World Bulletin / News Desk
A monetary union between New Zealand and Australia is not a practical option given the political and economic differences between the two countries, a joint government study said today.
A draft report prepared by officials from the two South Pacific economies said 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.
“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.”
Australia’s economy is around seven times larger than New Zealand, and central banks in the two countries have pursued different monetary policies.
New Zealand’s benchmark cash rate, which has been on hold at a record low for 18 months, is currently 100 basis points below Australia’s, which the RBA has cut by 125 basis points since last November.
The New Zealand dollar and the Australian dollar are two of the most freely traded commodity currencies, and often move in unison.
It said some degree of political union would be needed to make a monetary union effective, which was unlikely, and there was little popular support for such integration.
The two countries have one of the longest lasting and most developed free trade agreements, Closer Economic Relations (CER), which came into force in 1983.
It provides for free trade of goods and services between the two, freedom of travel and the right to work, common rules in such areas as government procurement, and food standards.
Nearly half a million New Zealanders live and work in Australia, with record numbers having migrated in recent numbers to take advantage of Australia’s mining boom.
The report suggests the two governments need to do further work to tackle the double taxation of investments, as well as look at common regulation of services, and reducing compliance costs for local shipping and air services.
It also suggested the two countries look to link the CER agreement to other trade deals.