Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 538

The Aussie dollar was floated 40 years ago

These days, we take for granted that the value of the Australian dollar fluctuates against other currencies, changing thousands of times a day and at times jumping or falling quite a lot in the space of a week.

But for most of Australia’s history, the value of the Australian dollar – and the earlier Australian pound – was ‘pegged’ to either gold, pound sterling, the US dollar or to a value of a basket of currencies.

The momentous decision to float the dollar was taken on Friday December 9 1983 by the Hawke Labor Government, which was elected nine months earlier.

As they approached the cabinet room at what is now Old Parliament House, Treasurer Paul Keating asked Reserve Bank Governor Bob Johnston to write him a letter to say the bank recommended floating.

The letter, dated December 9, referred to the bank’s concern about the “volume of foreign exchange purchases and its belief that if these flows are to be brought under control we shall need to face up without delay either to less Reserve Bank participation in the exchange market or capital controls”.

By “less Reserve Bank participation”, Johnston meant a managed float. Direct controls were to be considered “as a last resort”.

The bank had long maintained a 'war book', bearing the intriguing label 'Secret Matter', outlining the procedures to be followed in the event of a decision to float.

An updated version was handed to the treasurer the day before the decision.

The US and the UK floated their currencies in the early 1970s. Since the early 1980s the value of the dollar had been set via a 'crawling peg' – meaning its value was pegged to other currencies each week, and later each day, by a committee of officials who announced the values at 9.30 each morning.

If too much or too little money came into the country as a result of the rate the authorities had set, they adjusted it the next day, sometimes losing money to speculators who had bet they wouldn’t be able to hold the rate they had set.

Keating had Johnston accompany him to the December 9 press conference instead of Treasury Secretary John Stone, who had argued against the float in the cabinet room, putting the case for direct controls on capital inflows instead.

Johnston’s presence was meant to make clear that at least the central bank supported floating the dollar.

Speculators now speculate against themselves

Keating told the press conference the float meant the speculators would be “speculating against themselves”, rather than against the authorities.

One banker quoted that night confessed to being “absolutely staggered”. “I’m not sure they know what they have done,” the banker said.

The following Monday on ABC’s AM program, presenter Red Harrison heralded “a brave new world for the Australian dollar”. He said, “from today the dollar must take its chance, subject to the supply and demand of the international marketplace, and there are suggestions that foreign exchange dealers expect a nervous start to trading when the first quotes are posted this morning”.

At the time, the Australian dollar was worth 90 US cents. At first it rose, before settling back.

Since then, the Australian dollar has fluctuated from a low of 47.75 US cents in April 2001 to a high of US$1.10 in July 2011.

The long road to the float

The idea first took hold in Australia when Commonwealth Bank Governor “Nugget” Coombs visited Canada in 1953, at a time when it was one of the few countries with a floating exchange rate.

On his return, Coombs wrote the bank should consider Canada’s experience.

A strong advocate from the mid-1960s was the bank’s economist Austin Holmes. Among those he mentored at what by then was called the Reserve Bank were Bob Johnston, Don Sanders, and John Phillips.

All three were in the cabinet room when the decision was taken.

Backed by Cairns, opposed by Abbott

An unlikely advocate in the 1970s was the left-wing Labor Treasurer Jim Cairns.

But asked in 1979 whether he was in favour of a float, the then Reserve Bank governor Harry Knight responded by quoting Saint Augustine, saying “God make me pure, but not yet”. An oil shock was making markets turbulent at the time.

In 1981, the Campbell inquiry into the Australian financial system delivered a landmark report to Treasurer John Howard, recommending a float. The idea was backed by neither the Treasury nor Prime Minister Malcolm Fraser.

Two years later, Howard watched from Opposition as Labor did what he could not.

The Liberal Party generally backed Labor’s move, with one notable exception – the later Prime Minister, Tony Abbott, who in 1994 wrote that, “changing the price of the dollar moment by moment in response to each transaction makes no more sense than altering the price of cornflakes every time a buyer takes a packet off the supermarket shelves”.

A success by any measure

The floating exchange rate has served Australia well.

When the Australian economy has slowed or contracted – in the early 1990s, the Asian financial crisis, the global financial crisis and in the COVID recession – the Australian dollar has fallen, making Australian exports cheaper in foreign markets.

When mining booms have sucked money into the country, the Australian dollar has climbed, spreading the benefit and fighting inflation by increasing the buying power of Australian dollars.

It’s why these days, hardly anyone wants to return to a pegged rate.

 

Selwyn Cornish is Honorary Associate Professor, Research School of Economics, Australian National University. John Hawkins is Senior Lecturer, Canberra School of Politics, Economics and Society, University of Canberra.

This article was originally published on The Conversation.

 

RELATED ARTICLES

Currency winners and losers

Can the battling Aussie dollar find a friend?

3 reasons the Aussie dollar has not collapsed

banner

Most viewed in recent weeks

Retirement is a risky business for most people

While encouraging people to draw down on their accumulated wealth in retirement might be good public policy, several million retirees disagree because they are purposefully conserving that capital. It’s time for a different approach.

The perfect portfolio for the next decade

This examines the performance of key asset classes and sub-sectors in 2024 and over longer timeframes, and the lessons that can be drawn for constructing an investment portfolio for the next decade.

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

The challenges with building a dividend portfolio

Getting regular, growing income from stocks is tougher with the dividend yield on the ASX nearing 25-year lows. Here are some conventional and not-so-conventional ideas for investors wanting to build a dividend portfolio.

How much do you need to retire?

Australians are used to hearing dire warnings that they don't have enough saved for a comfortable retirement. Yet most people need to save a lot less than you might think — as long as they meet an important condition.

Welcome to Firstlinks Edition 594 with weekend update

It’s well documented that many retirees draw down the minimum amount required and die with much of their super balances untouched. This explores the reasons why and some potential solutions to address the issue.

  • 16 January 2025

Latest Updates

Investment strategies

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

9 ways to fix Australia's housing crisis

Decades of policy failure have induced a fall in housing affordability. Unless painful changes are made, an underclass will emerge in a society that is supposed to boast the one of the world's highest standards of living.

Shares

Australia: why the chase for even higher dividend yields?

Australia boasts one of the world's highest dividend yielding sharemarkets, providing substantial benefits to investors and retirees. Despite this, individuals often stretch for even more yield, to their detriment.

Shares

MIGA – Make Income Great Again

The Australian sharemarket seems to be rewarding a number of unprofitable companies on the promise of future riches. Yet profits and cashflows still matter, as a recent case study of Domino's Pizza shows.

Shares

Mapping future US market returns

Exceptional returns from the US sharemarket over the past decade have driven by sales growth, margin expansion, rising valuations, and dividends. Predicting future returns requires careful consideration of these factors.

Shares

Read this before you go all in on US equities

US equities rule global markets, but history is littered with examples of markets that seemed invincible — until they weren’t. Diversification will be key for investor portfolios going forwards.

Property

What impact would scrapping stamp duty have on housing?

Increasing house prices pose challenges for housing affordability. This investigates the impact of stamp duty on the property market, and how removing the tax could help address several key issues.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.