Political sketch
A self-governing territory in association with New Zealand.
Thee Cook Islands were initially settled by Polynesians from Tonga and Samoa. The Spanish navigator Alvaro de Mendaña de Neira first sighted the island of Pukapuka in 1595. Subsequently, Spaniards, Russians, and French sighted some of the other islands. The English captain James Cook explored many of the islands during voyages in the 1770s, and the group is named for him. In 1821, missionaries from the London Missionary Society arrived. With locals, they governed the southern islands for several decades. Queen Makea was concerned that France might expand to the Cook Islands, which became a French colony in 1880. She asked the United Kingdom to grant a protectorate. The island of Rarotonga became a protectorate in 1888, and the United Kingdom extended the protectorate to the southern islands by 1892. A federal parliament was created and each island had self-government. New Zealand, whose government of the period had expansionist ambitions, annexed the Cook Islands on 10 June 1901 with British permission.
Limited self-government began in 1962, and the first elections were held on 20 April 1965. The legislature voted for internal self-government in association with New Zealand. The economy is based mainly on tourism, international finance, agriculture, and light industry. Traditional customs control land tenure, and the people may not sell the land.
Wars since 1500
Apparently none.
Convertibility
The sterling area:
On 2 August 1914, soon after the First World War began, the United Kingdom issued a proclamation imposing a one-month moratorium of payment for bills of exchange accepted before 4 August; an act of 3 August 1914 gave legislative sanction to the proclamation. The moratorium was subsequently extended for a month and ended on 4 November 1914. Legally the pound sterling remained convertible into gold and could be exported, but the risk to shipping from German submarines made the cost of shipment prohibitive, so the United Kingdom was in effect off the gold standard. The British government refused to include private shipments of gold in its war-risk insurance scheme. After the war, the export of gold was prohibited from 1 April 1919 under regulations that were given statutory form in 1920. On 28 April 1925 the government announced that the act would not be renewed when it expired on 31 December 1925. On 13 May 1925 the United Kingdom resumed the gold standard.
The United Kingdom abandoned the gold standard on 21 September 1931. The currencies of British colonies were almost all linked to the pound sterling through currency boards; being on a sterling-exchange standard rather than a gold-exchange standard, they followed the pound sterling off gold. Over the next few years, some former British colonies (Australia, New Zealand, South Africa) and other countries that had important trade links with the United Kingdom switched from gold to the pound sterling as their official or actual anchor. The result was termed the sterling area. The United Kingdom imposed exchange controls on 4 September 1939, the day after entering the Second World War. Most countries that were not current or former British colonies soon left the sterling area. Among the remaining countries, both current- and capital-account transactions were free of restrictions within the sterling area, but were restricted in dealings with outside countries. After the Second World War, the United Kingdom returned to the gold standard under the Bretton Woods system. It removed exchange controls on 15 August 1947, but reimposed them on 20 August 1947 after suffering a large loss of foreign reserves. Sterling had a dual exchange rate from 1961 until the United Kingdom abolished exchange controls. The sterling area remained in existence because sterling was not fully convertible. It began to crumble after the United Kingdom again abandoned the gold standard on 23 June 1972. By January 1973 the sterling area had shrunk to the British Isles and a few small British colonies; even Hong Kong abandoned sterling as its anchor currency. The United Kingdom abolished exchange controls on 24 October 1979, ending the sterling area.
New Zealand alone:
On 5 August 1914, shortly after the First World War began, an amendment to the Banking Act empowered the Governor-General in Council (that is, the cabinet), to issue a proclamation declaring any banknotes to be forced tender. While any such proclamation was in effect, coined gold could not be exported without the consent of the minister of finance. From 5 August 1914-5 November 1919, it was also prohibited to export uncoined gold without his consent. Immediately after the amendment passed, the government issued a proclamation making bank notes forced tender from 6 August-6 September 1914. The government extended the proclamation from time to time (New Zealand official yearbook 1937: 572). New Zealand in effect resumed the gold standard when the United Kingdom resumed on 13 May 1925.
On 20 January 1933, the exchange rate was depreciated. Exporters received the new rate, which was more favorable to them, while exporters of capital continued to receive the old rate (New Zealand official yearbook 1937: 575). The dual rate ended on 1 August 1934. On 5 December 1938, New Zealand's government authorized the central bank not to convert notes into pounds sterling at the official exchange rate, thereby introducing exchange controls that became effective on 7 December 1938. In July 1939, the central bank introduced regulations that deferred remittances on all overseas funds except those for the national government and payment of foreign debt owed by local governments. (Local governments, as elsewhere in British colonies and former colonies, often issued securities in London.) Before July 1939, a system of permits for foreign exchange existed, but they did not limit the period during which remittances could be made. The Finance Emergency Regulations, April 1940, eliminated the free exchange market and forbade transactions at other than official rates. They were replaced by the Finance Emergency Regulations (No. 2), June 1940. Amendments introduced on 9 March 1950 greatly loosened controls as they applied to the sterling area.
