WEBVTT 00:00:00.000 --> 00:00:02.600 Welcome to the deep dive. You know, right now, 00:00:02.759 --> 00:00:05.839 somewhere in the world, there's an algorithmic 00:00:05.929 --> 00:00:09.429 trading bot just instantly moving millions of 00:00:09.429 --> 00:00:11.630 dollars across international borders. Oh absolutely 00:00:11.630 --> 00:00:14.150 in milliseconds. Right and the crazy thing is 00:00:14.150 --> 00:00:16.870 it's making those massive financial decisions 00:00:16.870 --> 00:00:20.170 based largely on like the price of milk powder 00:00:20.170 --> 00:00:22.269 in a country that has fewer people than the state 00:00:22.269 --> 00:00:24.329 of Colorado. Yeah it really highlights a pretty 00:00:24.329 --> 00:00:27.010 stark reality about modern money. I mean we tend 00:00:27.010 --> 00:00:29.829 to view the cash in our wallets as these static 00:00:29.829 --> 00:00:32.710 objects right like finished products with a fumed 00:00:32.710 --> 00:00:35.780 value. A five is a five. Exactly. In reality, 00:00:36.219 --> 00:00:39.399 a currency is this living, highly volatile data 00:00:39.399 --> 00:00:41.859 point. It's tethered to these massive global 00:00:41.859 --> 00:00:44.399 forces that, honestly, most of us never even 00:00:44.399 --> 00:00:46.799 see. Totally. And today we are looking at one 00:00:46.799 --> 00:00:49.619 specific currency that illustrates that invisible 00:00:49.619 --> 00:00:52.700 global engine better than almost any other. We 00:00:52.700 --> 00:00:54.579 are turning our attention to the New Zealand 00:00:54.579 --> 00:00:57.359 dollar. Known around the world simply as the 00:00:57.359 --> 00:01:01.000 Kiwi. Yes, the Kiwi. And for you listening, our 00:01:01.000 --> 00:01:03.340 source material today is a comprehensive Wikipedia 00:01:03.340 --> 00:01:05.939 article that details the history, the physical 00:01:05.939 --> 00:01:09.420 evolution, and the frankly staggering economic 00:01:09.420 --> 00:01:12.500 footprint of this money. It is such a remarkable 00:01:12.500 --> 00:01:15.760 case study. You get to see how a medium of exchange 00:01:15.760 --> 00:01:18.659 evolves right alongside a nation's identity. 00:01:18.879 --> 00:01:22.420 It really is. So our mission today for you, the 00:01:22.420 --> 00:01:24.780 listener, is to figure out how a small island 00:01:24.780 --> 00:01:27.900 nation's currency transitioned from this notoriously 00:01:27.900 --> 00:01:31.480 clunky colonial system into an absolute heavyweight 00:01:31.480 --> 00:01:33.780 in the global foreign exchange market. A heavyweight 00:01:33.780 --> 00:01:36.299 is right. I mean, it punches so far above its 00:01:36.299 --> 00:01:38.060 weight class. It really demands a mechanical 00:01:38.060 --> 00:01:40.620 explanation. OK, let's unpack this. Well, to 00:01:40.620 --> 00:01:42.859 truly understand the trajectory of the New Zealand 00:01:42.859 --> 00:01:45.299 dollar, we have to look at the friction of the 00:01:45.299 --> 00:01:47.700 system it actually replaced. Because prior to 00:01:47.700 --> 00:01:50.739 1967, New Zealand operated on the New Zealand 00:01:50.739 --> 00:01:55.000 pound, which utilized the old, the pounds, shillings, 00:01:55.060 --> 00:01:57.319 and pence system. Oh man, the old non -decimal 00:01:57.319 --> 00:01:59.599 system. Exactly. So that means, if I remember 00:01:59.599 --> 00:02:01.560 my history right, you had 20 shillings to a pound, 00:02:01.920 --> 00:02:05.000 and then 12 pence to a single shilling. So, um, 00:02:05.120 --> 00:02:08.300 wait. That's 240 pence and one pound. You got 00:02:08.300 --> 00:02:10.759 it. 240. And I just want to pause here because 00:02:10.759 --> 00:02:12.840 it's so easy to look back at that and just think, 00:02:12.919 --> 00:02:15.360 wow, what an inconvenience to do mental math 00:02:15.360 --> 00:02:17.460 at the pub. Yeah, figuring out your tab would 00:02:17.460 --> 00:02:19.620 be a nightmare. Right. But the real issue was 00:02:19.620 --> 00:02:23.020 scale, wasn't it? I mean, imagine running a global 00:02:23.020 --> 00:02:25.960 shipping company in the 1950s. You're trying 00:02:25.960 --> 00:02:29.180 to reconcile international corporate ledgers 00:02:29.180 --> 00:02:33.599 or calculate complex compounding interest using 00:02:33.599 --> 00:02:36.659 a base 12 and base 20. currency? Well, the majority 00:02:36.659 --> 00:02:38.780 of the industrialized world was already moving 00:02:38.780 --> 00:02:41.520 to base 10. Exactly. It's essentially like trying 00:02:41.520 --> 00:02:43.800 to run a modern high -speed Internet business 00:02:43.800 --> 00:02:46.900 on an entirely outdated computer operating system. 