The Legal History of Money in New Zealand

Article excerpt

A central bank's stock in trade is money. This is no less true in New Zealand than in any other country. It is perhaps not surprising, therefore, that the Reserve Bank takes more than a passing interest in the historical development of notes and coins in New Zealand.

This article summaries the legal history of money in New Zealand, beginning in the early days of colonisation and tracing the key developments through to the modern era. Although the focus of the article is on the development of the legal framework governing notes and coin, rather than other aspects of money, it also discusses some of the economic and social issues that shaped these legal developments.

The history of money law in New Zealand is an example of how an emerging country developed an area of law necessary for the state to function, and how those laws were influenced by social and economic factors, In this article, we look at five key periods in the history of money in New Zealand:

* The period of legal uncertainty (1840 to 1844)

* Experimentation (1844 to 1861)

* Privately issued money (1861 to 1893)

* Periods of financial stress (1893 to 1933)

* Nationalisation of the currency (1933 to the present)

1 Introduction

The legal history of money in New Zealand from 1840 to the present time demonstrates the evolution over time of the laws connected with a commodity that every successful sovereign state must have--an acceptable means of exchange and store of value. The evolution of laws in New Zealand relating to money was affected by many factors. These included the effects of laws imported from the colonial power, the practical necessity of developing a local currency, the impact of economic events in New Zealand and worldwide, and experimentation. As well as being an interesting story in itself, the history of money law in New Zealand is an example of how a new country developed an area of law necessary for the state to function, and how those laws were influenced by social and economic factors, and changing views on currency theory.

This article provides a brief summary of the key stages in the development of the legal framework relating to money in New Zealand. Section 2 discusses the legal uncertainty surrounding the development of money in New Zealand from the time the Treaty of Waitangi was signed, in 1840, to 1844. Section 3 traverses the period from 1844 to 1861, when the authorities launched a number of initiatives to foster the development of a viable local means of payment and store of value. Section 4 describes the period between 1861 and 1893, when privately issued money, backed by legal authority, came into use. Section 5 covers the period from 1893 to 1933. when a series of adverse economic and political circumstances forced the government to intervene and use its legal powers to underwrite fully the private money issuers. Section 6 discusses the period from 1933, when the issuance of currency in New Zealand became a state monopoly and its transition to a pure fiat currency (with no convertibility to precious metals or other currency) was achieved. Section 7 draws some conclusions.

2 Legal uncertainty

Key events:

1840 British and foreign gold and silver coins in circulation under an uncertain legal basis.

1840 Union Bank of Australia begins issuing banknotes in New Zealand (under English law).

1844 Ordinance for facilitating proceedings by and against a certain Joint Stock Bank Company, called the Union Bank of Australia and for other purposes therein mentioned. Required that notes issued in New Zealand by the Union Bank be redeemable in specie (specie = gold and silver coin and bullion) and denominated as at least 1 Pound. (Union Bank evolved into the ANZ Bank in 1955.)

At the time of the signing of the Treaty of Waitangi there was no legal, or even commonly accepted, currency in New Zealand. …