Currency exchange explained

Recently my daughter had to write an essay for her Year 5 class, answering a series of questions and on the subject of any one of the Prime Ministers of Australia in the last 30 years.

Initially she chose Andrew Fisher. When I pointed out that he was Prime Minister about a century back and that this didn’t match the criteria she went into a little spin, pointing out that most of her friends were doing Gough Whitlam (probably the choice of their Clovelly-located NIMBY parents) and that he also fell outside the 30 year limit.

Eventually, favouring orthodoxy rather than precedence, we settled on Bob Hawke after I promised her that he was the most interesting of the lot. This was quickly proven true by YouTube, with clips of a drunken Bob Hawke re-telling ribald jokes. You simply can’t imagine a modern politician even dreaming about getting away with what Bob got away with.

Answering one question about the achievements of the Bob in office we got to the dot point of ‘floating the dollar’. She couldn’t imagine why anyone would knowingly wet their money and she doesn’t even know that back in 1983 this would have been fatal to the cellulosic version of the day.

I explained that when one goes to Disneyland that, at the airport, you buy American dollars and that you are very unlikely to get one American dollar for each of your Australian dollars. She asked why not. And I said because different countries have different expectations of what their dollars will buy.

I then said that before 1983 the government set the exchange rate but when it was floated the exchange rate was set by the ‘market’ in a similar way that shop keepers get to put any price on lollies that they want. I explained that there is always a consensus for the price range for exchange because people charging too much won’t get any business, just like people will go to the next shop if they find that the lollies in one shop are over-priced and can be got cheaper elsewhere.

I also explained that the government prints as many dollar notes as they feel like and that printing too many reduces the price of them because people get sick of them. Just like they might stop buying lollies when they have too many because they bought a lot of them very cheaply. And then the shopkeepers have to drop the price even further to get rid of them.

The final question was ‘what would you say to [Bob] if you met him?’ She answered ‘why were you so mean to Hazel?’. She really didn’t like the look of Blanche at all.