The Evolution of Australian Exchange Rate Strategies and Australia's Capacity to Maintain a Strong Floating-currency Regime

Abstract

As an industrial country, Australian authorities implemented various exchange rate policies at different stages by combining the world's trend and its particular domestic economic environment. There are three stages of exchange rate regimes that Australia has been experiencing so far. The first stage can be called the absolutely-fixed regime from December 1931 to November 1976, including three sub-regimes: Australian dollar pegging to the British Pound, pegging to the U.S. dollar and pegging to the fixed effective exchange rate (TWI); the second stage is the Crawling Peg regime from November 1976 to December 1983; the third stage is the pure-floating regime since December 1983. At each regime, the authorities took different approaches to exchange rate to reach the different economic objectives. This paper attempts to present the evolution of Australia's exchange rate system from a fixed to a floating stage and then up to present, including a description of some relevant institutional developments, such as the removal of capital controls, the development of the Australia's foreign exchange market. The analysis sheds light on Australia's capacity to absorb global financial crises by maintaining a strong floating-currency regime.