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In the last few weeks Paul Keating and his role in Australian politics have been given considerable coverage on the ABC (in a friendly one on one with Kerry O’Brien) and (more recently) in The Australian in friendly articles by Paul Kelly and Glenda Korporaal. The last four articles in The Australian are below. Mad available also is an article by Geoff Kitney in Saturday’s AFR, which is relevant.

I’m not sure why left-wing journos have suddenly chosen right now to present Keating’s political life and in doing so to portray him again as a major reformer. Perhaps it is because he has been making public comments that portray himself as a Labor “hero” who has not received sufficient recognition within the party and outside it. Perhaps he wants to continue to present himself as a better leader than Hawke: he has certainly continued to harp on that publicly. Perhaps it is designed to encourage the new Labor team, which shows no sign of adopting a reformist approach – rather the opposite, as Kitney makes clear. So, says Keating, have a look at what I did when in office and follow suit. He will doubtless say that when he talks (confidentially?) to Caucus on Thursday.

I have not watched all the interviews or read all the articles, partly because those I did read/watch  seemed over the top and also because they seemed to me to contain many inaccuracies about what happened and the role he actually played .

But, partly because I was directly involved at the margin, my attention has been attracted by the articles which relate (mainly) to the floating of the dollar in 1983 and which offer his advice on budget deficit policies. Keating is clearly attempting to portray himself as  the initiator who set going a reform process in the 1980s for which Labor and some left-wing journos portray as the model. The “excuse” for using the float as an example is because it is 30 years since it happened.

Importantly, the second article below also disparages John Stone and his role in the float, notwithstanding that he has already set that out accurately in some detail in Quadrant. Yesterday Stone had a letter published in The Australian correcting the interpretation of the float by Paul Kelly and Glenda Korporaal (see below). Today I have had the letter below published correcting the interpretation given by the two authors that the float was the success claimed by Keating and pointing out that the budgetary and economic policies adopted under Keating scarcely justified his portrayal of himself as an adviser to the present government.

There is much more that could be said. I would only add to my letter that, following the large increases in spending in Keating’s first two budgets, it was mainly Finance Minister Peter Walsh who succeeded in slashing the growth in budget expenditure and achieving a budget surplus in 1987-88. Given the recent failures of Keynesian type policies, the advice of Walsh in the 1980s may well be more pertinent than Keating’s current advice that precedence now be given to “the budget’s role in supporting the economy”. One might have thought that Keating would have learned from his experience in the 1980s and Labor’s recent experience that Keynesian strategies should be abandoned.


Keating’s dollar success
(Letter by Des Moore published in The Australian, 10 December 2013.)

In persuading economic commentators to accept his version of Australia’s economic and political history in the 1980s , Paul Keating claims he was responsible for floating the dollar in 1983 without exchange controls and that this was a success (“Keating left no Stone unturned on dollar float”, 7-8/12). By giving markets something real, he says,  “they will always give you more back in return”.

But where was the success? Less than two years later there had been a major depreciation in the dollar and Keating acknowledged Australia was in danger of becoming a banana republic.

While our  terms of trade had fallen, our modest reduction in competitiveness from this source scarcely required a big depreciation. It basically reflected the increase in inflation from the OECD average to about 7 percentage points higher following the large jump in the growth  of domestic credit and public expenditure, as well as the emergence of a potentially serious external debt problem. 

The Hawke- Keating government mistakenly judged the move to a market determined exchange rate allowed it to have “expansive” domestic economic policies.  “Success” came in finding out that this is not the case.        

Des Moore, Treasury deputy secretary from 1983 to 1987, South Yarra, Vic

Keating should clarify comment on dollar float
(Letter by John Stone in The Australian, 9 December 2013.)

THE article by Paul Kelly and Glenda Korporaal ("Keating left no Stone unturned on dollar float", 7-8/12) is described as "the battle within Treasury to float the dollar". There was no such battle. It says I "bucked the trend by originally opposing the idea". I did, but the key word is originally.

Events leading up to the float were detailed in my Quadrant articles in January and March last year. Nothing in the Kelly-Korporaal article alters the facts as there stated.

