Overview
The Australian Dollar is the official currency of the Commonwealth of Australia. It is issued and managed by the Reserve Bank of Australia under the Reserve Bank Act 1959. The Dollar floats on foreign exchange markets and is one of the most widely traded currencies globally, highly sensitive to commodity prices (particularly iron ore and coal) and global risk sentiment.
Etymology & History
The word "Dollar" derives from the Dutch "daalder" via Spanish "dólar," a global monetary legacy. Australia adopted the Dollar in 1966, replacing the Pound Sterling system (inherited from British colonial rule). The currency represents Australia's monetary independence and transition to a decimal currency system.
Prior to 1966, Australia used the Pound, Shilling, and Pence system (12 pence = 1 shilling, 20 shillings = 1 pound). Decimalization (1 Dollar = 100 Cents) modernized the system and aligned Australia with international standards.
Timeline of Key Events
| Year | Event |
|---|---|
| 1966 | Australian Dollar introduced; replaces Pound Sterling (14 Feb) |
| 1966 | Decimalization: 1 Dollar = 100 Cents (first country to decimalize) |
| 1976 | Dollar floated (previously fixed); responds to commodity prices |
| 1988 | Polymer banknotes introduced (world first) |
| 2000 | New polymer family issued with enhanced security and accessibility features |
| 2020 | Plastic $5 note redesigned for durability |
Current Denominations
Coins in circulation: 5, 10, 20, 50 Cents; 1, 2 Dollars
Banknotes in circulation: $5, $10, $20, $50, $100 (all polymer)
Withdrawn: Paper banknotes fully phased out (1990s–2000s)
Exchange Rate Regime
Free float. Reserve Bank intervenes occasionally to prevent extreme volatility but generally allows market determination.
Convertibility
- Current account: Fully convertible
- Capital account: Fully convertible; Australia maintains open capital account
Monetary Policy Framework
The Reserve Bank targets inflation (2–3% target band) and employment using official cash rate adjustments. Inflation-targeting framework since 1993; credible, independent central bank.
Notable Characteristics
- Pioneer of polymer banknotes; world's first (1988)
- Commodity-sensitive: strong when global risk appetite high and commodity prices strong
- Major carry-trade currency (investors borrow AUD at low rates for global investment)
- Widely held by central banks and institutional investors
- 4-language accessibility features on notes (English, Chinese, Arabic, Vietnamese)