Monetary Union between Australia and New Zealand

Monetary Union between Australia and New Zealand



Monetary Union between Australia and New Zealand

Introduction

Monetary Union can be defined as a group of countries or regions that have same currency, a central bank and monetary policy. Among the benefits that generate a monetary integration are more efficient transactions and gain the wider region and country particularly in terms of credibility. Australia and the New Zealand enjoy a close relationship based on shared history, common values ??and mutual business interests. As minded partners, they cooperate in many areas within multilateral agencies and are currently studying the possibility of exploiting further their relationship through a framework treaty (Benjamin, 1998, pp. 96-105).

Benefits of Monetary Union between Australia and New Zealand

Increased Efficiency in Transactions

In a monetary union there are two factors that lead to efficiency gains through reduction of transaction costs. The first factor to consider concerns the fact that single currency do not need go to the foreign exchange market at the time to realize certain business transactions between staff of different nationalities. On the other hand, it should consider removing uncertainty as for the value of receipts and payments between operators' union members to become more predictable monetary policy and exchange. These benefits will depend on the degree of trade integration there among member countries.

Increased Credibility

Another consequence of a monetary union between Australia and New Zealand can be argued as expected benefits have to do with the so-called "arguments institutional.” These arise from the European experience. EMU is based on the compliance with an agreement signed between member countries aspiring to it. This pact called the Treaty of Maastricht establishes the economic requirements to be part of the monetary union (Charles, 2009, pp.69-75). The requirements spelled out in the Maastricht Treaty have to do with the exchange rate stability, price stability, responsibility for behavior of public administration in regard to the fiscal deficit and its indebtedness. The basic idea of this principle is that countries resemble each other enough as for as possible to ensure the absence of tension among members, order not to endanger this integration. However, this treaty has generated positive externalities on those countries with lack of credibility, to give them a chance, almost unique, to modify their policy.

Elimination of Transaction Costs

Another benefit derived from a monetary union with a single currency is the disappearance of transaction costs, i.e. converting one currency into another. Under the assumption that the difference between the purchase and sale of currencies reflect the real resources devoted to foreign exchange, the Commission (1990) estimated that the direct welfare gain through this route would be located in figure close to 0.5% of GDP, countries with relatively less financial sectors sophisticated they would obtain a larger share of these benefits.

Elimination of Mismatches and Exchange Rate Volatility

A second benefit of a monetary union, when compared to a floating exchange stems from the reduction in exchange rate misalignments and volatility of the same. When currency exchange rate volatility would be reduced ...