The article's portrayal of the Treasury as riven by disagreements on the float merely shows debate was then welcomed within the department. But as Ted Evans rightly says in a minute quoted by Kelly-Korporaal, the exchange rate "was not his business". All those with direct responsibility held a different view.

The Kelly-Korporaal article claims that, clandestinely, Paul Keating was approached to float in early 1983 by then Reserve Bank governor Bob Johnston. My second Quadrant article addressed such suggestions, but dismissed them because, if true, they would seriously reflect not only on the governor's personal conduct as a then trusted colleague, but also on his failure to observe the legal requirements of the Reserve Bank Act, which enjoins the governor and the secretary to the Treasury to "keep each other fully informed on all matters which jointly concern" them.

The recent statements by Keating imply that I placed unwarranted faith in the governor's candour. That is now a matter for him to clarify or, perhaps understandably, allow to expire "not with a bang, but a whimper".

John Stone, Lane Cove, NSW

Paul Keating warns Coalition about reducing deficit
(Article by Glenda Korporaal and Paul Kelly published in The Australian, 9 December 2013.)

THE world's central banks have taken over running the global economy in a "leaderless world", says former prime minister Paul Keating in an interview for the 30th anniversary of the floating of the dollar on Thursday.

Mr Keating said the major central banks had saved the economy from near depression in the wake of the global financial crisis and were now the effective economic powerbrokers in a world where there was little real political leadership.

In a downbeat assessment about the outlook for the world economy, he also warned the federal government not to be too aggressive in seeking to cut back the deficit in the face of a "very, very soggy world of (economic) activity".

His comments come after the latest national accounts that show the economy grew by only 0.6 per cent over the September quarter, with an annual growth rate of 2.3 per cent.

"The world has been lucky to have got this far," Mr Keating said. "The world is fundamentally unled.

"Fiscal policy is not led in America by the secretary of the Treasury and there is no European fiscal union.

"Therefore central banks have stepped up to take the responsibility for the absence of political leadership in fiscal policy.

"Without quantitative easing in the US and Europe, we would have been back near a 1930s depression for a long time to come.

"The question is can we stay away from it?"

Mr Keating has warned of a "singular lack of urgency" in the attitude towards economic reform in Australia.

He also warned the government not to be too aggressive about reining in the deficit.

"We should be wary about trying to artificially pull the budget back into surplus prematurely," he said.

"I think it would be a mistake for ambitions about the return to surplus taking precedence over the budget's role in supporting the economy in what is a very, very soggy world of activity."

Mr Keating said the narrow version of the US money supply had been growing only "ever so modestly" despite the extensive quantitative easing measures by the US Federal Reserve Board.

"While this has lifted asset prices in the equities markets, and you are now starting to see it also moving real property, without it you could imagine the decline in circumstances that would have happened.

"This is doubly true for Europe and it may even be true for Japan."

Mr Keating said the world's central banks were moving from their role as administrators of monetary policy to overseeing the prudential regulation of the banking system.

"The central banks have stepped up to take responsibility for the absence of leadership in fiscal policy," he said.

"They are moving down unconventional pathways when monetary policy can no longer be effective at very low rates of interest.

"We are going to see a very big change in the way that central banks work," he said.

"Formerly, central banks have been monetary authorities. We are going to move from the macroeconomic world to a macro-prudential world where central banks determine the prudence with which banks and financial institutions lend.

"This will mean capital ratios, the ability of banks to invest in their own behalf, proprietary trading -- all of these things are going to be determined by central banks.

This is not simply central banks doing as they formerly did," he said

Mr Keating said this would be a positive development as the central banks of the world were moving to become a "reinforcing arm of national policy, outside of the political system".

He said the development of strong central banks and central banks moving to take control of prudential management of the banking system "means that we may avoid or try to avoid a similar catastrophe from what happened in 2008-09".

It was "still an open question" whether the EU could survive given the strains in its economies, Mr Keating said, and the inability for some countries in Europe to devalue their exchange rate had meant a cut in their wages and very high levels of unemployment in many Mediterranean states.

Note: Of particular interest is Kitney’s comment that “Ross Garnaut is a Labor stooge who more than anyone, is responsible for the disaster that is the carbon tax”!

