It is no secret that Australia and New Zealand, sometimes referred to as Trans-Tasman relations because the countries are on opposite sites of the Tasman Sea, are extremely close when it comes to trading and working with one another. In World War I and World War II New Zealanders fought alongside Australians and economic integration continues to unite the two countries. It only makes sense that talk of a Trans-Tasman economic union would arise. Or does it?

Australia and New Zealand are finally starting to make serious moves toward a common currency. This proposal was brought up by the productivity commissions of the two nations and has many up in arms. Although nothing is close to being finalised, the talks have both New Zealanders and Australians worried about following the path of Europe and the Euro, which you’ll know by now is not exactly in fighting health.

The Pros and Cons to a Unified Currency

Many officials have noted that there are pros and cons to the issue, but many of these pros and cons seem to differ between the countries. It’s important to understand what the advantages and disadvantages are and then determine if the common currency would in fact benefit both countries. Consider some of the pros and cons to the potential change below.

Trans-Tasman Economic Union: The Pros

• Transaction costs that occur when trading would be avoided if there was a unified currency. This is probably the biggest advantage that both countries are taking into account.
• This could potentially reduce interest rates for New Zealand and remove any chance that New Zealand’s interest rates would fall below those of Australia.
• A shared currency would make travelling easier and more attractive for tourists. Another objection to making the long journey would be removed.
• The nominal exchange rate, or the official quote of an exchange rate, for trade would be eliminated.
• Many feel that a unified currency would help unify the two countries that have worked side by side for so many years in spirit and pride.

Trans-Tasman Economic Union: The Cons

• Although transaction costs would be avoided, the savings could be too minimal to matter. In fact, so much international trade is conducted in US dollars that the savings would be greater if that was the adopted currency.
• Loss of independent monetary policy. Both countries would have less control and influence over inflation rates. And there would be concerns in New Zealand that Australia would have too much say, which could balance the scales in their favour (just like Germany does in the Euro).
• Because business cycles and economic changes are different in the two countries and affect the two countries differently, there could be costs in not having separate exchange rates. This can be seen when looking at the economy of Ireland and what happened with the switch to the Euro.

Do the Pros Outweigh the Cons for Either Country?

In general, the proposal has been accepted more widely by Australians than New Zealanders, and rightfully so. According to The Telegraph, “Australia has been New Zealand’s largest trading partner in recent years, but New Zealand is only Australia’s fifth largest partner.” However, as opposed as New Zealand seems to be about the idea, Australia’s Prime Minister Julia Gillard also expressed concern. Although she hopes to move toward a single economic market, she is not going to push for a unified currency.

The public seems to be overwhelmingly against the idea. You can read more from the New Zealand perspective, the country that would likely be affected more dramatically, by reading a speech given by Donald T. Brash, Governor of the Reserve Bank of New Zealand.

Now It’s Your Turn

How do you feel about a Trans-Tasman Economic Union? Can you see any more pros or cons to making the switch? Furthermore, do you think that it will happen, or is this just all talk and no action?

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