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

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Latest Updates

Planning

Will young Australians be better off than their parents?

For much of Australia’s history, each new generation has been better off than the last: better jobs and incomes as well as improved living standards. A new report assesses whether this time may be different.

Superannuation

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Investment strategies

A steady road to getting rich

The latest lists of Australia’s wealthiest individuals show that while overall wealth has continued to rise, gains by individuals haven't been uniform. Many might have been better off adopting a simpler investment strategy.

Economy

Would a corporate tax cut boost productivity in Australia?

As inflation eases, the Albanese government is switching its focus to lifting Australia’s sluggish productivity. Can corporate tax cuts reboot growth - or are we chasing a theory that doesn’t quite work here?

Are V-shaped market recoveries becoming more frequent?

April’s sharp rebound may feel familiar, but are V-shaped recoveries really more common in the post-COVID world? A look at market history suggests otherwise and hints that a common bias might be skewing perceptions.

Investment strategies

Asset allocation in a world of riskier developed markets

Old distinctions between developed and emerging market bonds no longer hold true. At a time where true diversification matters more than ever, this has big ramifications for the way that portfolios should be constructed.

Investment strategies

Top 5 investment reads

As the July school holiday break nears, here are some investment classics to put onto your reading list. The books offer lessons in investment strategy, financial disasters, and mergers and acquisitions.

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.