On 1 January 2001, Australia celebrated the centenary of its federal Constitution. Throughout its history, the Australian federal system has proved both resilient and flexible, serving the Commonwealth through the trials of depression, total war, imperial decline, and economic reconstruction. The constitutional system has been developed through interpretation by the High Court and popular input via referendums, as well as by the ongoing process of intergovernmental relations. There has been an overall expansion of Commonwealth powers with the polities of nation-building, but the states remain significantly powerful although financially dependent on the common wealth. Given the institutional and popular success of Australian federalism, the challenges facing the Commonwealth in the new century are not expected to be domestic or constitutional, but strategic and economic: principally, how a smallish middle power should meet the difficulties of globalization and security from a position of relative isolation adj acent to Asia in the southern Pacific.