00:02:46.979 --> 00:02:48.460 That's a great way to put it. Like the hardware 00:02:48.460 --> 00:02:50.520 of the country is fine, their exports are strong, 00:02:50.719 --> 00:02:53.300 but the core financial code is just too clunky 00:02:53.300 --> 00:02:55.400 to interface with the rest of the world. Yeah, 00:02:55.400 --> 00:02:57.979 what's fascinating here is the sheer economic 00:02:57.979 --> 00:03:01.360 drag that non -decimal system actually created. 00:03:01.439 --> 00:03:04.419 By the 1950s, global trade was just accelerating. 00:03:04.330 --> 00:03:07.569 so rapidly. Right the post -war boom. Exactly. 00:03:08.110 --> 00:03:10.770 So maintaining a currency system that required 00:03:10.770 --> 00:03:13.289 entirely different mathematical formulas for 00:03:13.289 --> 00:03:17.039 basic accounting, well It was increasingly viewed 00:03:17.039 --> 00:03:20.500 not just as some quaint tradition, but as a severe 00:03:20.500 --> 00:03:24.020 liability to national growth. They needed a massive 00:03:24.020 --> 00:03:26.759 country -wide software update. They needed to 00:03:26.759 --> 00:03:29.000 decimalize. And the government totally recognized 00:03:29.000 --> 00:03:31.939 this. In fact, proposals to decimalize had actually 00:03:31.939 --> 00:03:35.039 surfaced as early as the 1930s. Oh, wow. I didn't 00:03:35.039 --> 00:03:36.939 realize it was that early. Yeah, but you have 00:03:36.939 --> 00:03:39.240 to understand, it required immense political 00:03:39.240 --> 00:03:42.180 will to actually change out a country's money. 00:03:42.460 --> 00:03:45.280 A committee was finally formed in the late 1950s 00:03:45.280 --> 00:03:48.139 to study the logistics. That led to the official 00:03:48.139 --> 00:03:50.879 decision in 1963, and then finally the legal 00:03:50.879 --> 00:03:53.419 passage of the Decimal Currency Act in 1964. 00:03:53.900 --> 00:03:56.240 But having the law is one thing, actually executing 00:03:56.240 --> 00:03:58.620 it is another. And then they ran into this completely 00:03:58.620 --> 00:04:01.400 different hurdle, right? Branding. Oh, the naming 00:04:01.400 --> 00:04:03.840 controversy, yes. Right. Because conceptualizing 00:04:03.840 --> 00:04:06.020 a new monetary system meant they had to give 00:04:06.020 --> 00:04:08.219 it a name. And according to the sources, the 00:04:08.219 --> 00:04:10.139 government was highly resistant to using the 00:04:10.139 --> 00:04:13.219 word dollar. They were. They were deeply concerned 00:04:13.219 --> 00:04:15.759 about the optics of Americanization. Which makes 00:04:15.759 --> 00:04:18.579 sense. Yeah, they wanted a name that felt uniquely 00:04:18.579 --> 00:04:21.360 anchored to New Zealand's culture and geography. 00:04:21.560 --> 00:04:24.639 So the public and politicians floated a myriad 00:04:24.639 --> 00:04:26.699 of proposals. Some of which were pretty funny. 00:04:26.860 --> 00:04:28.939 Oh, yeah. You had suggestions like the Fern, 00:04:29.079 --> 00:04:33.240 the Kiwi, and a rather earnest proposal for the 00:04:33.240 --> 00:04:35.639 Zeal. The Zeal. I have to admit, Zeal has a certain 00:04:35.639 --> 00:04:37.939 rhetorical flair to it. It does sound energetic. 00:04:38.019 --> 00:04:41.980 It does. But pragmatism clearly won the day. 00:04:42.519 --> 00:04:44.959 They adopted the dollar, likely just because 00:04:44.959 --> 00:04:47.259 it was the globally recognized standard for a 00:04:47.259 --> 00:04:50.370 decimal currency. Right. But, you know, Shifting 00:04:50.370 --> 00:04:53.129 an entire population's psychological understanding 00:04:53.129 --> 00:04:55.389 of value is a monumental task. You don't just 00:04:55.389 --> 00:04:57.629 flip a switch and say, hey, we use dollars now. 00:04:57.870 --> 00:05:00.589 No, absolutely not. Which is why they engineered 00:05:00.589 --> 00:05:03.029 one of the most comprehensive public education 00:05:03.029 --> 00:05:06.029 campaigns in the country's history. Enter Mr. 00:05:06.290 --> 00:05:09.149 Dollar. Yes. The face of this campaign was this 00:05:09.149 --> 00:05:11.649 anthropomorphic cartoon character named Mr. Dollar. 00:05:11.810 --> 00:05:14.730 Like a mascot. Literally, a mascot for money. 00:05:14.810 --> 00:05:17.810 And for years leading up to the transition, Mr. 00:05:18.009 --> 00:05:20.129 Dollar was just ubiquitous. He was on television, 00:05:20.689 --> 00:05:23.110 in newspapers, in schools. Just teaching kids 00:05:23.110 --> 00:05:25.769 math. Exactly. Methodically explaining how the 00:05:25.769 --> 00:05:28.269 new conversion math would work, all to ensure 00:05:28.269 --> 00:05:30.610 the economy didn't just, you know, grind to a 00:05:30.610 --> 00:05:32.790 halt on launch day. And that launch day finally 00:05:32.790 --> 00:05:37.370 arrived on Monday, July 10th, 1967. They dubbed 00:05:37.370 --> 00:05:41.120 it... Decimal Currency Day. A very literal name. 00:05:41.439 --> 00:05:43.740 Very. And