Dollarisation, currency union and the Anzac dollar: embedded neoliberalism and the risks of implosion

Abstract

The idea that New Zealand should abandon its national currency in favour of the US or Australian dollar, or create a new shared currency with Australia, has gained momentum in recent years. Denationalisation of the currency would crown almost two decades of radical neo-liberal restructuring by placing many of those achievements beyond the reach of future governments. Despite this, there is considerable reticence from the economic and political architects of the 'New Zealand Experiment' (Kelsey,1997) who believe that other monetary regimes are inferior to their own. Paradoxically, there has been more support from the political leadership of the current Third Way government, led by the New Zealand Labour Party, which is attracted by the prospect of deeper integration into the global economy through monetary union with Australia. While the Prime Minister talks in terms of monetary union, almost all commentators concede that the effect for a small, open economy like New Zealand's would be no different from the more coercive option of dollarisation.... The first section of the paper traces the emergence of all three strategies over the past two decades. During the initial phase, monetary policy was refocused exclusively on price stability and national monetary authorities were insulated from government control. The second phase, which has gained momentum in the 1990s aims to remove monetary authority beyond the political reach of the nation state, permanently.... The paper argues that these theories perpetuate the grand delusion of neo-liberalism - that global capitalism can thrive in a social, cultural and political void and permanently quarantine itself from the contradictions it creates. Money is not simply a commodity. Nor are national currencies merely the symbols of a (presumed) national identity. In an economic system of commodity capitalism, money is the medium for exercising power. It serves as the means of payment, store of value and unit of account, and as a commodity in its own right. Monetary policy is the vehicle through which national governments control the creation of money and influence its value so as to distribute resources between competing interests, whether capital and labour, diverse regions or different countries.... This makes currencies, exchange rate mechanisms and monetary policies intrinsically political. Their forms have been highly contested throughout the twentieth century and renegotiated in response to periodic economic, social and political crises. Dollarisation and monetary union aim to bring this history to an end and permanently privilege the owners of capital. The attempt to remove the power of government over economic policy heightens the risks of social disintegration and political implosion in an often highly fractured society. As the theory is increasingly transformed into practice, these tensions are emerging more clearly. The final section of the paper draws on Argentina's experience under a currency board and European Monetary Union to assess the implications for New Zealand.