Unlike other ecomomists I would like to start the graph from 1901,
The Australian Dollar was worth TWO AND A HALF pounds sterling,that equals appoximately $5US to $1aussie dollar.
Firstly, Australia created their own Currency .
Secondly, they allowed primary producers to dictate a lower Aus$
so that their markets would be easily accessed.
The last reason I consider to be a national disgrace.The lowing of the Aus$ so that secondary industries could be more competitive on world markets at the expence of Australian workers.
Australian homes should have a value of between $10,000AUS for ordinary aussies and $300,000AUS for Sydney Waterfront properies.
If we multiply our curent house prices by five,this is what has happened to the poor people who live in Australia today.
What can be done to increase the value of the Australian Dollar.
1. As we only have a base of 2million australians paying PAYE,and
the other 18million either evading tax or too young or old to pay tax.Personal TAX SHOULD BE ABOLISHED.
2. Australian States should be abolished as they have for over a century been competing with each other for Foreign investment.An Example is the granting by the South Australian Government of Millions of dollars of taxes to the Mitsubishi Corporation....Only to be told that they will probably close up as Australian workers or should that read overseas born Australian workers will lose their jobs.
3.The wealth that comes out of our soil would easily pay all pensions,if we do not import more "workers."
4.The scare campaign by all governments that Australians of pensionable will not have enough to live on in old age is a lie.
Life insurance was a product that we were told we must have,The Baby boomers all had life Insurance.With the constant lowering of the Aussie Dollar the baby boomers quickly realised that they were being robbed.
To coverup the falling dollar, baby boomers were told that only Superannuation would allow them to have a comfortable life in retirement.
Australia is the richest country in the world and so why are feeling so poor.

There should be no complaint that the graph starts in 1983. It is from this time that the dollar was floated; ie that markets determine the price of the dollar.

Prior to 1983, the value of the dollar was set by the government.

This graph also tells the story of the US economy. So it is not quite a barometer like the stock market.

Brock,

It would be a great start if you got your facts right. The Australian Dollar did not exist in 1901, being created on 14 February, 1966. The currency in 1901 was the Australian Pound, which was at parity with the Pound Sterling, which was equal to $4.86 2/3 against the US Dollar. All these currencies were on the Gold Standard, which had ensured that there had been no net inflation since 1717, when the Comptroller of the Royal Mint, Isaac Newton, fixed the price of gold at £3/17/10½ per ounce of gold 22 carat fine.

This system lasted until the depression, when the Scullin government abandoned the Gold Standard in 1929 and allowed the currency to depreciate. This began the greatest inflation in recorded history, far exceeding anything during the fall of Rome or the chaos afterwards, and over the next 75 years the currency lost 99.5% of its purchasing power. To compound the folly Keynesian economics was followed by all governments, resulting in the present regime of perpetual inflation.

The main practical effect of this policy was that it did not pay to save money in a bank account, something that has at last been addressed in the recent budget, and now at least some of the community can afford to save using superannuation accounts. The net result of all this is that people borrowed, no-one saved, and is it such a surprise that we have a private foreign debt of $500 billion. The current Federal Government has done its bit, and has paid off all our government debt, so there is no risk that we will follow Argentina. We can only hope that the new policy will work before our overseas creditors decide to call in our private foreign debt, as they have done twice before (1893 and 1931) in our history. Remember that if this happens the Reserve Bank cannot allow our dollar to fall too fast, as that would make our largest companies insolvent, and in the last resort would have to raise interest rates to whatever level (50%?) would stop the money from leaving.

Who cares?

The article is utter rubbish.

The notion that a rising dollar is the sign of a "strong" economy sounds too much like a perverted variant of the thinking behind mercantilism.

Shareholders of a company want a higher stock price because it means that the company is worth more. Although the true market worth of the company would be the value of each share times the number of shares on issue.

Dollars are not like shares. They do not represent a part ownership of Australia. In particular fiat currency does not entitle the bearer to anything. They are merely tokens with some market utility in trade. Given that our national currency is the most widely used "unit of account" within our economy and given that salaries, office leases, bank accounts and all manner of commerical promises are denominated using this unit of measure, then the fostering of trust and good commerce relies on a currency that is stable in value. A sustained rise in the value of our currency is called deflation and it is not a good things at all because it cheats debtors and erodes commercial trust.

Attempting to benchmark the value of our dollar using the US dollar is also fraught with dangers. The value of the US dollar itself may not be a stable reference point. If the US dollar was a stable reference point for such a measurement of value then there would have been no point in floating the Australian dollar because a fixed exchange rate would have been consistent with our inflation objectives.

If the RBA was merely concerned with a "strong" aussie dollar then it could double or triple its value at whim merely by draining the markets of liquidity (ie use open market operations to reduce M0). However observing how Japan suffered over the last decade with persist deflation (ie a "strong" Yen) it would be a pretty stupid policy to pursue.

Australia needs a strong dollar about as much as it needs a weak dollar. Which is about the same as any of us needing an extra hole in our head.

Henry, why are using only the US dollar as a reference. Compare the recent performance of the USD and the Aussie against others like the Euro, Yen, Pound and Mark and the picture is not as rosy as you have indicated.