A Way to Stop the Aussie Dollar's Slide?


We often give our money weird names. Sometimes the names are wry, like referring to U.S. currency as Ben Franklins or U.S. Grants, after the picture of the famous guys on those denominations. And sometimes they're cute. Canada calls its $1 coin a loony for the national bird featured on it. Hong Kongers call their red-orange $100 bill a lobster.

Down Under, Australians have a few derisive names for their fast-falling dollar, the rudest one being Pacific peso. But lately, a new term is gaining currency in Corporate Australia -- execs want to call it the greenback.

EXTERNAL SUPPORT. The Australian dollar is in the pits: It takes two of them to buy a single U.S. dollar. And as a way to give it more currency in the world, so to speak, a growing group of influential businesspeople -- led by no less than Australian Stock Exchange Chairman Maurice Newman -- are looking to the U.S. dollar. These advocates are debating linking the value of the Aussie dollar to -- or even replacing it with -- the greenback. But while both pegging and dollarization are being discussed, Newman has concentrated on the latter.

The stock exchange chief doesn't want to dollarize the Australian economy with the world's strongest currency just yet. But as globalization takes hold, and with the Australian dollar slumping 25% this year to be the world's third-worst performing currency in 2001 -- behind Haiti and Turkey -- he wants Australians to start considering the possibility for the medium term.

Newman surmises that no overwhelming economic rationale exists for the Aussie dollar to be so low. In 1971, it cost U.S.$1.48 to buy A$1. Now, the latter is worth just U.S.$0.49. In that time, the Australian economy has changed dramatically. Once hidebound by protectionist tariffs and hostage to commodity prices and rural locales for its exports, Australia has embraced value-added global industries such as services and information technology. And though it's going through a painful evaluation of its proximity to Asia, stable Australia is no Indonesia. The 2000 Olympics host is free, open, and very democratic.

Australia's left-leaning Hawke government floated the Australian dollar at U.S.$0.92 in 1983. It reached a post-float high of U.S.$0.97 three months later but has been a seller's paradise since then.

CONUNDRUM. A weak currency is usually symptomatic of a struggling economy. But Australia confounds the pundits. As its dollar has tumbled, Australia's economy has been one of the world's most robust. While Asia imploded in 1997 through 1999, Australia was posting quarterly economic growth of 5% to 6%, numbers that had been associated with the now-defanged tiger economies of Asia. Go figure.

Which is precisely stock exchange boss Newman's point. "You've got lots of analysts out there who are claiming that [the soft Australian dollar] is because of various weaknesses in the Australian economy," he notes. "The Australian economy, structurally and from a performance point of view, is one of the best-placed economies in the world...so that argument just doesn't add up." Newman can't be dismissed as a stay-at-home troglodyte looking for an easy out. Under his tutelage, the Australian Stock Exchange has emerged from cozy club to progressive regional market. It has allied itself around the Pacific Rim and was an early player in the global trend of stock exchanges to list its own stock and open itself to foreign entrants. Newman also chairs Deutsche Bank's unit Down Under.

So what's wrong? Newman blames the Australian dollar's woes on the company's economic strength, not its weakness. Corporate Australia has so vigorously embraced reform and globalization, that it now prices and thinks in U.S. dollar terms. Thus, the need for the Australian dollar is decreasing. Once one of the most actively traded currencies, it has now "just simply slipped off the world's forex radar screens," a victim of globalization, he says. "It's time that we at least have an analysis of the issue and a debate on it," Newman told a conference of Australian company directors recently.

"POLITICALLY UNREALISTIC." By this argument, Australia is a very different contender for dollarization than other countries. It embraces the debate at the opposite end of the spectrum that has forced crippled economies like those of El Salvador, Ecuador, and Panama to dollarize. It's also in far better shape than its struggling Asian neighbors. Regional currencies are again plumbing record lows, prompting renewed calls for forex stabilization for Asia's "crisis five" -- Indonesia, Thailand, South Korea, Malaysia, and the Philippines, all of which except Malaysia required World Bank and IMF surgery to stay afloat.

Not everyone thinks that dollarizing the Aussie currency is a good idea. Clifford Bennett, BNP Paribas' senior currency strategist and a long-term Australian dollar bear, has correctly called the currency's every major downturn since the early 1990s. Known as the Oracle, he discounts the idea as "politically unrealistic." A weak Australian dollar, he says, is what saved Australia from the ravages of the Asian crisis. And as Asia, Australia's biggest export market, again slows down, "it will save it again."

He forecasts a U.S.$0.45 level for the Aussie dollar for 2001 -- a further 10% fall from current levels -- and firming later as Australia corrects its trade deficit. "This would firewall Australia from the worst of a global slowdown." Bennett says.

In any case, with an election on the horizon, politicians are unwilling to wade into Newman's debate just yet. "I don't think Australians are prepared to...just blindly follow what Alan Greenspan is doing in Washington," Australian Finance Minister Joe Hockey said recently in a government radio broadcast. But the plight of the Aussie dollar raises some troubling questions about the future of smaller countries' currencies in a globalizing world. Sometimes, you can't do right for doing right. By Eric Ellis in Singapore


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