towards the end of 2008, it steadily recovered in 2009 to 94 US cents.<\/p>\n

Then for the first time, the Australian dollar reached at parity with the U.S. dollar on 15th<\/sup> October 2010, since it became a freely traded currency. The Australian unit also traded above U.S. $1 for few seconds.<\/p>\n

Soon after, the currency traded above parity for several successive days in November, and hovered around that mark into 2011.<\/p>\n

On 27 July 2011 the Australian Dollar touched a record high level ever since it was floated in the exchange market. It reached at $1.1080 against the US Dollar. Experts even pointed out that the Australian dollar could rise as high as 1.70 USD by 2014.<\/p>\n

Some commentators claim that the sudden appreciation of the Australian dollar value\u00a0 in 2011 was mainly due to Europe’s sovereign debt crisis, and Australia’s strong business ties with raw material importers in Asia and in particular\u00a0China.<\/p>\n

Economists hypothesize that commodity prices are the main driver of the Australian dollar, and this means changes in exchange rates of the Australian dollar arise in ways opposite to many other currencies<\/p>\n

For decades, Australia’s balance of trade has been mainly influenced by commodity exports such as minerals and agricultural products. This means the comparative value of the dollar varies drastically during the business cycle, appreciating during global booms as Australia exports raw materials, and depreciating against major global currencies when mineral prices fall \u00a0or when domestic spending eclipses the export earnings outlook. The way in which Australian dollar trades at the exchange market is exactly in the opposite direction to reserve currencies.-which tend to be stronger during times of economic uncertainties as traders seeking safer assets sell equities and retain cash.<\/p>\n

While the Australian dollar is not considered as a\u00a0reserve currency, its high level of unpredictability and untraditional movement in exchange rates has contributed to the AUD’s status as one of the most traded currencies in the world.<\/p>\n

In January 2011 at the\u00a0World Economic Forum\u00a0in\u00a0Davos,\u00a0Switzerland,\u00a0Alexei Ulyukayev\u00a0stated that the Central Bank of Russia\u00a0would start keeping Australian dollar reserves.<\/p>\n

Exchange Rate Policies<\/p>\n

Prior to 1983, a\u00a0fixed exchange rate policy was maintained by the Reserve bank of Australia. Initially, Australian pound was pegged to British pound, which was at par to begin with, but later traded at 0.8 GBP (16 shillings sterling).<\/p>\n

This peg to British pound reflected Australia\u2019s historical ties as well as a view about the stability in value of the British pound. Between 1946 and 1971, Australia maintained a peg under the\u00a0Bretton Woods system, which was fixed exchange rate mechanism which pegged U.S. dollar to gold. However, the Australian dollar peg to sterling remained in effect until 1967.<\/p>\n

In 1971, when the Bretton Woods system collapsed, Australia changed the traditional peg to a fluctuating rate against the US dollar. In September 1974, Australia valued the dollar against a basket of currencies called the\u00a0trade weighted index\u00a0(TWI) in an attempt to control the fluctuations associated with its tie to the US dollar.\u00a0 Later on 12 December 1983, the\u00a0Australian Labor\u00a0government\u00a0represented by\u00a0Prime Minister\u00a0Bob Hawke\u00a0and\u00a0Treasurer\u00a0Paul Keating announced a policy change with respect to exchange rate. The Australian dollar was now floated with the exchange rate reflecting the balance of payments and other market drivers.<\/p>\n

Design and denominations<\/p>\n

Australia was the first country in the world to posses a comprehensive structure to make bank notes out of plastic (polymer). \u00a0Notes made from polymer negate the risk of counterfeiting. Notes made out of polymers also last four times as long as conventional paper (fibrous) notes. Unlike paper notes that become untidy very soon, the polymer notes are very clean.<\/p>\n

Australia\u2019s currency includes coins of 5, 10, 20 and 50 cent and one and two dollar denominations; and notes of 5, 10, 20, 50 and 100 dollar denominations.<\/p>\n

Many types of currency were used in the Australian colonies after the advent of the first European settlers in 1788. In the rough early conditions, barter mechanism was crucial, and payment in commodities like rum sometimes substituted money in transactions. \u00a0In 1816, the bank of New South Wales issued Police Fund Notes, the first legal tenders used in Australia<\/p>\n

After forming the federation in 1901, when Australia became an independent nation, the federal government became in charge for the currency. \u00a0In 1910, the\u00a0Australian Bank Notes Act\u00a0was passed. \u00a0In 1913 the first series of Australian paper currencies was issued, which was based on the old British system of 12 pence to a shilling, 20 shillings to a pound.<\/p>\n

In 1963, Australia started the change to decimal currency. In excess of 1000 submissions were collected to deicide over the name of the new currency unit. The Prime Minister at that time, Sir Robert Menzies, suggested the \u2018royal\u2019. The \u2018dollar\u2019 was finally chosen as the name, and decimal currency was established on 14 February 1966.<\/p>\n

Soon after the change, sizeable counterfeiting of $10 notes was identified. Consequently, the Reserve Bank of Australia was forced to develop new note technologies together with the\u00a0Commonwealth Scientific and Industrial Research Organization.<\/p>\n

The ground-breaking polymer notes were first launched in 1988 with the issuance of a commemorative $10 note, marking Australia\u2019s bicentenary by showing the theme of settlement. The note on one side featured a young Aborigine in body paint, including some other elements of Aboriginal culture. On the reverse side was the ship Supply from the First Fleet, with a background of Sydney Cove, along with group of people to demonstrate the diverse backgrounds from which Australia has changed progressively over 200 years.<\/p>\n

Bank Note Designs<\/p>\n