While Australia had a central bank and monetary authority in the period between the First World War and the Great Depression, New Zealand did not. This was a very critical period and during this time, the Gold Specie Standard was New Zealand’s only link to the pound sterling.

In the years between 1914 and the Great Depression, New Zealand did not have a central monetary authority. The Great Depression was a severe economic depression which began around 1929 and lasted until the late 1930′s or early 1940′s, depending upon the country. It originated in the United States, which first manifested the economic decline when stock prices fell on Sept 4, 1929. Almost two months after, on October 29, 1929, the stock market crashed and the day was forever dubbed as Black Tuesday.

In the years before the First World War, the Kiwi currency of that time was purely linked to the pound sterling by the Gold Specie Standard. When the latter was suspended in 1914, at the outbreak of the First World War, the link was solely based on existing practice. Banks controlled the exchange rates because they took charge of telegraphic transfers between New Zealand and London. New Zealand was entirely on a sterling exchange standard effectively controlled by Australia’s banks. This sterling exchange standard, between 1925 and 1931, became the gold exchange standard.

When the Great Depression reached Australia and New Zealand, the Australian banks started creating divergence between the English pound and the then New Zealand pound. London importation from New Zealand and Australia were badly affected by the great Depression and in an effort to sustain demand, the New Zealand pound was sold at 9% discount. This meant that by this time, around 1931, 100 British pounds sterling was equivalent to 110 New Zealand pounds.

This was a situation that was apparently new in those days with the pound sterling of Great Britain having a different value for its counterparts in New Zealand and Australia. Two years after, the New Zealand and Australian pounds were at 20% discount with respect to the English pound. This meant that 100 British pounds was now equivalent to 125 New Zealand pounds. After the Second World War, in 1948, the New Zealand returned to a value at par with the British pound.

The English pound was devalued by late 1967 but prior to that, New Zealand has already decimalized the pound into New Zealand dollars. With the English pound’s devaluation, New Zealand seized the opportunity to realign its dollar to that of Australia.

The pound sterling historically has very close ties to the New Zealand dollar. Although New Zealand has stopped using the pound sterling as its currency, the British Empire’s over all influence continues to be part of the Kiwi lifestyle.