Australia: Floating the Australian Dollar and Aftermath (1983-1990)

1. Campbell Committee recommends major financial liberalisation

   Sep 1, 1981Labels: Campbell Committee, Australian Financial

   The Australian Financial System Inquiry (the Campbell Committee) delivered a final report that argued Australia’s tightly regulated financial system needed major reform. Among its recommendations were moving toward a floating exchange rate and reducing exchange controls, which were seen as costly and hard to enforce in modern markets. The report helped set the intellectual and policy groundwork for the reforms that followed under the Hawke Government.

   • Treasury
   • RBA RDP

2. Hawke Government begins reform agenda

   Mar 5, 1983Labels: Hawke Government, Bob Hawke

   Bob Hawke’s Labor Government took office and soon pursued a broader economic reform program aimed at improving competitiveness and macroeconomic stability. This political shift mattered because the decision to float the currency later in 1983 required strong backing from both the government and key economic institutions. The government’s approach also relied on coordination with labour market institutions to manage inflation pressures during transition.

   • RBA Speech
   • RBA RDP

3. Authorities loosen foreign-exchange dealing rules for banks

   Oct 1, 1983Labels: Reserve Bank, banks

   In late October 1983, changes to settlement and dealing arrangements gave Australian banks more room to manage foreign exchange positions. These steps made the system more market-oriented and exposed limits of the existing “adjustable peg” regime, where the Reserve Bank set the rate but had to absorb large capital flows. The easing served as a bridge toward a more fundamental change in the exchange-rate system.

   • ABS Finance

4. Government announces decision to float the Australian dollar

   Dec 9, 1983Labels: Australian Government, floating decision

   On 9 December 1983, the government decided to move away from the daily set exchange rate and adopt a floating exchange rate. A key reason was that large and unpredictable capital inflows were disrupting domestic liquidity and making monetary management difficult. The decision marked a turning point: the exchange rate would be determined by market supply and demand rather than an official peg.

   • RBA AnnualRpt
   • ABS Finance

5. Foreign exchange market opens under a floating rate

   Dec 12, 1983Labels: foreign exchange, Australian dollar

   On 12 December 1983, the foreign exchange market opened without the Reserve Bank setting a price, and the Australian dollar began to float. This changed how the economy adjusted to shocks: the exchange rate could move quickly, rather than forcing interest rates or domestic credit conditions to do all the adjusting. It also increased day-to-day exchange-rate variability, requiring businesses to manage currency risk more actively.

   • RBA Speech
   • RBA RDP

6. Most exchange controls removed alongside the float

   Dec 12, 1983Labels: exchange controls, capital movements

   At the same time as the float, Australia lifted most remaining exchange controls on capital movements. This allowed funds to move in and out more freely, reinforcing the idea that the exchange rate—not administrative controls—would help balance external payments. Removing controls also reshaped the financial sector by expanding opportunities for international borrowing, lending, and investment.

   • RBA RDP
   • RBA RDP

7. Foreign bank entry restrictions relaxed

   Jan 1, 1984Labels: foreign banks, banking licences

   In 1984, the government announced a relaxation of restrictions that had effectively limited foreign bank entry for decades. Over the following period, licenses were granted to a group of overseas banks, increasing competition in lending and deposit markets. This was part of the broader post-float strategy to make Australia’s financial system more open and competitive.

   • RBA FSR
   • RBA AnnualRpt

8. Government authorises non-bank foreign exchange dealers

   Jun 19, 1984Labels: non-bank dealers, foreign exchange

   In 1984, the authorities expanded who could participate in foreign exchange dealing by nominating and authorising a group of companies under relevant regulations. This widened access beyond traditional banking channels and supported the development of deeper, more competitive currency and hedging markets. It also reflected a broader shift from direct controls to market-based financial regulation.

   • RBA AnnualRpt

9. Further exchange-control procedures removed and updated

   Jun 25, 1984Labels: exchange-control procedures, tax screening

   From 25 June 1984, exchange-control application requirements were removed for most transactions, leaving only limited categories still subject to approval (such as certain investments by foreign governments or banks). The changes clarified the post-float framework and reduced administrative friction for trade and capital transactions. New tax-screening arrangements helped address compliance concerns as controls were wound back.

   • RBA AnnualRpt

10. Bank interest rate restrictions largely removed

    Jun 30, 1985Labels: bank interest, financial deregulation

    During 1984/85, remaining official restrictions on bank deposits and most bank interest rates were removed (with owner-occupied housing lending rates treated separately for longer). Deregulation changed bank behavior by encouraging more active competition for deposits and more market-driven pricing. This also made monetary conditions harder to read using older indicators, because the structure of financial intermediation was rapidly changing.

    • RBA AnnualRpt
    • RBA Conf

11. Keating issues “banana republic” warning amid external imbalance

    May 14, 1986Labels: Paul Keating, external imbalance

    In May 1986, Treasurer Paul Keating warned publicly that Australia risked becoming a “banana republic” if it did not address underlying economic weaknesses, with attention focused on the current account deficit. The episode showed that floating the dollar did not remove external pressures; instead, it changed how pressures appeared—often through currency depreciation and interest rate adjustments. The warning reinforced the push for continued fiscal discipline and structural reform after the float.

    • Guardian

12. Budget returns to surplus, marking post-float policy consolidation

    Aug 18, 1987Labels: budget surplus, post-float consolidation

    By the late 1980s, the government emphasized tighter fiscal settings as part of managing inflation and external vulnerabilities in a more open financial system. The 1987–88 budget documents reflect this phase of consolidation, following several years of reform and adjustment after the float. A move back toward surplus helped signal a stronger macroeconomic stance as Australia adapted to floating exchange rates and freer capital flows.

    • Budget Archive
    • AAP FactCheck