 The kiwi dollar has had its own identity since 1985. Or as they say here, it floats. And floating it does! New Zealand has 4 million residents and therefore a small economy. That means major fluctuations in the value of the dollar. Very major. As in December 1985 when the dollar fell 8.4% in one month.
By Frans Hertoghs
In November 2001 the dollar was worth less than forty USA dollar cents and was jokingly called the peso of Oceania. Now he stands on three quarters, almost two times as high. At least twenty percent higher than the real value, the fair value, experts think.
On the one hand that is very pleasant. Overseas you can buy a lot for an expensive dollar. Foreign products have never been so cheap. Also overseas holidays are pleasantly cheap.
But on the other hand exporters are stuck with their trade. Abroad our wool, meat, fruit, fish, wine and timber become exorbitant. That really hurts. And not just the export suffers; also the tourist industry runs backwards. New Zealand has become an expensive holiday destination. And that on top of the travel distance.
How did that happen? Important factor is the high interest rate here. The official interest rate is about eight percent and is one of, if not the highest, in the developed world. Soon it will even go higher, as is to be expected on the stock exchange. Interesting for investors, but will be followed by a further increase of the dollar.
And that interest will not go down provisionally. As New Zealanders spend too much money. They are deeply in the red. The property prices soar as happened in The Netherlands a couple of years ago. And it does not look that it will decrease soon, just as happened in The Netherlands. On the contrary.
This property market keeps the inflation low. People will be reduced to poverty by buying those cheap foreign products. Therefore they borrow more money. As a result, money becomes scarcer. And this way interest goes up and the dollar becomes more expensive.
The export market collapses. A large number of companies already balance dangerously on the edge of bankruptcy. Some have stopped already. Others move to cheaper foreign countries. Less and less tourists arrive and spend less too.
It is difficult to predict what will happen now. But experts are not very positive. But we must hope that the first line of the national anthem will be realised: God defends New Zealand! The Dutch version of this article is published in the July/August 2007 edition of Holland Focus.
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