New Zealand should form a currency union with Australia
A currency union can be entitled to could produce productivity margin as well as productivity gains. It is the concept of sharing the single currency by a group of countries to get some benefits in the area of exchange rate mechanism whether it will be useful to reduce transaction cost, cost of deviation between currencies, favorable market for the exporter or importer. On the other hand, it is the matter of threat for the individual monetary policy or the use of fiscal policy by own country.
The first myth is that dollarized using Australian dollar, there would be the matter of strategies that must be employed as well as applied by the Reserve Bank of New Zealand. Because the fact of currency union. If New Zealand share currency union with Australia, then it would be great in that situation of currency. The Bank’s responsibility is to currency unions, including its both the pros and the cons, and therefore it must have the argument about the statement of it whether it will be better or not. (Llyod, 2015)
The second myth is that dollar exchange rate is vulnerable to the application of similar currencies that could be applied in the modern world. The matter of currency union of New Zealand could be expressed in response to the terminology of “the metaphor of a tiny rowing boat”. On the other hand it should be remembered that there is no so many volatility in the currency of New Zealand dollar. But if the aspect of currency union with Australia considering the fact of volatility then The Reserve Bank consider the issue both throughout exchange rate swings. In the period of 185 to 1988 times there was too much volatility in the New Zealand dollar but around the next years there was has been the matter of volatility to be mentioned as less volatile than other currencies of the world. If we outline the big exchange rate in response to the swings of rate in the world economy as well as exchange market the volatility norms of the currency is the big issue that can make the whole process of so difficult, basically for those who are engaged with the business like exports and imports and currency deviation become the problem for exporters and importers at different stages of business purpose and business progress during business phenomenon. (McGregor, 2010)
The third myth if the traders of New Zealand are trading within the currency union then it be more helpful to eliminate the criteria of big exchange rate swings as well as the exchange rate deviation against the countries to deal with outside the currency union. It has been noticed that trade of New Zealand with Australia is statistically determined to the amounts 20 percent of the total, in which a currency union with Australia has made the sense of greater problem to deal with the currency that it would still have the problems for our exporters as they are facing currency uncertainty. The fact of nominal exchange rate certainty to currency union would not buy anybody. Now it has been exposed New Zealand is maintained an open banking sector to meet the minimum qualitative criteria as it cannot be the burden for the exporter and importer when they are dealing the foreign currency, thus the fact currency union may minimize the risk level inherently. (Acuity, 2017)
But there is an argument if the fact is about to make the banking activates more global competition or global competitive or make the banking industry more global competitive, then it has no required going for the currency union, meanwhile it should be considered when it has become the interest of the exporter and importer as well as the business of export and import. In this regard, the major banks in New Zealand have been interested to earn interest margin earned by Australian banks.
The fourth myth is to enable the currency unions of New Zealand with Australia in the betterment of economy or to grow the GDP of the country as quickly as the Australian economy is growing at an increasing rate with the development in the area of investment, consumption speeding, increase of earning flow, decrease unemployment rate at near about zero level unemployment and the increase of the living standard where the labor payment is increases slowly. But these increases are somewhat in speedy in case of New Zealand economy thus it has been thought deal the currency union of New Zealand with Australia to be instantly richer. The fact of Currency union is the matter of productivity performance in the area fundamentally productivity for quality system and for the effectiveness of the quality of New Zealand management.
And final myth is developing as well as establishing the currency unions, and the matter of dollarizing equivalently to similar within this two country where New Zealand should from the policy of it to make it justifiable and enter into this mechanism as early as possible. Due to take the advantage of the forming currency unions it is very much required to make the relevance theory as it is, useful or not to be the engaged with the similar currency practice with Australia. More specifically, the countries of the European Monetary Union are basically entitled to the formed a currency union as well as involving into a practice of a new central bank and involving into a new currency, to make the trade flows as high proportion in the trade market member where currency union will play a simple as well as important part to make the wider global economic forum like political forum, economic forum, and regulatory forum integration. (Hickey, 2009)
But there are some valid arguments why a currency union might have economic advantages.
A currency union can be entitled to reduce the transaction costs that is arise basically due to the exchange rate between the countries like Australia and New Zealand in the norms of exchanging dollars for other currencies. Second, currency union can be entitled reduce average New Zealand interest rates in very limit of little.
A currency union can be entitled to adopting the US dollar to reduce interest rates in New Zealand market exchange by rather more. By the way of adopting the Australian dollar it could be the mechanism to avoid the need to pay the currency risk premium. Thus, it will be considered as the save of current demand which is more additional value for the economy for holding New Zealand dollar assets. Moreover, currency union can be entitled to remove
chance of deviation in the New Zealand interest rates falling below those in Australia. (Brash, 2000)
A currency union can be entitled protect the high inflationary expectations that could be the problem for the currency as well as economy and by this way of currency union as when oit can reduce the deviation of exchange rate then the measure of inflation could be little matter of worry but not like that as it could be threat for the economy. So the result of forming a currency union, would be for future.
Third, while currency union with Australia would be the fact of exchange rate uncertainty to the exporters face, it would be the big exchange rate in response to the swings of rate in the world economy as well as exchange market the volatility norms of the currency is the big issue that can make the whole process of so difficult, basically for those who are engaged with the business like exports and imports and currency deviation become the problem for exporters and importers at different stages of business purpose and business progress just because of forming part of the currency union. (Balli, 2015)
As a result currency union can be entitled to reduce exchange rate uncertainty within the currency union it seems very likely that currency union would stimulate trade with other parts of the currency union.
Empirical research on the effects of currency in response to the currency uncertainty are actually are quite significant because trade within the currency union if applicable then it must have additional value for the New Zealand economy in the area of an increasing rate with the development in the area of investment, consumption speeding, increase of earning flow, decrease unemployment rate at near about zero level unemployment and the increase of the living standard where the labor payment is increase to the extent of successful criteria.
A currency union can be entitled to could produce productivity margin as well as productivity gains, as New Zealand producers moved to the currency union with Australia to make the market smooth and take the advantage of the a currency union to make the GDP more stronger.
On the other side of the ledger, there would be one potentially major and one more minor disadvantage of a currency union.
It has the risk of the loss of an independent monetary policy which is the main concern for an individual economy as very important. It has the risk of the reduce the ability to influence our own inflation rate. There seems little doubt that the fact the currencies of many of New Zealand trading partners more prolonged recession than many other Asian economies for the same sort of reason. (HAWKESBY, 2015)
There will have no ability to use New Zealand monetary policy to deal with these cycles, moreover they will not have the chance to the use fiscal policy more actively. The matter of economy more flexibility will be risky in the context of the currency union. The minor disadvantage of dollarizing would be the loss of what central bankers call seignior age income. There have the loss in the value in government securities at the going market interest rate.
References – Currency Union
Acuity, 2017. Australia-New Zealand economic relations: for better or worse: How trade between Australia and New Zealand could be smoother. [Online]
Balli, F.R.a.F., 2015. WOULD AUSTRALIA–NEW ZEALAND BE A VIABLE CURRENCY UNIONs? EVIDENCE FROM INTERSTATE RISK‐SHARING PERFORMANCES. [Online]
Brash, D.T., 2000. The pros and cons of currency unions: a Reserve Bank perspective. [Online]
HAWKESBY, C., 2015. Australia currency unions more politics than economics. [Online]
Hickey, B., 2009. Have your say: Should New Zealand form a currency unions with Australia? [Online]
Llyod, P.j., 2015. A currency unions between Australia and New Zealand? [Online]
McGregor, D., 2010. Australia-New Zealand Currency Unions :A Structural Approach. [Online]
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