the logistical undertaking alone is 00:05:43.740 --> 00:05:46.000 just staggering. They had to print approximately 00:05:46.000 --> 00:05:50.680 27 million new banknotes and mint 165 million 00:05:50.680 --> 00:05:53.379 new coins. Just to facilitate the physical changeover 00:05:53.379 --> 00:05:55.459 on day one. Right. And the conversion rate was 00:05:55.459 --> 00:05:57.779 fixed, wasn't it? Two new dollars equaled one 00:05:57.779 --> 00:06:00.720 old pound. Yes. It was designed to be a clean 00:06:00.720 --> 00:06:02.980 mathematical break from the colonial past. OK, 00:06:02.980 --> 00:06:05.259 so they successfully reprogrammed the public 00:06:05.259 --> 00:06:08.420 psychology with Mr. Dollar. They did. But conceptualizing 00:06:08.420 --> 00:06:10.639 a new currency is only half the battle. They 00:06:10.639 --> 00:06:12.759 actually had to manufacture the physical objects, 00:06:13.100 --> 00:06:14.920 and they immediately ran into a completely different 00:06:14.920 --> 00:06:17.279 kind of public relations disaster. Ah, yes, the 00:06:17.279 --> 00:06:20.800 1967 coin art leak. Which is just wild to me. 00:06:20.939 --> 00:06:23.740 Tell us about that. Well, it is a perfect example 00:06:23.740 --> 00:06:26.959 of the tension between state ambition and public 00:06:26.959 --> 00:06:29.750 sentiment. The original designs they commissioned 00:06:29.750 --> 00:06:31.810 for the reverse sides of these brand new decimal 00:06:31.810 --> 00:06:36.029 coins were highly stylized modern art representations. 00:06:36.029 --> 00:06:38.810 They were intended to signal this forward -looking 00:06:38.810 --> 00:06:43.509 progressive nation. But those designs were leaked 00:06:43.509 --> 00:06:46.230 to a newspaper prior to getting official approval. 00:06:46.410 --> 00:06:50.089 Oh no. Yeah. And the public reaction was entirely 00:06:50.089 --> 00:06:52.730 hostile. People just outright rejected them. 00:06:52.970 --> 00:06:55.490 Why were they so mad about modern art? Because 00:06:55.490 --> 00:06:57.529 currency serves a dual purpose, right? It is 00:06:57.529 --> 00:06:59.870 a medium of exchange, yes, but it's also a daily 00:06:59.870 --> 00:07:02.350 tactile mirror of national identity. Oh, that 00:07:02.350 --> 00:07:04.730 makes sense. The modern art just felt too abstract 00:07:04.730 --> 00:07:06.990 to the average citizen. It didn't reflect their 00:07:06.990 --> 00:07:09.850 self -image or their actual heritage. The backlash 00:07:09.850 --> 00:07:11.750 was so fierce that the government was forced 00:07:11.750 --> 00:07:14.389 to pivot completely. Ultimately, they released 00:07:14.389 --> 00:07:16.769 much more conservative designs featuring familiar 00:07:16.769 --> 00:07:19.649 national symbols instead. That tension between 00:07:19.649 --> 00:07:24.019 the symbolic and the highly practical, it dictates 00:07:24.019 --> 00:07:26.399 almost every change to the physical money. Like, 00:07:26.500 --> 00:07:29.800 let's look at 2006. The Reserve Bank executed 00:07:29.800 --> 00:07:33.319 a change that, on the surface, seems purely logistical. 00:07:33.379 --> 00:07:35.959 But it actually stems from these globalized mechanics. 00:07:36.540 --> 00:07:39.800 They shrank the 10 cent, 20 cent, and 50 cent 00:07:39.800 --> 00:07:43.339 coins. And they changed their composition to 00:07:43.339 --> 00:07:46.860 plated steel to make them lighter. Why did they 00:07:46.860 --> 00:07:49.259 do that? The driving factor there was a really 00:07:49.259 --> 00:07:52.160 fascinating microeconomic problem. The older 00:07:52.300 --> 00:07:55.699 heavier coins were nearly identical in size and 00:07:55.699 --> 00:07:58.180 weight to various international coins. Oh, really? 00:07:58.360 --> 00:08:00.120 Yeah, particularly those from other Commonwealth 00:08:00.120 --> 00:08:01.860 nations. Oh, I see where this is going, which 00:08:01.860 --> 00:08:04.160 meant bad actors were importing foreign coins 00:08:04.160 --> 00:08:06.839 that held a lower exchange value. Exactly. And 00:08:06.839 --> 00:08:08.600 they were just feeding them into New Zealand 00:08:08.600 --> 00:08:11.459 vending machines and retail kiosks to extract 00:08:11.459 --> 00:08:13.939 goods or get legitimate Kiwi change. Yes. It 00:08:13.939 --> 00:08:16.439 was basically an arbitrage scheme executed right 00:08:16.439 --> 00:08:18.560 through a vending machine slot. That is incredibly 00:08:18.560 --> 00:08:20.660 clever and also a huge headache for the bank. 00:08:21.060 --> 00:08:24.810 Absolutely. To stop that bleed, the Reserve Bank 00:08:24.810 --> 00:08:27.529 had to fundamentally alter the physical specifications 00:08:27.529 --> 00:08:30.790 of the coinage. But, you know, there is a broader 00:08:30.790 --> 00:08:33.990 economic force that alters physical money, too. 00:08:34.429 --> 00:08:37.149 Which is what? Inflation, combined with the raw 00:08:37.149 --> 00:08:40.269 cost of metallurgy. Ah, right. Which is why the 00:08:40.269 --> 00:08:42.350 smallest denominations no longer even exist in 00:08:42.350 --> 00:08:44.950 New Zealand. Exactly. The one cent and two cent 00:08:44.950 --> 00:08:48.090 coins were demonetized, meaning stripped of their 00:08:48.090 --> 00:08:50.730 legal tender status way back in 1990. Yeah. And 00:08:50.730 --> 00:08:53.490 then the five cent coin followed suit in 2006. 