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The Australian dollar (sign: $; code: AUD) is the currency of the Commonwealth of Australia, including Christmas Islandmarker, Cocos Islandsmarker, and Norfolk Islandmarker, as well as the independent Pacific Island states of Kiribatimarker, Nauru and Tuvalumarker. Within Australia it is almost always abbreviated with the dollar sign ($), with A$ or AU$ sometimes used informally to distinguish it from other dollar-denominated currencies. It is subdivided into 100 cents.

The Australian dollar is currently the sixth-most-traded currency in the world foreign exchange markets behind the US dollar, the euro, the yen, the pound sterling, and the Swiss franc, accounting for over 6% of worldwide foreign-exchange transactions. The Australian dollar is popular with currency traders due to comparatively high interest rates in Australia, the relative freedom of the foreign exchange market from government intervention, the general stability of Australia's economy and political system, and the prevailing view that the Australian dollar offers diversification benefits in a portfolio containing the major world currencies, especially because of its greater exposure to Asian economies and the commodities cycle.

History

The dollar was introduced on 14 February 1966, replacing the Australian pound (distinct from the pound sterling since 1931) with a decimal currency.
A 20-royal note
A 10-royal note
A five dollar Australian note
A ten dollar Australian note
A twenty dollar Australian note
A fifty dollar Australian note
A one hundred dollar Australian note


The dollar

On 14 February 1966 the dollar was introduced at a rate of two dollars per pound, or ten shillings per dollar. At its introduction, it was pegged to sterling at a rate of 1 dollar = 8 shillings (2.50 dollars = 1 pound). In 1967, Australia effectively left the sterling area. When sterling devalued in 1967 against the U.S. dollar, the Australian dollar did not follow. It maintained its peg to the U.S. dollar at the same rate of 1 Australian dollar = 1.12 U.S. dollars.

Half Pounds

The Australian dollar is not a true dollar in the sense that it is descended directly from the Spanishmarker pieces of eight, as is the case with the US dollar, the Canadian dollar, and the East Caribbean Dollar. The Australian dollar is essentially a half pound sterling. Australia followed the pattern of South Africa in that when it adopted the decimal system, it decided to use the half pound unit as opposed to the pound unit of account. The choice of the name dollar was motivated by the fact that the reduced value of the new unit corresponded more closely to the value of the US dollar than it did to the pound sterling. Other examples of dollars that are not true dollars for this same reason are, the Cayman Islands dollar, the Jamaican dollar, the New Zealand dollar, the Solomon Islands dollar, the Fiji dollar, the Namibian dollar, the Rhodesian dollar, and the Zimbabwe dollar.

Examples of dollars that are directly related to the original Spanish dollar unit are the US dollar, the Canadian dollar, the Newfoundland dollar, the East Caribbean dollar, the Belize dollar, the Guyanese dollar, the Bermuda dollar, the Bahamian dollar, the Trinidad and Tobago dollar, the Barbados dollar, the Hong Kong dollar, the Straits dollar, the Malayan dollar, the Singapore dollar, and the Brunei dollar.

Coins

In 1966, coins were introduced in denominations of 1, 2, 5, 10, 20 and 50 cents. The initial 50 cent coins contained high silver content and were withdrawn after a year due to the growing intrinsic value of the silver content. One-dollar coins were introduced in 1984, followed by two-dollar coins in 1988. The one- and two-cent coins were discontinued in 1991 and withdrawn from circulation. In commemoration of the 40th anniversary of decimal currency, the 2006 mint proof and uncirculated sets included one- and two-cent coins. Cash transactions are rounded to the nearest five cents. As with most public changes to currency systems, there has been a great amount of seignorage of the discontinued coins. All coins portray the head of state, Queen Elizabeth II, on the obverse, and are produced by the Royal Australian Mintmarker.

Australia has regularly issued commemorative 50-cent coins. The first was in 1970, commemorating James Cook's exploration along the east coast of the Australian continent, followed in 1977 by a coin for Queen Elizabeth II's Silver Jubilee, the wedding of Charles, Prince of Wales and Lady Diana Spencer in 1981, the Brisbanemarker Commonwealth Games in 1982, and the Australian Bicentenary in 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.

The portrait of Queen Elizabeth II on the obverse side has gone through some changes. The first change was when the decimal system was introduced in 1966, the next facelift came in 1985, with a new crown and pose, and finally the most recent in 1999, showing a more age-appropriate portrait of the queen.

There are many five-dollar coins, of aluminium/bronze and bi-metal, and many silver and gold bullion coins in higher denominations. These are not normally used in payment, although they are legal tender.