Paul Keating left no Stone unturned on dollar float
(Article by Glenda Korporaal and Paul Kelly published in The Australian, 7 December 2013.)

Paul Keating relied on advice from Ted Evans when he was canvassing the idea of floating the dollar with Treasury. Source: The Australian

NEW revelations over the float of the Australian dollar in 1983 offer a gripping insight into conflicts within the Treasury, the tensions between its influential chief, John Stone, and a future chief, Ted Evans, and the transformation of the Reserve Bank.

Documents obtained by The Australian show a struggle between Stone and Evans in December 1983 triggered by an article on the float written by veteran commentator Max Walsh in The Bulletin that month.

They reveal a meeting held on Sunday night, October 23, 1983, at the insistence of treasurer Paul Keating, who wanted advice from his department, with Evans telling this meeting: "I had a preference to float the $A."

Keating drew sustenance from the meeting and Evans's comments. They showed his personal support for the float before the decision was taken. For Keating, this was important given his conviction that Evans's boss, Stone, was deeply resistant to the float.

Internal Treasury views were a highly sensitive issue since the department's formal advice to the treasurer was usually put or authorised by Stone, particularly on an issue of such high significance.

Keating said during the 1980s and repeated again this week to The Weekend Australian that because Stone was a figure of international significance it was imperative the decision to float the dollar be managed so Stone was on board as a stakeholder in that decision, and not an opponent.

Interviewed this week to honour the 30th anniversary of the float - a decision Stone has subsequently called the single most important economic decision since World War II - Keating flatly says: "Stone and the Treasury were opposed."

It is a proposition Stone has tenaciously contested, writing recent articles in Quadrant magazine drawing on a range of documents (Quadrant, January 2012 and March 2012).

The success of the float has sustained two historical conflicts over authorship - between Bob Hawke and Keating, and within the advisory apparatus, particularly focused on the role of Treasury as the government's principal economic adviser.

A three-page minute signed by Evans on December 15, 1983, provides information on the internal dynamics within the Treasury and its relations with Keating. The Evans minute records that Keating rang him at home at 11.45am on Sunday, October 23.

Keating told Evans he was worried about the monetary growth via capital inflow. Evans said he was aware of meetings within Treasury about the exchange rate but he had not been involved.

"The treasurer told me the float option had been raised and asked for my opinion," Evans wrote. "I responded that: this was not my business; from an economic (as distinct from monetary) policy viewpoint, there now appeared to be clear advantages in a float; there was, however, an important issue as to how one approached it and there could be advantages in doing so in an evolutionary manner."

Evans wrote this minute in reply to a minute Stone sent to all senior Treasury officers on December 14, 1983, five days after the Hawke government decided to float the dollar.

Stone's minute was headed "Bulletin Article by Maximilian Walsh".

He was particularly concerned at one part of Walsh's article, reproduced in his minute, saying: "He (Stone) was overruled by Keating and Hawke", who were persuaded not only by the government's private economic advisers and the Reserve Bank but "even views from within the Treasury opposed to Stone's".

This was an electric comment. It goes to one of the pivotal issues: advice from within Treasury on the float - advice Keating was keen to get. In his minute to senior officers Stone said it might be "entirely appropriate" for there to be views in Treasury contrary to his own but "I should have been expected to be informed about them" and "I do not recollect any expression to me of such views".

Stone proceeded in his minute to say the "clear implication" of Walsh's article was that views were provided from Treasury to Keating or his office that were contrary to Stone's views and provided "without my knowledge".

He said, therefore, while he found the task "repugnant to me ... I must ask each recipient of this minute whether there has been, without my knowledge, any expression of such views" to Keating.

The minute went to the 13 most senior Treasury officials under Stone. It could be construed as a test of their loyalty. Evans wrote a three-page reply the next day. It set out his contact with Keating as described above.

After Keating heard Evans's views in their phone call the treasurer told Evans that "he would like a meeting later that day to discuss the issue and asked me to call one". Keating, clearly, was hoping to bust open Treasury thinking.