00:08:53.850 --> 00:08:56.110 Right. Because central banks are basically beholden 00:08:56.110 --> 00:08:59.509 to commodity markets. Eventually, the raw copper, 00:08:59.889 --> 00:09:02.570 bronze or nickel required to forge a one cent 00:09:02.570 --> 00:09:05.289 coin. cost significantly more than one cent to 00:09:05.289 --> 00:09:07.429 actually purchase and manufacture. So it becomes 00:09:07.429 --> 00:09:09.629 a guaranteed financial loss for the state to 00:09:09.629 --> 00:09:11.809 even mint the money. Exactly. OK. That makes 00:09:11.809 --> 00:09:14.149 logical sense from a production standpoint. But 00:09:14.149 --> 00:09:16.570 here is where the mechanical reality of daily 00:09:16.570 --> 00:09:18.850 life gets complicated for me. OK. Our sources 00:09:18.850 --> 00:09:21.149 detail the implementation of Swedish rounding. 00:09:21.570 --> 00:09:24.009 If the one cent, two cent, and five cent coins 00:09:24.009 --> 00:09:27.070 are physically extinct, how does a cash transaction 00:09:27.070 --> 00:09:31.850 for a coffee priced at like $4 .99 actually resolve? 00:09:32.080 --> 00:09:34.779 Somebody has to absorb that missing set. Right. 00:09:35.200 --> 00:09:38.340 Well, Swedish rounding is an elegant analog solution 00:09:38.340 --> 00:09:41.480 to a physical constraint. It basically operates 00:09:41.480 --> 00:09:43.919 on the principle of rounding the final total 00:09:43.919 --> 00:09:47.200 of a cash transaction to the nearest physically 00:09:47.200 --> 00:09:50.009 available denomination. Which in New Zealand 00:09:50.009 --> 00:09:52.009 today is what, the 10 cent coin? That's right, 00:09:52.070 --> 00:09:54.830 the 10 cent coin. So mechanically, let's say 00:09:54.830 --> 00:09:59.330 my grocery bill totals $15 .94. OK. The register 00:09:59.330 --> 00:10:03.370 rounds that down to $15 .90, meaning I, the consumer, 00:10:03.710 --> 00:10:05.970 effectively keep 4 cents. Exactly. But if the 00:10:05.970 --> 00:10:09.990 bill totals $15 .96, it rounds up to $16, and 00:10:09.990 --> 00:10:12.070 the retailer gains those 4 cents. Wait, doesn't 00:10:12.070 --> 00:10:15.149 somebody lose out over time? Actually, no. Right. 00:10:15.269 --> 00:10:17.629 Because it is entirely reliant on the law of 00:10:17.629 --> 00:10:20.669 large numbers. Over tens of thousands of transactions, 00:10:21.169 --> 00:10:23.649 the rounding variances just cancel each other 00:10:23.649 --> 00:10:27.649 out. Neither the consumer nor the retailer systematically 00:10:27.649 --> 00:10:31.389 profits or loses. It just simply removes the 00:10:31.389 --> 00:10:33.850 need for micro denominations. It's a brilliant 00:10:33.850 --> 00:10:37.009 workaround. And that constant evolution applies 00:10:37.009 --> 00:10:38.929 to the banknotes as well, not just the coins. 00:10:39.129 --> 00:10:42.629 Oh, for sure. In 1999, New Zealand abandoned 00:10:42.629 --> 00:10:45.490 paper entirely, transitioning to polymer, which 00:10:45.490 --> 00:10:48.929 is like this high -tech plastic, and they updated 00:10:48.929 --> 00:10:51.649 these again in 2015 and 2016 with the Series 00:10:51.649 --> 00:10:54.929 7 notes. Those are globally recognized for advanced 00:10:54.929 --> 00:10:56.870 transparent security windows. Very high -tech. 00:10:57.039 --> 00:10:59.500 But beyond the tech, it's the curation of the 00:10:59.500 --> 00:11:01.700 figures on those notes that really stands out 00:11:01.700 --> 00:11:04.639 to me. They utilize the polymer as a canvas for 00:11:04.639 --> 00:11:06.899 a very specific historical narrative. Right. 00:11:07.039 --> 00:11:09.259 You look at the $5 note and you see Sir Edmund 00:11:09.259 --> 00:11:11.460 Hillary, the legendary Mountaineer. Yeah. But 00:11:11.460 --> 00:11:14.519 you also look at the $100 note and you find Ernest 00:11:14.519 --> 00:11:17.299 Rutherford, the Nobel Prize winning physicist 00:11:17.299 --> 00:11:20.120 who pioneered orbital theory and split the atom. 00:11:20.379 --> 00:11:22.919 It's a deliberate choice to elevate scientific 00:11:22.919 --> 00:11:25.860 achievement right alongside physical exploration. 