The Evolution of Exchange Rate Policy and Capital Controls in Australia

Guy Debelle () and Michael Plumb
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Michael Plumb: International Department, Reserve Bank of Australia, 65 Martin Place, Sydney NSW 2000, Australia

Asian Economic Papers, 2006, vol. 5, issue 2, pages 7-29

Abstract: After the end of the Bretton Woods system in the early 1970s, exchange rate policy in Australia moved through several regimes over an extended period. The overarching theme was to increase flexibility and efficiency in the Australian currency market and the financial system more generally. This paper documents Australia's gradual move from a fixed to a floating exchange rate and the abolition of capital controls, with an emphasis on the thinking behind various reforms and the practical difficulties encountered during the reform process. Policy reform was often in response to external forces exposing deficiencies in the prevailing system, rather than through a carefully planned path to greater flexibility. Ultimately, a combination of domestic and international factors rendered the move to a flexible exchange rate largely inevitable. (c) 2006 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

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