The Evans minute to Stone said: "I suggested he (Keating) raise that matter with you (Stone) and he agreed to do so. You rang at mid-afternoon that day to advise me of the proposed meeting and I mentioned to you that the Treasurer had raised the matter with me earlier in the day." (Stone's handwritten notation here about Evans reads "having failed to do so previously".)

That this meeting was held on Sunday night reveals Keating's urgency.

Evans's minute says that when Keating met Stone and Treasury officials he "asked for the views of each present on the proposal (to which he was inclined) to float the $A".

The minute deals only with Evans's response: "I had a preference to float the $A but that preference was dependent upon what role the government would play in a float: if the government were to direct the Reserve Bank on intervention, there would be little gain in a float and, therefore, I would like to know what the government had in mind."

Keating did not address this question. As a result Evans said he added his support "to all other views" put at the meeting "that we should approach the float in an evolutionary way".

There seem to be four conclusions from Evans's minute: the firm disposition of the treasurer was to float; Evans was helping Keating and signalling his support for the float; Evans was also covering himself with Stone; and the view of the Treasury was to proceed in "an evolutionary way" - though Hawke and Keating would force the issue.

At this point Evans's minute assumed a biting tone. Evans noted that Stone had asked about advice given "without your knowledge" while "my only advice to the Treasurer on this topic has been with your knowledge".

Evans now pressed the point and challenged Stone directly: "You are aware that a number of senior Treasury officers have put to you, over the past two years (at least), their view that we should float the A$."

There is a handwritten notation by Stone next to this sentence that is unclear but seems to say "am certainly not aware".

Evans then stresses the loyalty of the Treasury to Stone despite the magnitude of the issue: "As would be expected of Treasury officers - and notwithstanding the crucial issue involved - those views have not been publicly aired."

Moving to close the circle of his critique of his departmental head, Evans told Stone: "If you have not been aware of those views being put, it could only be because of the procedures instituted to prevent full disclosure of the issue" - the implication being procedures instituted by Stone himself.

Two books that offer accounts of the float, John Edwards's Keating, The Inside Story (1996) and Paul Kelly's The End of Certainty (1992), both attribute support for the float to Evans and find this significant. In his Quadrant articles Stone challenges the proposition that "other Treasury officials disagreed with me".

Published documents show the line of Stone's thinking. Earlier in October 1983 Stone sent a minute to Keating saying "we would support the Reserve Bank to the extent of agreeing that some change in the system is warranted". But "a complete and wholesale leap to a full market system overnight would be an act of faith to which the government has no need to commit itself at this time".

In a minute to Keating of October 18 Stone recommended steps to "loosen up the exchange rate" as part of his evolutionary approach. The most important step was to cease central bank intervention in the forward exchange market. Hawke and Keating took this decision on October 27 and Hawke announced the changes the next day.

Keating's private secretary, Tony Cole (another future Treasury chief), summed up the situation in a handwritten note: "I think it is fair to say that both the treasurer and prime minister had decided a float was on prior to October 28 - from then on it was only a matter of time when the circumstances were right."

Stone has said this was consistent with his own view at the time.

On Friday, December 9, the day of the decision, Stone has written that once in the cabinet room it was apparent the decision had already been taken. Much had been happening "of which the Treasury had been unaware". After Reserve Bank governor Bob Johnston spoke, Stone addressed senior ministers on "what I saw as the risks to the economy". It was a long list of economic and financial risks. He suggested as a precautionary measure "an embargo on short-term capital flows", which Hawke promptly dismissed.

The intellectual difference between Johnston and Stone was whether the float could operate successfully with exchange controls; Stone believed yes and Johnston believed no. Hawke arbitrated. He declared for the RBA's position: the float without controls.

Interviewed this week, Keating says the float had two important consequences for governance.

"It lifted the status of the treasurer in cabinet," he says. "It is the treasurer who enjoys, through the Reserve Bank Act, the symbiotic relationship with the governor and the bank board."

The other change was the transformation in the standing of the Reserve Bank vis-a-vis the treasurer. "The Reserve Bank was a bond selling agent of the Treasury," Keating says of the pre-float position. "It had to be deferential to Treasury. It had no policy standing. At meetings with the bank and the Treasury, the Reserve Bank would always drop back. They knew their place and they kept their place.

