'Two countries, one currency?': evolution in trans-Tasman economic relations

Abstract

This study examines the issue of a trans-Tasman currency union from the perspective of evolving economic relations. In the course of the Twentieth Century, trans-Tasman economic relations have evolved from protectionism to cooperation. During this period, there have been several significant policy developments. These range from the imposition of high tariff barriers, separation of monetary regimes to free trade agreements. These developments were driven by not only prevailing domestic economic circumstances, but also external factors. Economic interactions between New Zealand and Australia in the last two decades suggest that the relationship has developed beyond cooperation and is thus heading towards integration. A trans-Tasman currency union should therefore, be viewed as a next logical step towards greater economic integration between New Zealand and Australian economies. Recent studies suggest that a trans-Tasman currency union is likely to benefit New Zealand more than Australia. There are also other broader economic and policy consequences to consider. These include fiscal Federation, a joint central banking arrangement and Treaty obligations. Preliminary assessment suggests that these issues could be resolve if New Zealand's economy is organised similar to an Australian state. Ultimately, a decision on joining a currency union is predominately political. To date, a broad political consensus on this issue has not emerged in either New Zealand or Australia. Unless, both countries can politically commit to a currency union, this issue will remain an idea in the minds of scholars and commentators.