Have your say: MFAT's John Allen wants Trans-Tasman currency debate

In a curious development on the weekend, the Ministry of Foreign Affairs and Trade's new secretary John Allen, who used to be CEO of NZ Post, stirred up the debate over a Trans-Tasman currency union. This follows Prime Minister John Key's flirting with the common currency idea in mid-August while in Australia. Is this a slow softening up of New Zealand for a common currency? Here's what John Allen told Guyon Espiner on Q&A on Sunday.

Well the common currency's been ruled out by Mr Key in some of his more recent speeches, as you will have heard in Australia, but I do think that New Zealand needs to continue to be thoughtful about being a small currency, exposed to significant volatility, particularly as a trading nation, because when you talk to exporters, one of the primary concerns that they have is the volatility of our currency, it's one of the primary barriers that they face in the delivering - actually entering the export market, but that's been ruled out by Mr Key in his recent speeches, but I do think that there's heaps that we can do with Australia, both in terms of the bilateral relationship between Australia and New Zealand, but also working together out into the wider world.

What I think

The Australians like the idea of a common currency and a single banking regulator because it reduces the risks for them of one of their major foreign economic exposures: the Australian banks' assets in New Zealand. Between them, ANZ, CBA, NAB and Westpac have NZ$321 billion of assets tied up in New Zealand, or close to two times NZ GDP. The Australians had to pump over NZ$10 billion across the Tasman during the recent international financial crisis and there was some nervousness within APRA, the Australian regulator, about how much exposure the Australian banks had to their New Zealand subsidiaries. New Zealand was essentially underwritten by the Australian government and the Australian savings system during the crisis. Australian savers pumped A$20 billion in fresh equity into the banks inside a few months, with at least A$2 billion of that being sent across to this side of the Tasman. New Zealand savers could never have stumped up the necessary capital to bolster our banks in such a short period of time. Australia is a very politicised place. The bankers and the politicians work together closely. I wondered over at my NZHerald blog whether the Australians were pressuring Key to raise this issue. If we continue to increase our indebtedness we will become a risk for the Australians they will want to manage. There's an old saying about a debt of NZ$100 being a problem for the borrower but when its a NZ$100 million debt it becomes a problem for the bank. New Zealand's debts are now so large they are a problem for our bankers, which means Australia. But is a common currency and single banking regulator the best thing for New Zealand? In the end it's all about sovereignty and how much we want to run our own economy. If we want to maintain our independence we need to reduce our current account deficit, save more, invest more in the productive sectors and invest less in the unproductive sectors. At the moment we appear hell bent on losing our sovereignty. That's what happens you take on too much debt. You give up your sovereignty to the banks. Your view? We welcome your comments below