"The Reserve Bank was never proselytising or addressing the government about the float because economy policy was made across the road in the Treasury. It's inconceivable today, but that's how it was then."

Keating had an easy and comfortable relationship with Johnston and a more edgy, though productive, relationship with Stone.

Evans was a Treasury loyalist and deeply attached to Stone in intellectual and personal terms for many years. Across time he emerged as the senior Treasury officer whose judgment Keating (and Hawke) most admired. His support for the float had a lasting impact on Keating.

In one sense Stone never recovered from the float and the way the decision was taken. The float was a triumph for Hawke, Keating and for the Reserve Bank. Stone resigned the following year. He served as Treasury chief from 1979 to 1984. Evans was Treasury secretary from 1993 to 2001 and later chairman of Westpac, appointing Gail Kelly as chief executive.

Keating said later of the float: "When the government gives markets something real they will always give you more back in return."

China not going away but urgency vital, says Paul Keating
(Article by Glenda Korporaal and Paul Kelly published in The Australian, 6 December 2013.)

IN an interview to honour the 30th anniversary of the floating of the dollar, Paul Keating warns that China will keep growing strongly and Australia cannot assume a significant depreciation will solve its economic problems.

"The float is the most important decision we took," Mr Keating said, reflecting on the Hawke-Keating years and the dramatic events of late 1983.

"It transformed the economics and politics of the country. It moved power away from the cabinet table to the markets.

"As it turned out, within two years after floating, we effected a 33 per cent real depreciation of  the exchange rate. We needed this big fall to restore the nation's competitiveness."

After 30 years of fierce fighting with Bob Hawke over ownership of the float, Mr Keating said he was happy for the historical record to show it as a "joint decision".

He said he had accepted political responsibility for the decision. That meant if it failed "the Treasurer goes". He praised his collaborator, then Reserve Bank governor Bob Johnston, as "such a good fellow, direct and to the point".

Mr Keating said the float was integral to Australia's unprecedented record of 22 years of growth without recession and made possible the subsequent reforms of the 1980s and 90s.

In a wide-ranging interview, he warned that Australia must guard its credentials as a destination for foreign investment; said a second Sydney airport at Badgery's Creek was "absolutely essential"; and rejected the need for a legislated debt ceiling.

Mr Keating warned that the current political system was failing to respond to the economic challenges facing the nation.

"The whole problem about Australian public life today is the singular absence of urgency," he said. "I think (the political class) is aware of the challenge but they have no urgency about it.

"The world is moving quickly and changing dynamically. There's this implicit view that something will turn up. The politicians are worried about taking risks. You have to take risks and letting the exchange rate go was a risk. I think I can say with all modesty about Bob (Hawke) and myself that urgency characterised our years."

While praising the fiscal policy of the Rudd-Gillard government, Mr Keating said it failed to offer an "over-arching" reform and innovation narrative.

Mr Keating said the essence of the float was its role as a "shock absorber". When Australia was exposed to a big external event, the adjustment was taken on the exchange rate and not the real economy. This helped to terminate the destructive boom-and-bust cycle.

"The key point is the float brought a paradigm change in the performance of the economy."

His central message is that China-driven growth will keep the exchange rate higher in the future than it has been for much of the 30 years since the float. This will impose a new challenge for the political class and puts a premium on productivity-based reform.

"A whole lot of smart judgments go in to the value of the dollar," Mr Keating said. "Much of this judgment goes to the durability of China's growth phase. I think there is a tendency to seriously underestimate both the longevity and scale of (that).

"I believe China will make a sophisticated transition away from the export commoditised manufacturing to a more modulated consumer-based economy. . . . This means China is not going to die in a hole. A lot of other people in the world think this, too.

"It is partly why the Australian dollar is where it is. The dollar has come down about 10 percentage points off its peak.

"I think we can say even if the Australian dollar doesn't remain where it is and drifts into the high 80s, it is going to be of an average value greater than the average of the period since 1983. That means we must work down other pathways to competitiveness."

Asked about the debt ceiling, Mr Keating was curt: "I don't think we need one." On a second Sydney airport, he said: "Badgery's Creek is probably the most outstanding example of a necessary piece of infrastructure which we have been dallying over at least for 20 years."

