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.

Johnj,

I would care if I were you. If you care to check you will find that the price of petrol in Zimbabwe is currently $Z 250,000 per litre, due to the complete collapse of the currency, and the people are starving.

It was interesting to read Terje on the evils of deflation, as (he claims) it cheats debtors and erodes commercial trust. You could just as easily say that the current policy of perpetual inflation cheats creditors and erodes commercial trust. With all the inflation we have had over the last 75 years a little deflation might bring things a little closer to parity.

The way the Americans are going with their profligate foreign spending, the Chinese may well dominate world financial markets in 20 years. The US has only had one financially smart president, FDR, who cleaned out the British holdings in the US and left the US with 80% of the world's gold in Fort Knox. It only took his successors 25 years to blow the lot.

If the Chinese come to dominate world finance, they may restore the Gold Standard, which is the only way to resore honesty in international dealings.

"Who cares" was just a cheap shot, but I couldn't resist the opportunity to use it.

Truthfully, I don't believe this issue rates very highly. In 20 years time China may be the world's dominant economic power. My money, however, is on the Chinese economy coming a massive cropper in that time. In either case Australia will be affected, but you need the wisdom of Solomon to really know what the impact might be.

This forum seems dominated by doomsayers, predicting petrocolapse, Islamic Jihad, forced interbreeding with "foreigners" etc etc. The world is in for interesting times, no question, but most of this stuff seems the fevered imaginings of pyjama-wearers who need to get out more.

I would suggest that a return to the Gold Standard is about as likely as a return to crinolines and button-up boots.

In response to my comment Perdsus said:-

"You could just as easily say that the current policy of perpetual inflation cheats creditors and erodes commercial trust."

And I would agree entirely. The point of monetary policy should be neither inflation nor deflation. Both cheat somebody and erode commercial trust.

In so far as deflation compensating for inflation this is true up to a point. If you are too loose in monetary policy this month and too tight next month then things may even out in a manner that has few victims. However to undo years of inflation with deflation is like knocking somebody over with a truck and then putting the truck in reverse to make things better. Typically you just flattern the same people twice.

During WWI Britian abandoned the gold standard and moved to a policy position that was inflationary. After WWI Churchill implemented a sharp dose of deflation in order to restore the pre-war gold price. The deflation impacted not just Britian but all commonwealth nations that fixed their currencies to the pound sterling. Churchills deflation was instrumental in the causes of the great depression (although there were other significant factors). Using deflation to correct past inflation is not generally a good idea. The aim of monetary policy should be price stability.

When is everybody going to realise that the money used in America today is not the Greenback but the US Dollar!
If you take a look back in History you will find the Greenback was a currency printed by Abraham Linkin and distributed free of charge to the Banks
Where as the money used today is a debt laden currency printed by the privately owned Federal Reserve System and is distributed for private Profit!