Historical Sketch

The Melanesian islands were sporadically visited by European navigators, the Portuguese Pedro Fernandes de Queirós in the 17th century, by the French Louis Antoine de Bougainville and the British James Cook in the 18th century. The latter had coined the commonly used name of New Hebrides. Both colonial powers laid claim and founded settlements. Their dispute was solved by establishing a joint colonial administration in 1887 formalized by the condominium treaty of 1906. During World War II the New Hebrides were de facto occupied by the United States making the islands a major base against the Japanese advance. In 1975, the condominium powers agreed to the creation of the New Hebrides Representative Assembly which finally led to the islands’ independence as Republic of Vanuatu in 1980.

Monetary History Overview

The 1906 condominium treaty declared British and French currencies legal tender at equal terms. Apart from this the two joint powers never regulated the monetary affairs. Australian and French metropolitan banknotes and coins were circulating, British currency remained scarce. In 1938, the monetary confusion was increased as the postal rates switched to the old French "Gold Franc" which was to be rated against the circulating medium. During World War II and the German occupation of mainland France, the New Hebrides like the other Pacific possessions were loyal to the French government-in-exile. In 1941, overprinted paper money was issued in the name of "France Libre" which can be regarded as the creation of the New Hebridean Franc, and the name quickly asserted itself, although it was never formally created as a distinct currency. After the Second World War, France reorganised the monetary system of its colonies. In December 1945, a colonial currency was created for the Pacific territories (New Caledonia, Polynesia and Wallis & Futuna) but, due to the condominium status, not for the New Hebrides. Moreover, there was no currency institute on the islands so that the colonial administration purchased unissued banknotes from the Bank of Indochina in New Caledonia and overprinted them for use in the New Hebrides. During all that, the circulation of Australian currency was uninfluenced. The devaluation of the French Franc of August 1969 was not applied to the New Hebrides Franc to preserve the parity with the Australian Dollar, such that it was no longer on par with the French Pacific Franc. The overprinted notes of the Bank of Indochina were withdrawn until end October 1969 to prevent their influx from outside. They were replaced by overprinted banknotes from the French Overseas Currency Institute in New Caledonia, which had begun operations in 1967 but had no formal jurisdiction in the New Hebrides. In March 1973, the double peg of the New Hebrides Franc to the French Franc and the Australian Dollar was ended after the floating of the French currency. After independence, the Republic of Vanuatu established a central bank in 1981 which issued the Vanuatuan Vatu as national currency. In September of the year, the Vatu severed the link to the Australian currency and re-pegged to the IMF Special Drawing Rights (SDR) unit. In 1986, the Vatu was devalued, and two years later, the exchange rate got floated. Since the early 1990s, the Vatu's exchange rate has remained more or less stable against the Australian Dollar.

Vanuatu joined the International Monetary Fund (IMF) on 28.09.1981.

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