00:11:26.039 --> 00:11:28.200 And it's paired with the yellow -eyed penguin, 00:11:28.500 --> 00:11:32.440 the New Zealand falcon. It's a very intentional 00:11:32.440 --> 00:11:35.120 projection of what the country values. Yet even 00:11:35.120 --> 00:11:37.639 that curation is subject to pragmatic realities. 00:11:37.820 --> 00:11:41.440 How so? Well, think about the $20 note. Following 00:11:41.440 --> 00:11:44.059 the death of Queen Elizabeth II in September 00:11:44.059 --> 00:11:48.399 2022, whose portrait adorns that note, many assumed 00:11:48.399 --> 00:11:50.980 an immediate transition to King Charles III was 00:11:50.980 --> 00:11:53.460 imminent. Oh, right, because the monarch changed. 00:11:53.860 --> 00:11:56.450 But they didn't do that, did they? No. The Reserve 00:11:56.450 --> 00:11:58.789 Bank essentially looked at their warehouse inventory 00:11:58.789 --> 00:12:01.149 and said, look, we have perfectly good stock 00:12:01.149 --> 00:12:03.750 already printed. Huh. So they just decided to 00:12:03.750 --> 00:12:05.850 exhaust all the existing supplies of the Queen 00:12:05.850 --> 00:12:08.470 Elizabeth notes and coins before initiating new 00:12:08.470 --> 00:12:11.049 printing plates. Exactly. Meaning a transition 00:12:11.049 --> 00:12:13.049 in the monarchy won't actually be visible in 00:12:13.049 --> 00:12:15.929 the physical currency for several years. It demonstrates 00:12:15.929 --> 00:12:19.649 a modern central bank prioritizing fiscal responsibility 00:12:19.649 --> 00:12:22.970 over immediate pageantry. I love that. Very pragmatic. 00:12:23.230 --> 00:12:25.509 Now. all of this physical evolution, the shift 00:12:25.509 --> 00:12:28.929 from clunky pounds to decimalized steel, the 00:12:28.929 --> 00:12:32.409 polymer notes, the art, it forms a great tactile 00:12:32.409 --> 00:12:35.330 history. It does. But the reality is that physical 00:12:35.330 --> 00:12:38.210 cash represents a minuscule fraction of what 00:12:38.210 --> 00:12:40.549 a currency actually is today. Oh, absolutely. 00:12:40.950 --> 00:12:43.710 The true power of the Kiwi dollar and really 00:12:43.710 --> 00:12:46.529 the reason we are analyzing it today happens 00:12:46.529 --> 00:12:49.289 invisibly. It happens on the global digital market. 00:12:49.649 --> 00:12:51.590 Let's look at how the value of this money is 00:12:51.590 --> 00:12:54.509 actually determined. Well, to grasp its current 00:12:54.509 --> 00:12:57.450 power, we really must understand its early constraints. 00:12:58.190 --> 00:13:02.149 In its infancy, the New Zealand dollar was pegged. 00:13:02.230 --> 00:13:05.169 OK. Its value was officially anchored by the 00:13:05.169 --> 00:13:08.080 government to the British pound. and later to 00:13:08.080 --> 00:13:09.980 the U .S. dollar. Hold on. For the listener who 00:13:09.980 --> 00:13:12.000 isn't a financial historian, this was standard 00:13:12.000 --> 00:13:13.980 practice under the Bretton Woods system. Yes, 00:13:14.039 --> 00:13:16.679 exactly. The post -World War II agreement that 00:13:16.679 --> 00:13:18.840 essentially tied global currencies to the U .S. 00:13:18.980 --> 00:13:21.019 dollar just to create international stability. 00:13:21.220 --> 00:13:23.340 Right. So when that system collapsed in the early 00:13:23.340 --> 00:13:26.159 1970s... The entire architecture of global finance 00:13:26.159 --> 00:13:28.789 shifted. Pegging your currency to a single foreign 00:13:28.789 --> 00:13:31.509 nation suddenly became incredibly dangerous. 00:13:31.750 --> 00:13:34.110 Because you absorb all of their economic volatility. 00:13:34.350 --> 00:13:37.230 Exactly. If their economy crashes, your currency 00:13:37.230 --> 00:13:39.590 plummets right along with them. Wow. So what 00:13:39.590 --> 00:13:42.490 did they do? Well, to insulate themselves. New 00:13:42.490 --> 00:13:44.549 Zealand transitioned to a trade -weighted basket 00:13:44.549 --> 00:13:48.750 from 1973 to 1985. A basket. Meaning, they tied 00:13:48.750 --> 00:13:50.990 the value of the Kiwi dollar to a weighted average 00:13:50.990 --> 00:13:53.169 of currencies from their major international 00:13:53.169 --> 00:13:55.750 trading partners. Yes. It smooths out the bumps. 00:13:56.080 --> 00:13:59.100 If one partner's currency drops, another might 00:13:59.100 --> 00:14:01.820 rise, keeping the Kiwi relatively stable. That 00:14:01.820 --> 00:14:04.139 makes total sense. It was a mechanism for controlled 00:14:04.139 --> 00:14:07.039 stability. But the defining moment for this currency 00:14:07.039 --> 00:14:11.139 arrived on March 4, 1985. The government officially 00:14:11.139 --> 00:14:13.539 floated the New Zealand dollar, launching at 00:14:13.539 --> 00:14:16.799 an initial rate of roughly 44 US cents. Floating 00:14:16.799 --> 00:14:19.179 means the state entirely removes its hands from 00:14:19.179 --> 00:14:21.159 the steering wheel. The government no longer 00:14:21.159 --> 00:14:23.860 dictates the value. It is determined entirely 00:14:23.860 --> 00:14:25.919 by the brutal mechanics of global supply and 00:14:25.919 --> 00:14:28.039 demand on the open market, second by second. 