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New Zealand Dollar (NZD)

The legal currency of the island nation of New Zealand

What is the New Zealand Dollar (NZD)?

The New Zealand Dollar is the legal currency of the island nation of New Zealand. The country is actually made up of a collection of more than 600 islands that stretch over an area of 100,000 square miles. Its two main land masses are the North Islands and South Islands. New Zealand’s currency is also the legal tender in the Pitcairn Island and the Cook Islands, and in Tokelau, Niue, and the Ross Dependency, a region in Antarctica claimed by New Zealand.

 

New Zealand Dollar (NZD)

 

The New Zealand dollar is colloquially referred to as the “kiwi,” a flightless bird native to New Zealand that appears on the country’s $1 coin. Although sometimes denoted as NZ$, the kiwi dollar is more commonly shown with a simple $ sign. New Zealand’s currency comprises five coins and five banknotes. The NZD is divided into 100 cents.

The foreign exchange designation for the New Zealand dollar is NZD. The New Zealand dollar and Australian dollar exchange rate – AUD/NZD – is one of the most widely traded cross pairs in the forex market.

 

Summary

  • The New Zealand Dollar is the legal currency of the island nation of New Zealand.
  • Initially pegged to the US dollar, the kiwi dollar now floats freely in the forex market and is one of the most widely traded currencies worldwide.
  • The New Zealand dollar is denominated in an equal number – five each – of coins and banknotes.

 

New Zealand’s Currency

The New Zealand dollar is a fairly new entrant to the world currency market, as it was only introduced in 1967. Before the advent of the NZ dollar, the official currency of New Zealand was, since 1840, the New Zealand pound, with 1 pound = 20 shillings and 1 shilling = 12 pence.

After a nearly 10-year long study by a government committee, the decision was made to shift the country’s currency to a decimal system. The New Zealand Parliament passed the Decimal Currency Act in 1964, officially transitioning to the new dollar currency in July 1967.

The New Zealand dollar was initially pegged to the US dollar at a rate of 1 New Zealand dollar = 1.43 USD. Ironically and coincidentally, it is nearly the exact opposite of the USD/NZD exchange rate in late 2020, with the current rate sitting at 1.42 NZD = 1 USD.

New Zealand’s central bank, the Reserve Bank of New Zealand, chose to drop the kiwi’s peg to the US dollar when the United States abandoned the gold standard in 1971. From then until 1985, the New Zealand dollar value was pegged to a trade-weighted basket of currencies.

From 1985 forward, the kiwi was allowed to float in the foreign exchange market freely. However, New Zealand’s central bank occasionally intervenes in the forex market, selling large quantities of kiwi dollars in order to prevent the currency from increasing further in value. It is a measure frequently undertaken by a country’s central bank in order to keep its export products attractively priced to foreign buyers.

 

New Zealand Dollar Coins and Banknotes

The coin denominations currently in circulation in New Zealand’s currency are 10 cents, 20 cents, 50 cents, one dollar, and two dollars. Previously existing denominations of 1 cent, 2 cents, and 5 cents were phased out of circulation between 1988 and 2006.

The obverse side of each coin is imprinted with an image of Queen Elizabeth II. New Zealand was first a colony and then a Dominion within the British Empire before obtaining all but full independence in 1947. Although New Zealand’s been effectively self-governing since the early 1900s, it is still, as recognized in the country’s Constitution, “Her Majesty’s Government,” as a member of the British Commonwealth.

The original New Zealand dollar banknotes all featured portraits of Queen Elizabeth. Still, those were replaced on all but the $20 notes in later currency series by portraits of noteworthy figures in New Zealand’s history, such as Sir Edmund Hillary and Kate Sheppard, a key figure in the women’s suffrage movement.

Current banknote denominations are as follows: $5, $10, $20, $50, and $100. The $1 and $2 banknotes were discontinued in 1991 when the decision was made to replace them with coin denominations. The $50 banknote did not come along until 1983, 16 years after the first issue of New Zealand dollars. Since the turn of the century, paper banknotes have been gradually replaced with polymer notes that are both more durable and less subject to counterfeiting.

 

Keep Learning

CFI is the official provider of the Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Australian Dollar (AUD)
  • Exchange Rate
  • Kiwi Bond
  • Singapore Dollar

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