Keating's leap of faith
(Article by Glenda Korporaal and Paul Kelly published in The Australian, 6 December 2013.)

Keating says: "It was a bit like someone walking up to you with a dirty postcard, the Reserve Bank approaching me" to talk about floating the dollar. Picture: Renee Nowytarger Source: TheAustralian

IT was at a meeting in the late 1970s with James Foots, chief executive of Mount Isa Mines, that "the penny dropped" for the young Paul Keating.

As Keating reveals for the first time in an interview this week, he could see Mount Isa Mines, with its rich seams of silver, copper and zinc, was efficiently run, but its international competitiveness was being held back by the high Australian dollar - at the time running at more than $US1.10.

With little higher education, the boy from Bankstown, in the western suburbs of Sydney, had looked to many mentors as part of a long period of self-education.

He learned from an array of Labor Party leaders and thinkers, from former NSW premier Jack Lang to Rex Connor, the controversial minister for resources in the Whitlam government, who gave him an understanding of the importance of Australia's mineral wealth.

As the opposition spokesman for minerals and energy from 1976 to January 1983 (the portfolio took on several different names), Keating began meeting some of the leaders of the mining industry, here and overseas.

Foots took it upon himself to educate the young Labor politician at a time when many in Australian business had bad memories of the last days of the Whitlam government.

The young Keating realised that, no matter how efficient an Australian industry was, the country's economic future was trapped by the protectionist wall of its high fixed exchange rate.

In a frank interview with The Australian, he describes the meeting with Foots.

"At Mount Isa in Queensland we had one of the most efficient mines in the world, yet with the high exchange rate it couldn't compete," he says.

So when the 39-year-old Keating began his term as treasurer in March 1983, with the incoming government led by charismatic former ACTU leader Bob Hawke, he arrived with a clear view that Australian industry did not stand much of a chance if it was being priced out of the market.

One of the first moves of the new government was to depreciate the exchange rate by 10 per cent.

But Keating could see how having a fixed exchange rate meant Australia had little control over its monetary policy.

Defending the currency meant the government having to buy and sell bonds, with domestic interest rates and anti-inflationary policy subject to the whims of the international markets.

The rigidity of being a small country with a fixed exchange rate in an increasingly global world meant the Australian economy was often forced into a recession in the event of external shocks, particularly those driven by changes in the prices of its exports.

"Before the float it was impossible to run an effective monetary policy," Keating says.

"The average rate of the Australian dollar for the 10 years to 1983 was $US1.17. It was often around $US1.30. This was the authorities - Treasury, Prime Minister and Cabinet, and the Reserve Bank - trying to overvalue the dollar to get downward pressure on local prices.

"We needed a big fall in the exchange rate to restore the nation's competitiveness. Once you had a terms of trade shock, the impact went into domestic interest rates. This is what gave us the recessions in the 50s after the Korean War boom, and again in the 70s."

But having moved the exchange rate down, soon after it came into government, the Labor government had to deal with the fact smart players in world markets were circling and the country was vulnerable to the shifting views of international speculators.

"The markets had got our number," Keating recalls.

Trying to hold the exchange rate meant "they were playing you like a trout on a line", he says.

Keating outlines the behind-the-scenes events that led to the historic decision to float the Australian dollar 30 years ago on December 12, 1983.

Looking back, it was one of the most important decisions in Australia's history, a pivotal step that opened the Australian economy to the rest of the world. It was probably inevitable that it would happen at some stage. But 30 years on, with many politicians on both sides of the fence decidedly lacking in political courage and vision, it is still astounding that an incoming Labor government would have the sheer guts to take the giant leap of faith to freely float the dollar, virtually in one fell swoop.

Having spent years travelling the world talking to leaders in the mining and energy business, Keating had a more global vision of Australia's place in the world than many of his parliamentary colleagues.

During the interview, in his office in Sydney's Potts Point, there is a pause in the conversation when we ask Keating if he was, at any stage, afraid about the momentous decision the government was about to make.

But it's clear it was the fundamental lessons of his days in the shadow energy and minerals portfolio that gave him the confidence to drive the decision. Keating says he knew that if the exercise failed he would have been sacked as treasurer by prime minister Hawke - despite the fact they were, at that time, still close colleagues.