00:14:28.200 --> 00:14:30.179 And that transition to the open market exposed 00:14:30.179 --> 00:14:33.340 the currency to extreme volatility. I mean, between 00:14:33.340 --> 00:14:36.759 the year 2000 and 2014, the Kiwi swung wildly. 00:14:37.120 --> 00:14:39.559 How wildly? Well, it went from a post -slot low 00:14:39.559 --> 00:14:43.240 of around 39 US cents to a peak of over 88 US 00:14:43.240 --> 00:14:46.580 cents. Whoa. That is a massive swing. It is. 00:14:46.879 --> 00:14:50.740 During the 2008 global financial crisis, panicked 00:14:50.740 --> 00:14:53.559 investors rapidly liquidated what they perceived 00:14:53.559 --> 00:14:57.019 as riskier currencies. That drove the New Zealand 00:14:57.019 --> 00:14:59.399 dollar down to roughly 50 US cents in a matter 00:14:59.399 --> 00:15:02.379 of months before it eventually rebounded. Here's 00:15:02.379 --> 00:15:04.779 where it gets really interesting. Because that 00:15:04.779 --> 00:15:07.259 kind of volatility isn't just an abstract number 00:15:07.259 --> 00:15:10.039 on a screen, right? No, it has real -world consequences. 00:15:10.220 --> 00:15:13.240 It forces central banks to make highly unorthodox, 00:15:13.460 --> 00:15:17.419 aggressive moves. In June 2007, the Reserve Bank 00:15:17.419 --> 00:15:19.799 intervened directly in the foreign exchange market 00:15:19.799 --> 00:15:22.960 for the first time since the 1985 float. Yes, 00:15:22.960 --> 00:15:25.840 they did. They intentionally sold an undisclosed 00:15:25.840 --> 00:15:28.580 massive amount of their own New Zealand dollars 00:15:28.580 --> 00:15:31.600 in exchange for roughly $9 billion. dollars, 00:15:32.179 --> 00:15:34.740 and their explicit stated goal was to drive the 00:15:34.740 --> 00:15:37.759 value of their own currency down. I have to look 00:15:37.759 --> 00:15:40.240 at the mechanics of this. Why on earth would 00:15:40.240 --> 00:15:43.039 a sovereign nation purposefully devalue its own 00:15:43.039 --> 00:15:45.620 money? If we connect this to the bigger picture, 00:15:46.059 --> 00:15:48.120 we have to examine the engine of New Zealand's 00:15:48.120 --> 00:15:50.919 economy. It is fundamentally reliant on exports. 00:15:53.960 --> 00:15:56.720 Tourism. Right. They generate wealth by selling 00:15:56.720 --> 00:15:59.039 goods to other nations. So they are constantly 00:15:59.039 --> 00:16:02.460 seeking international buyers. Exactly. Now consider 00:16:02.460 --> 00:16:04.399 the perspective of that international buyer. 00:16:05.379 --> 00:16:07.980 If the New Zealand dollar is extremely strong, 00:16:08.480 --> 00:16:11.679 meaning its exchange rate is very high, that 00:16:11.679 --> 00:16:14.840 buyer has to spend significantly more of their 00:16:14.840 --> 00:16:18.919 own local currency just to acquire the Kiwi dollars 00:16:18.919 --> 00:16:21.919 necessary to pay the New Zealand farmer. Ah. 00:16:22.200 --> 00:16:24.740 So the farmer hasn't changed their price. But 00:16:24.740 --> 00:16:27.379 the currency exchange rate has suddenly made 00:16:27.379 --> 00:16:29.860 their milk powder like 30 percent more expensive 00:16:29.860 --> 00:16:31.899 on the global market. Exactly. They get priced 00:16:31.899 --> 00:16:34.399 out. They are essentially strangling their own 00:16:34.399 --> 00:16:36.919 export industries with a currency that is too 00:16:36.919 --> 00:16:39.600 valuable. You've hit the exact rationale. The 00:16:39.600 --> 00:16:42.259 Reserve Bank intervened in 2007 because they 00:16:42.259 --> 00:16:44.299 determined the dollar's high value was artificial 00:16:44.299 --> 00:16:47.830 and it was actively damaging to exporters. By 00:16:47.830 --> 00:16:49.950 intervening, by flooding the global market with 00:16:49.950 --> 00:16:52.309 billions of New Zealand dollars, they artificially 00:16:52.309 --> 00:16:55.169 increase the supply. And basic economic principles 00:16:55.169 --> 00:16:58.090 dictate that when supply heavily outweighs demand. 00:16:58.169 --> 00:17:01.129 The price drops. The price drops. It is a massive 00:17:01.129 --> 00:17:04.450 multi -billion dollar lever they pulled simply 00:17:04.450 --> 00:17:07.410 to keep their domestic agricultural sector competitive 00:17:07.410 --> 00:17:10.710 globally. Yeah. And that tension between a strong 00:17:10.710 --> 00:17:14.559 dollar and export viability is perpetual. Fast 00:17:14.559 --> 00:17:17.440 forward to late 2012, the dollar was again trading 00:17:17.440 --> 00:17:20.480 very high, consistently above 80 U .S. cents. 