Prior to European colonization, early Aboriginal Australian communities traded using items such as tools, food, ochres, shells, raw materials and stories, although there is no evidence of the use of currencies.
After colonization on 26 January 1788, New South Wales became a British colony, and was provided with English currency to be used for formal circulation, though the supply was insufficient and alternative forms of exchange were resorted to. A national Australian currency was created in 1910, as the Australian Pound, which in 1966 was decimalised as the Australian Dollar.
From the early 19th century until 1971, the exchange rate of Australian currency was fixed to the British pound. After the dissolution of the Bretton Woods Agreement in 1971, it was fixed to the United States Dollar until, in 1974, it was fixed to a Trade Weighted Index. In 1976, this was changed from a 'hard’, to a crawling peg, meaning the exchange rate was changed more frequently. In 1983, Australia changed to a free-floating exchange rate.
Early Australian experience
The first European settlement of Australia took place on 26 January 1788 at Port Jackson (modern Sydney, New South Wales). One very important British oversight during the colonization was the provision of adequate coinage for the new colony. In November 1788, Governor Phillip requested a remittance of money from England and sometime in 1790 the Kitty arrived with almost 4500 Spanish dollars. However, the dollars slowly left the colony as they were used to pay for goods brought in by visiting ships.
The colony of New South Wales barely survived its first years and was largely neglected for much of the following quarter-century while the British government was preoccupied until 1815 with the Napoleonic Wars. Because of the shortage of any sort of money, the real means of exchange during the first 25 years of settlement was rum, the access to which was controlled by the officers of the New South Wales Corps, who benefited most from access to land and imported goods.
Of necessity, various foreign coins were in circulation in the colony, and in 1800, in an attempt to put some order into the economy, Governor Philip Gidley King issued a proclamation setting the value of the various foreign coins in the colony, though it did not solve the problem. During this period, to protect the lucrative access to the imported rum, as well as other grievances, the officers, who came to be known as the "Rum Corps", deposed the governor in a standoff in 1808, referred to as the "Rum Rebellion". The New South Wales Corps was recalled soon after. Otherwise, the shortage of coinage persisted. For example, between 1811 and 1816 Governor Lachlan Macquarie paid the contractors who built the Sydney Hospital with 45,000 (later increased to 60,000) gallons of rum.
The first coinage issued by the colony took place in 1813, when Governor Macquarie ordered the middle of the £10,000 in Spanish dollars sent by the British government be punched out. This process created two parts: a small coin, which was called the dump, and a ring, which was called a holey dollar. One holey dollar was worth five shillings (a quarter of one pound sterling), and one dump was worth one shilling and three pence (or one quarter of a holey dollar). The objective of this exercise was to keep the coins in New South Wales, as they would be valueless elsewhere. In 1817, the first bank, the Bank of New South Wales, was established, which issued private bank notes denominated in pounds. Acceptance of these private bank notes was not compulsory as legal tender, though they were widely used and accepted.
In 1825, an Imperial order-in-council was issued for the purpose of introducing sterling coinage to all the British colonies. This was due to the introduction of the gold standard in the UK in 1816, and a decline in the supply of Spanish Dollars, due to the revolutions taking place in Spanish South American colonies. Most of the dollars used had been minted in Lima, Mexico City, and Potosí, which had become part of new Latin American republics, independent from Spain.