What is the Christmas Island Dollar
The Christmas Island Dollar was the former currency of Christmas Island, a small Australian island in the Indian Ocean. The first person to sight the island was a British captain named Captain William Mynors, who sailed past it on December 25, 1643. Hence the name Christmas Island.
Breaking Down Christmas Island Dollar
The Christmas Island Dollar is now obsolete, as Christmas Island adopted the Australian dollar as its official currency.
Britain annexed Christmas Island in 1888. After World War II, Christmas Island became a jurisdiction of Singapore, until Singapre transferred the island to Australia in October 1958 for a payment of $20 million to cover the loss of earnings from the island's phosphate supply.
As of 2016, Christmas Island had an estimated population of a little more than 1,800 people. A significant portion of the island’s population come from Chinese ancestry, followed by Australian and Malay ancestry. Now, more than two-thirds of the island is a national park. The island also houses an Australian immigration detention center.
The island's economy consists of tourism and a phosphate extraction industry that is dwindling.
Transition from the Christmas Island dollar to the Australian Dollar
The legal tender used on Christmas Island is now the Australian dollar (AUD) which is the official currency of the Commonwealth of Australia. It is made up of 100 cents and is represented with the symbol $, A$ or AU$.
The Australian dollar is also the official currency for the Pacific islands of Nauru, Tuvalu and Kiribati as well as Norfolk Island. Australia is the world’s 13th largest economy, and its economic and political stability has made its currency highly traded, as the Australian dollar is the fifth most traded currency in the world.
This switch from the use of a local currency to the use of another jurisdiction's currency is called dollarization or currency substitution and is a common phenomenon.
Unlike the case of Christmas Island which became an Australian territory, dollarization sometimes also takes place in developing countries that have unstable economies or weak central governments. The primary benefits offered by dollarization include economic stability, attracting domestic and foreign investment, and the ability to counter high inflation.
The process of dollarization can either be partial or full. When partial dollarization takes place, a portion of a country’s assets are held in the adopted foreign currency. Other countries that have undergone dollarization include Zimbabwe, Ecuador and El Salvador.