Why Does Australia have a Floating Exchange Rate?
Between the early 1970s and 1983, exchange rate policy in Australia moved through several regimes. The first major shift occurred in 1971, when exchange rate policy shifted from pegging the Australian dollar to the UK pound to pegging to the US dollar. This was followed by a period of pegging to the TWI, from 1974 to 1976. During each of these regimes, there were occasional revaluations and devaluations. A crawling peg against the TWI was subsequently adopted, until the Australian dollar was eventually floated in 1983. The history is shown in Graph 3. Graph 3 Click to view larger Under the fixed-rate and crawling peg arrangements which existed before 1983, the Reserve Bank cleared the foreign exchange market each day of any excess demand for or supply of Australian dollars. If, say, banks in aggregate had acquired US dollar balances in the course of their business and sold Australian dollars, the Reserve Bank would acquire those US dollars from the banks in exchange for Australian doll
