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    The Australian Dollar Exchange Rate Policies

    Australia maintained a peg to the British pound reflecting its historical ties as well as a view about the stability in value of the British pound. From 1946 to 1971 Australia maintained a peg to the U.S. dollar under the Bretton Woods system, but it was effectively pegged to sterling until 1967. With the breakdown of the Bretton Woods system in 1971, Australia converted the mostly-fixed peg to a moving peg against the U.S. dollar. In September 1974 Australia moved to a peg against a basket of currencies called the TWI (trade weighted index) in an effort to reduce fluctuations associated with its peg to the U.S. dollar. The peg to the TWI was changed to a moving peg in November 1976, causing the actual value of the peg to be periodically adjusted. In December 1983, the Australian Labor government led by Prime Minister Bob Hawke and Treasurer Paul Keating "floated" the Australian dollar. From that point, movements in the Australian dollar continued to reflect the strength of its terms of trade. For decades Australia's reliance upon commodity (mineral and farm) exports has seen the Australian dollar rally during global booms, and fall when mineral prices slumped or when domestic spending overshadowed its export earnings outlook. The currency's high volatility, currency exposure and interest swap has made the AUD one of the most traded currencies in the world, far in excess of the economy's importance (2% of global economic activity).