New Zealand left the sterling area on 23 June 1972. It removed most exchange controls on 24 December 1984, and removed all remaining controls on 1 February 1990 (New Zealand official yearbook 1985: 790; IMF ARER 1991: 352).
Other
See the "Explanation" file for certain references cited in this section.
Defaults on or restructurings of debt to the private sector (mainly from Purcell and Kaufman 1993 and Standard & Poor's 2004): 1995-1997 (foreign currency bank debt).
Banking crises (data since 1970s mainly from Caprio and Klingebiel 1999 and Frydl 1999): None.
Frankel and Rose (1996) list of currency crashes: Country not listed. A type of currency crisis occurred in June 1995; it ended when the Cook Islands decided to revert to using New Zealand currency.
No exchange rate data in Reinhart and Rogoff (2003).
References
Primary sources:
--Laws and decrees:
Cook Islands. Gazette. 1898-present. Cook Islands Gazette. Rarotonga: Government Printer?
--Publications of monetary authorities:
Reserve Bank of New Zealand. Annual report. 1935-present. Report of the First Ordinary General Meeting (1935); Annual Report of the Board of Directors and Statement of Accounts for the year ended 31st March (1936, 1938, and 1952-1953); Report of the Board of Directors for the year ended 31st March (1937 and 1939-1952); Annual Report of the Board of Directors and Statement of Accounts for the year ended 31st March (1954-1964; this is from the title page; the cover says simply Annual Report); Annual Report of the Directors and Statement of Accounts for the year ended 31st March (1965-1989); Annual Report and Financial Statements for the year ended 31st March (1990-present). Wellington: Reserve Bank of New Zealand.
Reserve Bank of New Zealand. Bulletin. 1938-present. Statistical Summary (1938-1950); Bulletin (1951-present). Wellington: Reserve Bank of New Zealand.
--Web site of the current monetary authority (viewed January 2005):
<http://www.rbnz.govt.nz>
--Other publications or Web sites:
Cook Islands. Gazette. 1898-present. Cook Islands Gazette. Rarotonga, Cook Islands: Government of the Cook Islands.
Cook Islands. ?-present (semiannual). Cook Islands Half Year Economic and Fiscal Update, for Financial Year.... [Rarotonga, Cook Islands]: Government of the Cook Islands.
Great Britain (United Kingdom). Report on the Cook Islands. Colonial Office. 1899 (other issues?). Cook Islands. London: [Her Majesty's Stationery Office].
New Zealand. Report on the Cook Islands. 1906?-1964/1965?. Cook Islands Department, Cook and Other Islands (1906?-1941); not published 1942-1944; Department of Island Territories, Cook Islands (1944/1945-1951/1952); Department of Island Territories, Reports on the Cook, Niue, and Tokelau Islands (1952/1953-1964/1965). Wellington: Government Printer.
New Zealand. Official yearbook. 1893-present. New Zealand Official Year-Book (from 1961 the last word was spelled Yearbook). Wellington: Government Printer.
Main secondary sources:
Asian Development Bank. 1995. Cook Islands: Economic Performance, Issues and Strategies. Manila: Office of Pacific Operations, Asian Development Bank.
Belloni, Serge. 1995. "Cook Islands: Brief Review of the Current Status of the Currency, the Economy and the Reform of the Public Sector." Report for United Nations Economic and Social Commission for Asia and the Pacific, Pacific Operations Centre (Port Vila, Vanuatu), July.
Gilson, Richard [Phillip]. 1980. The Cook Islands, 1920-1950, edited by Ron Crocombe. Wellington: Victoria University Press in association with the Institute of Pacific Studies of the University of the South Pacific. (Contains some details of early public finances.)
IMF ARER. 1950-present. International Monetary Fund. Annual Report on Exchange Restrictions (1950-1978), Annual Report on Exchange Arrangements and Exchange Restrictions (1979-1988), Exchange Arrangements and Exchange Restrictions: Annual Report (1989-present). Washington: International Monetary Fund. (Contains information on IMF member countries and some of their dependencies.) (No direct information on the Cook Islands, but some information can be inferred from data on New Zealand.)
Monetary authorities: Cook Islands
| Dates | Type | Name | Source | Remarks |
| 1901?
-1987 |
dollarization (see Remarks) | pound sterling (issued by central bank Bank of England [headquarters London, England]) alongside New Zealand pound / New Zealand dollar from 10 July 1967 (issued by multiple free banks / by central bank Reserve Bank of New Zealand [headquarters Wellington, New Zealand] from 1 August 1934) | starting date inferred from general histories; no specific information on monetary history | The Cook Islands government printed but never issued 2- and 4-shilling sterling notes dated 7 August 1894, containing the legend "under the Act of the Federal Parliament of 7th August 1894." They became a territory of New Zealand. No clear distinction existed between British and New Zealand currency until 21 December 1929, when the New Zealand pound began to trade a more than a 2% discount to the pound sterling. New Zealand did not have its own coins until November 1933; before that it used British and Australian coins. The Cook Islands also used those coins. The first bank was the National Bank of New Zealand (headquarters London, England), in Avarua, Rarotonga, in 1969. It was a corporate ancestor of ANZ Bank which is mentioned below. The islands issued their first coins in 1972. The Cook Islands Monetary Board (headquarters Avaurua, Rarotonga, Cook Islands), established by the Cook Islands Monetary Board Act, 1981, apparently was not responsible for issuing currency, though it did supervise financial institutions. |
| 1987?
