Australia and New Zealand are unlikely go down the European path and create a single currency.
A study looking beyond 30 years of close economic ties between the two countries has found there would be no benefit to further integration through a trans-Tasman monetary union.
But the draft report on closer economic relations (CER), jointly prepared by the Australian and New Zealand productivity commissions, did find that barriers between the two countries remain, particularly in regulations areas affecting services trade and investment.
Australian Prime Minister Julia Gillard and her New Zealand counterpart John Key requested the study by the two commissions in March to identify further initiatives to strengthen the economic relationship and outcomes for both countries.
The aim is to encourage a seamless market between the two countries that will allow citizens and businesses to have a “domestic-like” experience in either country.
“How far future policy initiatives go ultimately must emerge from good public policy processes focused on achievements of net benefits,” Australia’s Productivity Commission chair Gary Banks said in a joint statement on Tuesday.
The report identifies some 20 policy initiatives to promote beneficial economic integration.
“CER has been a very successful venture, with initiatives that would not have been possible with any third country,” New Zealand Productivity Commission chair Murray Sherwin said.
“There is more that can be achieved to the benefit of both Australia and New Zealand.”
However, the commissions concluded a single-currency and monetary union would not generate net benefits and should not proceed.
Monetary union entails a number of costs and implies a loss of autonomy over monetary policy and exchange rate flexibility – important tools for macroeconomic stability.
“This means that in the event of an economic shock to New Zealand, but not to Australia (or vice versa), adjustment through the exchange rate or monetary policy would no longer be possible, and would instead necessitate adjustment through prices, wages and employment,” the report said.
“Adjustment through these channels is typically slower and can result in more volatile prices and output.”
The commissions also found there are few instances where monetary union has worked effectively without some degree of political union.
Major initiatives that were likely to deliver benefits for both countries related to business law, occupational licensing, air services and shipping, and capital and labour flows, they said.
Submissions to the draft report are open until October 18 ahead of a final report being given to both governments by the end of the year.