Hawke agreed with the decision, Keating says, knowing that Keating "was prepared to be the lightning rod with my copper spike on the top of the tower to take whatever electricity-laden cloud came along. If it fails then the treasurer goes. Hawke's political risk was over, but in this case the treasurer was prepared to take the responsibility."

It was Keating's relationship with Reserve Bank governor Bob Johnston, who had been appointed by then treasurer John Howard the year before, taking over in August 1982, that was critical to his thinking in 1983, as his first thoughts about the float moved to action.

He describes their meetings and tentative discussions about the float without the presence of the strong-willed secretary of the Treasury, John Stone.

"The Treasury had been vehemently opposed to floating," Keating recalls.

"It was a bit like someone walking up to you with a dirty postcard, the Reserve Bank approaching me to talk about the unapproachable subject."

As Keating reveals this week, he and Johnston had planned to float the dollar across the Christmas period of 1983, allowing the enormous step change to occur during a quieter time for world financial markets. But it was an unexpected inflow of money in the latter half of 1983 that prompted them to move earlier, in mid-December.

As Keating makes clear, the floating of the dollar was part of a broad measure of reforms he implemented, including the opening up of the Australian financial system.

When he took over as treasurer, he recalls, he walked into his office in the old Parliament House in Canberra to see a faded copy of the Campbell report into the financial system on the shelves. Headed by former chief executive of the Hooker Corporation Keith Campbell, it had been commissioned by treasurer Howard, but its recommendations to free up the financial system and look towards a float of the dollar had been quietly put into the too-hard basket.

The new treasurer seized the day, and began removing many long-time controls on the Australian financial system and freeing up the ability of the Australian banks to lend.

In the interview, Keating says he was frustrated that it took three years for the exchange rate to fall, despite comments from the government trying to talk it down. But then it went on a wild ride. The volatility that many had feared from a freely floating dollar occurred.

It was Keating again who was at the coalface in May 1986, with his famous "Banana Republic" comments, which sent the dollar down, hitting a low point of US57c in July 1986.

If Labor had wanted a low dollar, it got it. But the financial markets were nervous.

The next 13 years were volatile years for the Australian dollar. It rose to almost US90c in 1988, fell to the mid-US60c range in the early 90s, when the world economy went into a recession, and slumped to a record low US47.73c in April 2001.

The tech boom was at its height and Australia was seen as an old-economy nation.

But, as the accompanying chart shows, the Australian dollar turned in 2001 and began a steady rise upwards again, pushing through parity with the US for the first time since the float.

Keating argues that the floating of the dollar allowed Australia to absorb the shocks of domestic and international changes without going into a recession. The proof, he says, was in the pudding.

"After the East Asian crisis of 1997 the exchange rate fell to US48c and, more recently, with the China terms of trade, it has risen to $US1.10.

"That enormous range meant that - and it's as clear as day - the exchange rate is taking the shock and not the real economy."

The one exception was in the early 90s, when the Australian economy did go into recession. This was driven by a combination of a slump in the world economy and over-lending by the Australian banking sector, thrown open in the late 80s with the addition of 16 new foreign banks, approved by Keating as part of his ongoing mission to open up the economy.

Keating also hints that he was caught by a newly independent Reserve Bank he had created. Having allowed it independence, he had to live with its decision to jack up interest rates.

The upward movement in the Australian dollar since 2001 can be summed up in one word: China.

The recovery of the Asian economies and the growth of China, which joined the World Trade Organisation in 2001, increased the demand for the very mineral resources Keating had realised could be a key part of the Australian economy and an important source of export earnings.

It was the sharp rise in Australia's terms of trade - the value of its exports over the value of imports - that drove the currency back up again.

Thirty years on, the Australian dollar is not too far different from what it was at the time of the float - about US90c.

But this time it is perceptions of Australia's links with the Chinese economy, as well as our higher interest-rate regime, that is holding the dollar up higher than many in industry would prefer.

But this time, as Keating says, it is something Australia will have to live with, and the role of policy-makers is to adjust by increasing productivity.

We are part of a global world. There is no turning back.

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