Australians generally pleased with decision to float the currency
Australia is floating its currency, and the bombshell decision has landed with a splash. Robert Hawke's Labor government has been labeled socialist by opponents, but this weekend's move has a free-market stamp on it. Previously, the Australian dollar had a fixed value in terms of American dollars. But this value was set each day by a group of bureaucrats.
The action is being hailed by farmers and miners, who rely on export earnings from the United States, Japan, and Europe and have been hurt by the exchange rate. Rupert Murdoch's national newspaper, the Australian, which has been the most consistent critic of the Labor government, said that ''the decision to float the Australian dollar is the most far-reaching economic one made by an Australian government in postwar years. It recognized Australia as an integral part of the international financial community, as it should be.'' All the other major papers joined in the praise of the government's action, and the former Liberal treasurer, John Howard, also praised it.
The decision is expected to result in an immediate improvement in the value of the Australian dollar, bringing it up to the relationship it had with the US dollar eight months ago when the government ordered a 10 percent devaluation of the Australian currency. In the longer run, however, the Australian dollar could depreciate slightly.
It is the latest in a series of economic policy decisions by Mr. Hawke's Labor government which business believes show that the government is wedded to a sane, rational approach to economic policy, much more so than even the most optimistic of observers would have predicted when Hawke was elected in March.
Many observers believe the decision will be followed by government approval for foreign banks to set up operations in Australia. The government's decision was partly forced on it by a large inflow of capital over the past two weeks. But most commentators thought the government would react simply by increasing the value of the Australian dollar within the fixed-exchange-rate system.
The government's decision was taken under advice given by the Reserve Bank (the nation's central bank), but it was opposed by the Federal Treasury Department, which wanted the government to use the exchange rate as part of its general economic controls.
At the same time it freed the dollar, the government announced the easing or elimination of longstanding restrictions on dealings by Australians in international currencies. Treasurer Paul Keating said exchange-control restrictions would be relaxed in a number of areas, although those connected with tax havens and foreign investment in Australia would remain. The government's decision comes amid increased expectations of economic growth in Australia.
After falling for three successive quarters, gross domestic product rose 4.4 percent in the third quarter, a record quarterly jump. Unemployment has dropped below 9 percent for the first time in a year, and employment is continuing to increase. Housing construction is soaring, and the inflation figure is rapidly falling. While a large part of the improvement in the economy is due to the breaking of the drought in most rural areas in Australia, the nonrural sector is also improving, and confidence in economic growth over the next 12 months is high.