00:17:20.680 --> 00:17:23.019 Which hurts the exporters again. Right. And this 00:17:23.019 --> 00:17:25.059 triggered intense political pressure from the 00:17:25.059 --> 00:17:27.660 Green Party and manufacturing unions. They demanded 00:17:27.660 --> 00:17:30.559 the Reserve Bank implement quantitative easing. 00:17:30.779 --> 00:17:33.259 OK, quantitative easing. That essentially means 00:17:33.259 --> 00:17:35.880 the central bank creates new money to buy government 00:17:35.880 --> 00:17:38.700 bonds, which lowers interest rates and theoretically 00:17:38.700 --> 00:17:40.839 devalues the currency to help those struggling 00:17:40.839 --> 00:17:43.250 exporters. Correct. But the sources note the 00:17:43.250 --> 00:17:46.410 Reserve Bank point blank refused to do it. Why 00:17:46.410 --> 00:17:48.549 decline a tool that could relieve that pressure? 00:17:49.170 --> 00:17:52.069 Because monetary policy is a very delicate ecosystem. 00:17:52.569 --> 00:17:54.809 Devaluing the currency might provide short -term 00:17:54.809 --> 00:17:58.000 relief to a dairy exporter, sure. But it simultaneously 00:17:58.000 --> 00:18:01.059 makes importing goods drastically more expensive. 00:18:01.180 --> 00:18:04.039 If the Reserve Bank utilized quantitative easing 00:18:04.039 --> 00:18:06.799 and crushed the value of the dollar, everyday 00:18:06.799 --> 00:18:09.400 New Zealand citizens would suddenly face massive 00:18:09.400 --> 00:18:12.900 price spikes for imported fuel, vehicles, consumer 00:18:12.900 --> 00:18:16.039 electronics. Oh, I see. The central bank declined 00:18:16.039 --> 00:18:18.599 because the risk of triggering severe domestic 00:18:18.599 --> 00:18:21.700 inflation just outweighed the benefit to the 00:18:21.700 --> 00:18:24.529 export sector. It is a high wire balancing act. 00:18:24.549 --> 00:18:26.829 Really is. But perhaps the most staggering takeaway 00:18:26.829 --> 00:18:29.509 from our source material is just how massive 00:18:29.509 --> 00:18:31.670 the New Zealand dollar's footprint is in that 00:18:31.670 --> 00:18:34.069 global arena. It's huge. We are talking about 00:18:34.069 --> 00:18:36.230 a nation with a population of a few million people. 00:18:36.369 --> 00:18:38.890 Yet, according to data from the Bank for International 00:18:38.890 --> 00:18:41.690 Settlements, this currency is an absolute titan. 00:18:41.829 --> 00:18:45.089 The trajectory is unmatched. In 1998, the New 00:18:45.089 --> 00:18:48.130 Zealand dollar accounted for a mere 0 .2 percent 00:18:48.130 --> 00:18:51.119 of global daily foreign exchange turnover. Barely 00:18:51.119 --> 00:18:54.380 a blip. Right. But by 2016, it had surged to 00:18:54.380 --> 00:18:57.500 2 .1%, becoming the 11th most traded currency 00:18:57.500 --> 00:19:01.359 on Earth. That is wild. And recent data from 00:19:01.359 --> 00:19:05.200 April 2025 shows it maintaining a top -tier presence 00:19:05.200 --> 00:19:10.369 at 1 .5 % of total global volume. 1 .5 % of the 00:19:10.369 --> 00:19:13.430 entire world's daily money movement. That volume 00:19:13.430 --> 00:19:16.730 is vastly disproportionate to New Zealand's actual 00:19:16.730 --> 00:19:20.009 economic output or global GDP. Vastly. It's like 00:19:20.009 --> 00:19:22.269 the New Zealand dollar is a tiny indie band that 00:19:22.269 --> 00:19:24.569 suddenly starts selling out international stadium 00:19:24.569 --> 00:19:28.269 tours. Like it's a tiny gear with highly specialized 00:19:28.269 --> 00:19:31.269 teeth that's somehow locked perfectly into the 00:19:31.269 --> 00:19:33.730 massive engine of global algorithmic trading. 00:19:34.299 --> 00:19:37.140 What are those specialized teeth? Why are international 00:19:37.140 --> 00:19:39.720 traders so obsessed with this specific currency? 00:19:40.039 --> 00:19:42.180 Well, the primary driver of that disproportionate 00:19:42.180 --> 00:19:44.700 volume is a financial maneuver known as the carry 00:19:44.700 --> 00:19:47.619 trade. OK, what is that? To understand why the 00:19:47.619 --> 00:19:49.940 Kiwi is so coveted, you have to look at interest 00:19:49.940 --> 00:19:52.059 rate differentials. Historically, New Zealand 00:19:52.059 --> 00:19:54.000 has maintained relatively high interest rates 00:19:54.000 --> 00:19:56.359 compared to other major developed economies. 00:19:56.579 --> 00:19:59.079 So mechanically, how does a trader actually exploit 00:19:59.079 --> 00:20:01.839 that? Imagine an institutional investor sitting 00:20:01.839 --> 00:20:04.119 in Tokyo. the interest rate in Japan might be 00:20:04.119 --> 00:20:07.960 near zero, or even negative. That investor borrows 00:20:07.960 --> 00:20:12.240 100 million Japanese yen at essentially 0 % interest. 