What happened when the Australian dollar was floated

The Australian dollar has been set by the market for a little over four decades. Before that it was set by a committee, and the difference between those two arrangements shaped the economy more than almost any other decision of the period.

A Friday afternoon in December

The Reserve Bank's own archives record the sequence precisely, which is useful because most accounts say only "December 1983".

The decision was taken on Friday 9 December 1983 and took effect on Monday 12 December, when markets reopened. It was announced at 5:45pm on the Friday by the Treasurer, Paul Keating, and the Governor of the Reserve Bank, Bob Johnston. Their statement was that the currency should be floated as soon as possible as a means of halting the excessive inflow of capital and speculation about a rise in its value, and that most exchange controls would be abolished at the same time.

It was approved by the Cabinet Economic Policy Committee, with the Prime Minister, Bob Hawke, the Treasurer, the Governor and their advisers present. The Treasury initially opposed it.

What was abolished was a crawling peg adopted in November 1976, which the Bank's archives describe with the phrase "floating at anchor": a Cabinet committee set the range and the Reserve Bank reset the rate daily. That itself had replaced earlier arrangements, a peg to the United States dollar from 1971 to 1974 and then a peg to a basket of currencies from September 1974.

Fixed arrangements of that kind are a subject in their own right and are covered elsewhere: how a currency board defends a peg, what it means to import another country's monetary policy through a par peg, and what happens when two currencies agree to be interchangeable. This guide is about the other end of the choice.

The Bank did not expect to withdraw entirely. Its intention was a managed float, and an internal note from Chief Manager John Phillips to the Board put the ambition with unusual candour: "the float is therefore not to be a clean one - but equally the hope is that it will not be too dirty - just slightly soiled."

The Bank stepped back further than it planned

What actually happened over the following decades was a steady withdrawal, and the numbers are striking when set side by side.

A Reserve Bank Bulletin article from December 2011 tracked intervention across four periods.

The cumulative and daily figures are not two ways of counting the same thing. The first period's total is a net figure, covering purchases and sales in both directions, while the daily average is of gross intervention, so dividing one by the other does not return the day count. The second period reconciles closely because it ran one way.

The character changed as well as the frequency. The article identifies the 2007 and 2008 episodes as targeting market dysfunction rather than the level of the currency, and records no interventions after 2008 on the basis that liquidity in the Australian dollar had been acceptable.

From intervening on every second day to not intervening at all, in roughly two decades.

The Bank's current statement of its role describes the same arc in its own terms: testing and smoothing daily volatility in the 1980s, then episodes where it judged the currency to be overshooting from the late 1980s, and now a policy reserved for significant market disorder where market functioning is impaired, while retaining discretion in the event of gross misalignment. The triggers it names are extremely disorderly trading with deteriorating liquidity, and sharp moves in the absence of new public information.

One distinction matters for accuracy. The Bank transacts in the currency market routinely on behalf of the Government, and executes those transactions deliberately so as to have minimal effect on the exchange rate. Those are not intervention.

What the float is actually for

The Reserve Bank does not treat the exchange rate as a target. It treats it as part of the transmission mechanism for monetary policy, and as a buffer that absorbs external shocks so that monetary policy can concentrate on domestic conditions.

For a commodity exporter that buffering is the whole argument. A former Governor, marking thirty years of floating in 2013, pointed to a striking empirical relationship between the exchange rate and Australia's terms of trade across the floating period, and to macroeconomic stability that had improved markedly compared with the commodity booms of the 1950s and 1970s, when the exchange rate was fixed.

The mechanism is intuitive once stated. When export prices collapse, a floating currency falls, which cushions export revenue in local currency terms and makes domestic production more competitive. Under a fixed rate that adjustment cannot happen through the currency, so it happens instead through interest rates, reserves, wages and employment, which is a slower and more painful route.

The same Governor described the Bank's later approach to intervention as having become less frequent but more forceful, and noted that during the commodity boom the Bank was not convinced that large-scale intervention clearly passed the test of effectiveness against cost, while remaining open-minded about it.

Appreciation, depreciation, and who each one helps

The Reserve Bank's definitions are plain: an increase in the value of the Australian dollar is an appreciation, a decrease is a depreciation. Both are relative, always against some other currency, and the currency can appreciate against one and depreciate against another on the same day.

The effects run in opposite directions for different people, which is why neither move is good or bad in itself.

Exporters. A depreciation makes Australian goods cheaper in foreign currency terms, lifting foreign demand and export volumes. An appreciation reduces that competitiveness.

Importers and consumers. A depreciation raises the cost of imported goods and pushes consumers toward domestic substitutes. An appreciation makes imports cheaper.

Travellers. On a depreciation, visitors coming to Australia need less of their own currency to spend here, while Australians travelling abroad need more Australian dollars to buy the same trip. An appreciation reverses both.

The Reserve Bank distinguishes a direct channel, in which the exchange rate changes the price of Australian-produced goods and services relative to overseas ones, from an indirect channel, in which those relative price changes flow through into employment, wages and inflation. It also puts a timeframe on it that is worth remembering: the effects take between one and three years to reach their maximum impact on activity and inflation.

That lag is the reason a currency move and its consequences rarely appear in the news together.

Where to look next

• Floating exchange rate - the term in glossary form.
• Currency appreciation - the move, and what it is relative to.
• What a trade-weighted index measures - the measure economists reach for when a single pair is misleading, and how it is built.
• Cash rate - the domestic instrument the float was meant to free up.

Sources

• Reserve Bank of Australia Archives, Research Guide: Float of the Australian Dollar - the 9 December 1983 decision and 12 December effective date, the 5:45pm announcement by the Treasurer and Governor and the terms of their statement, the Cabinet Economic Policy Committee approval and the attendees, Treasury's initial opposition, the November 1976 crawling peg described as floating at anchor with a Cabinet committee setting the range and the Bank resetting the rate daily, the intention of a managed float, and the Chief Manager's note to the Board
• Reserve Bank of Australia, TWI Method of Calculation - the pre-float sequence, including the peg to the United States dollar from 1971 to 1974 and the move to a basket of currencies in September 1974
• Reserve Bank of Australia Bulletin, Foreign Exchange Market Intervention (December 2011) - the intervention frequency, cumulative amounts and daily averages for each of the periods from January 1989 to September 2001, the August 2007 and October and November 2008 episodes, and the statement of no interventions since 2008 on the basis of acceptable liquidity
• Reserve Bank of Australia, The Exchange Rate and the Reserve Bank's Role in the Foreign Exchange Market - the treatment of the exchange rate as part of the monetary policy transmission mechanism and as a buffer against external shocks, the three phases of intervention policy, the trigger conditions of disorderly trading and sharp moves without new public information, and the distinction between intervention and routine transactions on behalf of the Government
• Reserve Bank of Australia, Speech: The Australian Dollar, Thirty Years of Floating (Glenn Stevens, 21 November 2013) - the attribution of the decision to the Hawke Government in December 1983, the relationship between the exchange rate and the terms of trade across the floating period, the comparison of macroeconomic stability with the fixed-rate commodity booms of the 1950s and 1970s, and the characterisation of intervention as less frequent but more forceful
• Reserve Bank of Australia, Explainer: Exchange Rates and the Australian Economy - the definitions of appreciation and depreciation, the effects on exporters, importers and travellers, the direct and indirect channels, and the finding that effects take between one and three years to reach maximum impact

Not financial advice, and not a recommendation of any product or institution. Reviewed by the Tradergy editorial team, September 2026.