Current Australian 5-, 10- and 20-cent coins are identical in size to the former Australian, New Zealand and British sixpenny, shilling and two shilling (florin) coins. In 1990, the UK replaced these coins with smaller versions, as did New Zealand in 2006 - at the same time discontinuing the five-cent coin. With a mass of 15.55 grams and a diameter of 31.51 mm, 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 identical size and shape.

Banknotes

First series

The first paper issues of Australian dollars were issued in 1966. The $1, $2, $10 & $20 notes had exact equivalents in the former pound banknotes. The $5 note was issued in 1967, after the public had become familiar with decimal currency. There had not previously been an equivalent £2 10s note.

The $1 note was replaced by a coin in 1984, while the $2 note was replaced by a coin in 1988. The $50 note was introduced in 1973 while a $100 note was issued 1984.

Polymer series

In 1988, the Reserve Bank of Australia issued plastic, specifically polypropylene polymer banknotes (produced by Note Printing Australiamarker), to commemorate the bicentenary of European settlement in Australia.All Australian notes are now made of polymer.

Notes are sized according to their denomination, for the visually impaired. They are the same height but of different lengths, in order of their value - $5 being the smallest, $100 the largest. Notes are also colour coded: $5 pink (there are two designs); $10 blue; $20 red; $50 yellow; and $100 green.

As a security feature, these notes contained a transparent window with an optically variable image of Captain James Cook. Every note also has a seven-pointed star which has only half the printing on each side as well as an image of the Australian Coat of Arms only visible when held up to the light. Australian banknotes were the first in the world to use such features.

To understand how polymer banknotes are made, see: http://au.youtube.com/watch?v=YTggA4jVPj0

Value of the Australian dollar

In 1966, when the Australian dollar was introduced, the International gold standard was still in operation. The dollar was at that time worth 980 mg of gold. As of February 2008 the dollar was worth 30 mg of gold.

On 8 December 1983, the Australian dollar was floated, allowing its value to fluctuate dependent on supply and demand on international money markets.

In the two decades following the floating of the Australian dollar, its highest value relative to the US dollar was 96.68 US cents on 18 March 1984. The Australian dollar returned to 96 US cents in June 2008, and subsequently rose to a new post-float high of 98.49 US cents on 15 July 2008. Although the value of the Australian dollar fell significantly from this high towards the end of 2008, it has gradually recovered in 2009 and (as of November 2009) is once again nearing 95 US cents. The lowest value of the Australian dollar after it was floated was 47.75 US cents in April 2001.

Exchange rate policies

Most traded currencies
Currency distribution of reported FX market turnover
Rank Currency ISO 4217 code

(Symbol)
% daily share
(April 2007)
United States dollar 86.3%
Euro 37.0%
Japanese yen 16.5%
Pound sterling 15.0%
Swiss franc 6.8%
 Australian dollar 6.7%
Canadian dollar 4.2%
Swedish krona 2.8%
Hong Kong dollar 2.8%
Norwegian krone 2.2%
Other 20%
Total 200%


Australia maintained a peg to the British pound at par then at 0.8 GBP (16 shillings sterling). This reflected its historical ties as well as a view about the stability in value of the British pound. From 1946 to 1971, Australia maintained a peg to the US dollar under the Bretton Woods systemmarker, but it was effectively pegged to sterling until 1967.

With the breakdown of the Bretton Woods system in 1971, Australia converted the mostly fixed peg to a moving peg against the US dollar. In September 1974, Australia moved to a peg against a basket of currencies called the trade weighted index (TWI) in an effort to reduce fluctuations associated with its peg to the US dollar. The peg to the TWI was changed to a moving peg in November 1976, causing the actual value of the peg to be periodically adjusted.

On 9 December 1983, the Australian Labor government led by Prime Minister Bob Hawke and Treasurer Paul Keating floated the Australian dollar. From that point, movements in the Australian dollar reflected the credits and debits in the balance of payments. The terms of trade does not determine the value of the dollar but it is a major component of the balance of payments.

For decades, Australia's balance of trade has depended primarily upon commodity exports such as minerals and agricultural products. This means the relative value of the dollar varies significantly during the business cycle, rallying during global booms as Australia exports raw materials, and falling when mineral prices slump or when domestic spending overshadows the export earnings outlook. This movement relative to the global economy is generally in the opposite direction to other major currencies, which are more popular during slumps as traders move value from falling stocks into cash. This high volatility and unorthodox movement in exchange rates has contributed to the AUD's status as one of the most traded currencies in the world.



See also



References

Notes




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