00:20:12.859 --> 00:20:15.519 They immediately take that borrowed yen, convert 00:20:15.519 --> 00:20:18.460 it into New Zealand dollars, and invest it in 00:20:18.460 --> 00:20:21.819 New Zealand government bonds yielding, say, 4 00:20:21.819 --> 00:20:24.720 % or 5%. Wait, so they're using cheap borrowed 00:20:24.720 --> 00:20:27.420 money from one country to harvest a high yield 00:20:27.420 --> 00:20:29.759 in another country. Exactly. And they just pocket 00:20:29.759 --> 00:20:32.200 the difference. Precisely. And because New Zealand 00:20:32.200 --> 00:20:34.519 offers a highly transparent financial system, 00:20:35.000 --> 00:20:37.160 a stable political environment, and strong rule 00:20:37.160 --> 00:20:40.339 of law, international investors view it as a 00:20:40.339 --> 00:20:43.740 very safe haven to execute these trades. The 00:20:43.740 --> 00:20:47.019 sheer volume of this daily carry trade, we're 00:20:47.019 --> 00:20:48.920 talking billions of dollars washing in and out 00:20:48.920 --> 00:20:51.740 of the country seeking yield, is what propels 00:20:51.740 --> 00:20:53.839 the Kiwi dollar to the top ranks of the global 00:20:53.839 --> 00:20:56.579 forex market. completely divorced from the actual 00:20:56.579 --> 00:20:59.180 buying and selling of New Zealand exports. Exactly. 00:20:59.380 --> 00:21:01.519 Just moving money to make money. So what does 00:21:01.519 --> 00:21:03.579 this all mean? We started this deep dive looking 00:21:03.579 --> 00:21:06.619 at a fractured colonial system where accountants 00:21:06.619 --> 00:21:09.099 were pulling their hair out dividing by 20s and 00:21:09.099 --> 00:21:12.359 12s. We watched a nation systematically reprogram 00:21:12.359 --> 00:21:15.220 its mathematical identity with a cartoon character 00:21:15.220 --> 00:21:18.529 named Mr. Dollar. We saw them clash over the 00:21:18.529 --> 00:21:21.109 aesthetic soul of their coinage, pragmatically 00:21:21.109 --> 00:21:23.109 melt down their small change when the metals 00:21:23.109 --> 00:21:26.690 became too costly, and engineer an analog workaround 00:21:26.690 --> 00:21:29.349 like Swedish rounding. Which is still brilliant. 00:21:29.509 --> 00:21:33.650 Truly. We saw them weave their legendary scientists 00:21:33.650 --> 00:21:36.490 and native falcons into advanced polymer notes. 00:21:37.009 --> 00:21:39.789 And all the while, beneath that physical tactile 00:21:39.789 --> 00:21:43.509 history, we witnessed this currency quietly transform 00:21:43.509 --> 00:21:46.650 into a highly volatile, massively traded financial 00:21:46.650 --> 00:21:49.789 instrument, a tiny gear driving the massive engine 00:21:49.789 --> 00:21:52.690 of global algorithmic carry trades. It is a master 00:21:52.690 --> 00:21:55.329 class in how modern value is truly constructed. 00:21:55.589 --> 00:21:57.230 To you listening right now, the next time you 00:21:57.230 --> 00:21:59.349 hold a physical banknote or coin, regardless 00:21:59.349 --> 00:22:01.630 of where you live, take a moment. Yeah. Feel 00:22:01.630 --> 00:22:03.410 the weight of the metal or the texture of the 00:22:03.410 --> 00:22:05.730 polymer. Look at the historical figures curated 00:22:05.730 --> 00:22:08.049 on its surface. And then remember that the physical 00:22:08.049 --> 00:22:10.710 object in your hand is merely a localized shadow. 00:22:10.890 --> 00:22:14.130 Its actual purchasing power is being violently 00:22:14.130 --> 00:22:17.259 negotiated. millisecond by millisecond by invisible 00:22:17.259 --> 00:22:19.500 digital forces and interest rate differentials 00:22:19.500 --> 00:22:22.640 thousands of miles away. This raises an important 00:22:22.640 --> 00:22:25.259 question though moving forward. As we've seen 00:22:25.259 --> 00:22:28.579 today, New Zealand has brilliantly utilized the 00:22:28.579 --> 00:22:31.500 physical polymer and metal of its money to tell 00:22:31.500 --> 00:22:34.140 a highly specific cultural story about who they 00:22:34.140 --> 00:22:36.400 are, their indigenous leaders, their mountaineers, 00:22:36.480 --> 00:22:39.220 their unique ecosystems. Right. But as the New 00:22:39.220 --> 00:22:41.839 Zealand dollar increasingly functions as a detached 00:22:41.839 --> 00:22:44.480 algorithmic asset on the global forex market, 00:22:44.900 --> 00:22:47.880 and as daily consumer habits push us relentlessly 00:22:47.880 --> 00:22:50.960 toward a completely cashless society. Oh, wow. 00:22:51.119 --> 00:22:52.940 What happens to a nation's ability to tell its 00:22:52.940 --> 00:22:55.559 own cultural story when the physical canvas of 00:22:55.559 --> 00:22:58.059 money disappears entirely? An invisible currency 00:22:58.059 --> 00:23:00.220 for an invisible market. Something to think about 00:23:00.220 --> 00:23:02.599 the next time you tap your card or check an exchange 00:23:02.599 --> 00:23:04.799 rate. Thanks for joining us on this deep dive.