The New Zealand Dollar: The Tenth Most Traded Currency in the World

Compared to most major currencies, the New Zealand dollar is still rather young.

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The New Zealand dollar (NZD, $) is the official currency of New Zealand which includes New Zealand, the territories of Niue, Ross Dependency, Tokelau and Cook Islands, as well as the British Overseas Territory, Pitcairn Islands. Using NZ$ to distinguish this currency from other dollar denominated currencies is quite common, as is referring to it as the ‘Kiwi’.

The New Zealand dollar was the 10th most traded currency by value in the world in April 2013, accounting for around two percent of the global exchange market turnover at that time. The contribution of this currency to the international foreign exchange market remains considerably more than its relative share of GDP or population.

There has been no link between the New Zealand dollar and gold or a precious metal backed currency for long, so its value essentially depends on the amount in circulation. Besides, this has contributed to the country’s large and long term rates of inflation.

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Value and exchange rates of the New Zealand dollar

The establishment of the Reserve Bank of New Zealand to function as the country’s central bank took place in August 1934. Until this time, setting of New Zealand’s monetary policy happened in the UK, and private banks issued the New Zealand pound. In July 1967, the New Zealand dollar replaced the New Zealand pound, at a rate of two dollars to the pound. The country printed around 27 million new banknotes, and minted around 165 million new coins.

The New Zealand dollar initially pegged to the US dollar, when one New Zealand dollar valued at USD1.43. In November 1967, after the British pound’s devaluation, one New Zealand dollar traded at USD1.12. In 1971, the US decided to devalue its currency in relation to gold, and by December of that year the New Zealand dollar pegged at USD1.216, with a fluctuation range of 4.5%.

In between July 1973 to March 1985, a trade-weighted basket of currencies called the trade weighted index (TWI) determined the value of the New Zealand dollar. In September 1974, Australia decided to peg its currency against the TWI to try and minimise fluctuations that arose because of its peg to the US dollar. In November 1976, the peg to the TWI changed to a moving peg, which led to periodical adjustments in the peg’s actual value.

In March 1985, the New Zealand dollar switched to the floating exchange rate system, and one New Zealand dollar initially traded at USD0.444. Financial markets, since then, have determined this currency’s value, and its value against the US dollar has fluctuated in between around USD0.40 to USD0.88. Towards the end of the 1990s, the US dollar started to lose its overall influence over the value of the New Zealand dollar and the Australian dollar against other currencies.

In November 2000, the New Zealand dollar’s post-float minimum average daily value stood USD0.3922, and it increased to USD0.8666 by July 2011. Interest rate differences could well be the main reason behind this medium-term variation in exchange rates.

Currency trading tends to affect the value of the New Zealand dollar significantly. In June 2007, the Reserve Bank of New Zealand ended up selling an undisclosed amount of New Zealand dollars for nine billion US dollars with the aim of decreasing the New Zealand dollar’s value. This was the first time the bank intervened in the exchange markets since it joined the floating system.

After joining the float regime, the New Zealand dollar got to its record high in early 2008. The global economic downturn then got its value to plummet through much of 2008’s second half as well as the first few months of 2009. In March 2009, the New Zealand dollar bottomed out, trading at USD0.50.

It witnessed a revival of sorts soon after, and by November 2009 it got to the USD0.75 mark. Towards the latter part of 2012, the New Zealand dollar valued at over USD0.80, even getting to USD0.85 at times.

The table below shows how the New Zealand dollar fared against some important currencies over time.

1990 2000 2005 2010 2015
US dollar 0.6025 0.4444 0.7055 0.7258 0.7661
Euro NA 0.5077 0.5367 0.5081 0.6567
Pound sterling 0.3654 0.3140 0.3749 0.4493 0.5046
Canadian dollar 0.7055 0.7445 0.8621 0.7573 0.9217
Australian dollar NA 0.7822 0.9200 0.7964 0.9534

The values given above are averages from the month of January from respective years.

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History of the New Zealand dollar

In 1840, the New Zealand pound became New Zealand’s first official currency. Until then, the use of British and Australian coins was common in the country, and their use continued till 1897. Until 1924, six private banks produced banknotes, and the Reserve Bank of New Zealand came into effect only in 1934.

While the idea of decimalisation started doing rounds in 1933, not much happened in this regard until 1967, when the New Zealand Dollar worked in replacing the New Zealand Pound. The naming of the currency involved considerable public discussion, and while names like kiwi and zeal found some takers, dollar was a clear favourite.

Rounding of cash transaction began in 1990, with no coins under five cents remaining in circulation. In 1999, an attempt to modernise the New Zealand dollar saw the release of a new design, with new notes making user of polymer.

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Coins and banknotes of the New Zealand dollar

When the New Zealand dollar came into being, the central bank issued coins in denominations of 1c, 2c, 5c, 10c, 20c and 50c. The 1c and 2c coins made use of bronze, and the others used cupronickel. Minting of 1c and 2c coins for circulation stopped in 1987, and these coins were demonetised in April 1990. In February 1991, $1 and $2 aluminium-bronze coins replaced existing $1 and $2 notes.

A changeover period to shift from taking 5c coins out of circulation to making the 10c, 20c and 50c coins smaller and using plated steel began in July 2006, and people could use old coins until October 2006.

10c 20c 50c

In 1967, the central bank released banknotes in denominations of $1, $2, $5, $10, $20 and $100. A change of printer in 1981 saw a slight change to the notes. The bank introduced s $50 note in 1983, and it discontinued the $1 and $2 notes in 1991. It released a new series in 1992, and polymer notes replaced paper notes in 1999.

NZ_ten_dollars NZ_fifty_dollars

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