-1989? |
currency board alongside dollarization | Cook Islands Treasury (headquarters Avaurua, Rarotonga, Cook Islands) alongside New Zealand dollar (issued by central bank Reserve Bank of New Zealand [headquarters Wellington, New Zealand]) | Cook Islands, Currency Reserve Act, 1987, cited in Asian Development Bank (1995: 43) | Established what was apparently a currency board to issue a local currency. The Currency Reserve Act required 100% foreign reserve backing against currency in circulation. |
| 1989?
-June 1995 |
government issue alongside dollarization | Cook Islands Treasury (headquarters Avaurua, Rarotonga, Cook Islands) alongside New Zealand dollar (issued by central bank Reserve Bank of New Zealand [headquarters Wellington, New Zealand]) | Cook Islands, amendment to the Currency Reserve Act of 1987, 1989, cited in Asian Development Bank (1995: 43) | The amendment reduced the foreign reserve backing required for the currency to 50%. In the last years of the system, the Treasury only complied with the reserve requirements at the end of the financial year, whereas the law required compliance at all times. New Zealand currency also circulated freely (Asian Development Bank 1995: 42-5). The second bank was Australia and New Zealand Bank (ANZ) (headquarters Melbourne, Australia), in Avarua, Rarotonga, in 1988. Westpac acted as the clearing bank for notes and ANZ (which had absorbed the National Bank of New Zealand) acted as the clearing bank for coins. |
| June 1995
-present (2005) |
dollarization | uses New Zealand dollar (issued by central bank Reserve Bank of New Zealand, headquarters Wellington, New Zealand) | Cook Islands, Currency Amendment Act 1994-95, reprinted in Belloni (1995: no page numbers) | Adopted the New Zealand dollar after the local currency threatened to depreciate. The islands issue their own coins and a $3 note mainly held by collectors because it is an unusual denomination (hence the saying in US English "queerer than a $3 bill"). |
Exchange rate arrangements: Cook Islands
| Dates | Official arrangement | Source | Unofficial arrangement, if different | Remarks |
| 1888?
-1901? |
fixed; used pound sterling and silver dollars of various nations | Great Britain, report on the Cook Islands, 1899: 6 | The island of Rarotonga became a British protectorate in 1888. | |
| 1901?
-9 July 1967 |
fixed; used pound sterling and later New Zealand pound | starting date inferred from general histories; no specific information on monetary history | See the tables for the United Kingdom and New Zealand on parallel market data for their currencies | Became a territory of New Zealand. No clear distinction existed between British and New Zealand currency until 21 December 1929, when the New Zealand pound began to trade a more than a 2% discount to the pound sterling. New Zealand did not have its own coins until November 1933; before that it used British and Australian coins. |
| 10 July 1967
-1987? |
fixed; used New Zealand dollar | New Zealand, Decimal Currency Act, 1964, cited in Reserve Bank of New Zealand annual report, 31 March 1965: 31; Reserve Bank of New Zealand annual report, 31 March 1968: 36 | The decimalized New Zealand dollar replaced the New Zealand pound at New Zealand $2 = New Zealand £1. The transitional period for circulation of old currency alongside new currency ended on 31 May 1968. The new currency was called the dollar because its value was closer to that of the US dollar than the pound sterling. Australia had replaced its pound with the Australian dollar on 14 February 1966. | |
| 1987?
-1989 |
fixed; Cook Islands $1 = New Zealand $1 | Cook Islands, Currency Reserve Act, 1987, cited in Asian Development Bank (1995: 43) | Established what was apparently a currency board to issue a local currency. | |
| 1989
-June 1995 |
pegged; Cook Islands $1 = New Zealand $1 | Cook Islands, amendment to the Currency Reserve Act of 1987, 1989, cited in Asian Development Bank (1995: 43) | See Remarks | The Cook Islands issued their own currency, including a Cook Islands $3 bill issued mainly for collectors. (The denomination is unusual, so, in American English at least, there is an expression, "Queerer than a $3 bill.") The Cook Islands dollar was named after the New Zealand dollar. As of October 1993, Westpac Bank (headquarters Sydney, Australia) held more than Cook Islands $2 million of excess local currency. Under the arrangements then existing, it stood to suffer the loss from a devaluation or restriction of convertibility (Asian Development Bank 1995: 45). In December 1994, checks denominated in Cook Islands dollars could no longer be cleared through the New Zealand Interbank Clearing System (Belloni 1995: no page number). |
| June 1995
-present (2005) |
fixed; uses New Zealand dollar | Cook Islands, Currency Amendment Act 1994-95, reprinted in Belloni (1995: no page numbers) | Adopted the New Zealand dollar after the local currency threatened to depreciate. |