What does the statement below mean when it says the Australian dollar was floated?

Between 1983 and 1996, the Hawke–Keating Labor governments introduced a number of economic reforms, such as deregulating the banking system and floating the Australian dollar.

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There are two opposing terms with currency: floating and fixing. To fix a currency, you refuse to let its value fluctuate with the market (the exchange rate would remain fixed—for example, 2 British pounds would always equal 1 Australian dollar, or something similar). To float a currency, you allow it...

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There are two opposing terms with currency: floating and fixing. To fix a currency, you refuse to let its value fluctuate with the market (the exchange rate would remain fixed—for example, 2 British pounds would always equal 1 Australian dollar, or something similar). To float a currency, you allow it to fluctuate depending on trade, supply and/or demand. Most modern currencies are floated, and their value varies daily with respect to all other currencies.

When a country does trade with a separate country, they have to exchange their currency. If a currency is fixed, however, they may end up getting a significantly worse deal (for instance, if the British pound was very weak, those 2 British pounds being paid for the Australian dollar would be a poor trade). However, if the currency is floated, they would be able to receive a commensurate value for that currency from other countries, regardless of the other country's economic stability.

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What this means is that the value of the Australian dollar was allowed to change relative to other currencies.  Before that, the government had maintained a fixed value for the dollar in foreign exchange.

When a currency is "floated," its value is allowed to vary with supply and demand.  When China, for example, wants to buy minerals from Australia, it must obtain Australian dollars to pay for those minerals.  When Australia wants to buy goods from China, it must pay Australian dollars in order to get yuan.  The first of these raises the demand for Australian dollars while the second increases the supply of those dollars.  When demand for a currency increases, the value of the currency increases.  When its supply increases, its value declines.

So, what Hawke did was to allow the forces of supply and demand to determine the value of the Australian dollar.

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