Australia’s capital and currency

If you consider other continents of the world, like Asia, Europe, North America, and more, it will be evident that every continent comprises more than one country. Asia has forty-five independent countries, whereas, in Europe, you have more than twenty nations. Even though each nation works as an individual unit, they share intercontinental relationships like trade routes, migrations, currencies, etc. However, if we consider the Australian land, it is a single country and behaves like the continent itself. This is why no currency variation is present here. Throughout all the places within the country, the official currency used is the Australian Dollar (AUD).

History of Australian currency

Australia was once a British colony around the late 18th century. When the British first established their colony in the country, mainly in New South Wales, Governor Philips introduced Spanish dollars as the official Australian currency. According to the amendments he made, the Spanish Dollar would be used in trades, within the nation or with other countries. However, the supply of the currency coins was limited, despite Sir William receiving a supply of 4500 Spanish Dollars. This led to the downfall of the Australian currency.

In 1910, prime minister Andrew Fisher passed the famous Australian Notes Act. This Act was introduced to allow the creation of Australia’s first national currency, the Australian Pounds. Every pound was divided into 20 shillings, where 1-shilling equals 12 pence. Therefore, for every 1 Australian Pound, there were 240 pence in circulation. Apart from introducing the first national currency, this amendment also gave the reins to the Commonwealth Treasury for printing notes and releasing them into circulation.

After this, the Commonwealth Bank Act of 1920 transferred the control of Australian notes to the Commonwealth Bank, which was further transferred to the Reserve Bank of Australia in 1960. Almost two decades later, the Australian Pounds suffered a devaluation of about 30%, forcing the government to introduce a decimal currency and replace the Australian Pounds. It was creating more problems in calculations.

Introduction of Australian Dollars

As 1 Australian Pound equalled 12 shillings, the calculations and exchange rates didn’t align with other global currencies. When the British government devalued the Sterling Pounds’ valuation against the US Dollar, the Australian government decided to launch a new currency based on decimalization. Under this rule, all the standard currencies will be compared to others based on 10. Harold Holt, the 17th Australian Prime Minister, passed the amendment to introduce a decimal currency independent of the British Sterling Pounds.

On February 14, 1966, the Australian Dollar was released into the market, with an exchange rate of A£1 = A$2. When the government officially withdrew from the Sterling area, AUD was pitted against the US dollars, following a base currency exchange rate of $1 AUD = $1.12 USD.

Factors affecting the Australian Dollar Exchange Rate

Over the years, the Australian Dollar (AUD) has witnessed a wide range of changes, be it total note circulation exchange rates or anything else. Understanding and analysing these changes will help identify how the AUD exchange rates impact the national and international trades, economy, and other such domains. Following are some of the significant factors which affect the dollar exchange rate as of the present time.

Australian interest rate differential key

The Australian interests vary compared to the rates valued by other top players in the market like the US, Japan, and more. If the Australian interest rates are higher, they can attract national and international investors. As a result, more assets will be bought in, causing a sharp increase in the demand for dollars. Therefore, the overall exchange rate increases. On the other hand, the AUD exchange rate suffers depreciation when the interest rates decline.

Commodity and trade volumes

Trade term is defined as the ratio of export price to the import price of different commodities. The higher the trade term, the more the country’s export revenue. As a result, the government needs to release more Australian dollar notes in the market, causing the demand to soar high. It further increases the overall price of the currency, resulting in appreciation.

International trade market

When an international exporter needs to buy commodities or exchange goods with Australia, they have to buy the currencies to pay for the trade. This increases the demand for notes, thereby causing appreciation of the Australian currency. On the other hand, if the imports are more, the contractors need to sell out the Australian dollars to convert them into the desired currency. This will add more dollars to the liquidity pool, causing a depreciation.

Interesting facts about the Australian currency

1. The Bank system was first established when the gold coins were released into circulation, almost around 1851.
2. The five Australian note denominations are 5, 10, 20, 50, and 100.
3. The Australian Dollar is considered one of the major global currencies next to USD, JPY, and EUR.
4. Australian currency notes are printed with eco-friendly polymeric paper and help save the environment.

Conclusion

Australian currencies have changed a lot over time. When the British first established their colony, Spanish Dollars became the prime trade currency for Australians. But after that, due to its shortage. Australian Pounds were introduced, whose control was handed over to the Commonwealth Treasury, the Commonwealth Bank, and the Reserve Bank of Australia. After the Sterling Pound devalued against the USD, the government decided to introduce new decimal-based currencies. This mere thought led to the conceptualization and implementation of Australian dollars (AUD). It is the national currency of Australia, but it also plays a crucial role in the global trade and exchange markets.