web analytics

The Reserve Bank Reform Bill

Written By: - Date published: 7:23 am, December 7th, 2018 - 11 comments
Categories: business, capitalism, david parker, Deep stuff, Economy, employment, grant robertson, labour, monetary policy, Politics, treasury - Tags:

Way, way back in the day, there was a Prime Minister called Robert Muldoon who made himself the Minister of Finance. As a total control freak he was the epitome of a leader dominating a command-and-control economy and society. He had a lot of pretty direct control over the Reserve Bank as well.

But his spectre of 35 years ago remains an excuse for never letting politicians near the actual inflation/economy balancing machine called the RBNZ.

That kind of Prime Minister really pushed the boundaries of our constitutional framework, and it was pretty clear to the incoming Lange-led government that some real statutory independence was in order.

So since 1989, 30 years ago, the Reserve Bank has had a lot more separation from direct democratic control. It has its own Board, and the government of the day sets its objectives, which are intended to be as enduring as possible.

The current policy targets agreement provided by this government’s economic objectives for the New Zealand requires the Reserve Bank to “improve the wellbeing and living standards of New Zealanders through a sustainable, productive, and inclusive economy. Our priority is to move towards a low carbon economy, with a strong diversified export base, that delivers decent jobs with higher wages and reduces inequality and poverty.”

Specifically for the part that monetary policy is expected to play, the Government “expects monetary policy to be directed at achieving and maintaining stability in the general level of prices over the medium term and supporting maximum stable employment.”

With stuff-all inflation, and stuff-all headline unemployment, you’d have to say they are meeting their core objectives easily, which shows that their targets are too easy for any useful accountability to anyone.

But after 30 years, another reforming Labour-led government decided it was time to give this Act a shave and a haircut. More specifically, Labour campaigned on a policy to update the Reserve Bank Act, to widen the objectives of the Bank to ensure that monetary policy decision-makers emphasised both those factors, rather than just driving inflation down as the previous government did.

Personally I don’t think it would have killed them to have the Minister of Finance sitting on the Reserve Bank Board as of right. That would not have upset the consensus-based approach to their decisions. Ah but no.

And since our banking system is 90% dominated by foreign banks most of whom are Australian-domiciled, I wanted to see much stronger powers to regulate them. Earlier this year the IMF carried out a comprehensive review of New Zealand’s financial system against international standards, with a focus on the quality of financial sector regulation.

It’s not too long ago that our entire mezzanine finance sector died and killed off a generation of retirements savings with it. It’s even shorter ago that the entire Australian Big Four banks were found by a Royal Commission in Australia to be an usurous, greedy, nasty bunch of pricks. So yes, the IMF were right.

But apparently our branch offices were fine and would never do such a thing. Like butter wouldn’t melt.

We have no reason to trust banks. They own us. The Australian banking system owns us. Why we would not align the regulatory powers of our own Reserve Bank with those of Australia beggars belief. And this is despite the Reserve Bank reacting to the IMF study that according to our previous Governor:

The Reserve Bank recognises that, despite a rebalancing towards more regulation post-GFC, New Zealand’s banking system remains unusual given the emphasis that is placed on self and market discipline, and its relatively low-intensity supervisory approach.”

It is bizarre that our Reserve Bank Governor should think – particularly after the recent Panama Papers revelations – that the most useful thing is to design a system of banking regulation that fits New Zealand conditions. What it needs to do is protect us from the shits that run the money in this world. To do that is needs big, sharp regulatory teeth. And it doesn’t want them.

Instead of a wee tad of direct democratic oversight coming into the picture, the RBNZ will have a committee-based decision-making model that includes Treasury officials. Now, don’t slag Treasury off quickly. They are well on the way to implementing Minister Robertson’s new wellbeing framework for budget bids and for Budget 2019.

But what we have instead is the most anodyne of reforms to the Reserve Bank, simply a set of tweaks to ensure that it is able to emphasise employment targets as well as inflationary ones. But to otherwise dust your hands of another campaign promise.

Here’s the bill text, intended to be passed early next year.

Banking, according to Deputy Prime Minister Winston Peters only yesterday, is one of several industries in New Zealand that is fleecing New Zealanders.

So at least there’s one government politician who gets this. It’s not as if we need another GFC to remind us of what a “self-regulating” banking sector does to a society when its’ profits are threatened. It sucks us dry.

Banking is but one of a series of oligopolies exercising cartel-like behaviour over this country that are sucking us to a husk. These near-cartels include:

  • fuel (for which the government has had to provide specific investigative powers)
  • building materials
  • electricity both generator and lines
  • telephone and internet
  • housing rent prices
  • supermarkets and groceries
  • liquor
  • water

… and other goods and services with barely any price regulation that we totally rely on for our very lives as well as a functioning society.

That list above contains a multitude of regulatory nightmares, affecting millions of New Zealanders, and this government will face a couple of terms just getting to grips with any of them.

And if this government doesn’t understand after the debacle it is facing in NZTA of “self-regulation” in the car and truck industry, it is only a matter of time before we get yet another avoidable disaster in any of them, including banking.

Regrettably this government has near-zero regulatory experience in its cabinet, and the person with any is David Parker and he is flooded.

In that Wellington situation, for the Reserve Bank, status quo has largely prevailed.

11 comments on “The Reserve Bank Reform Bill ”

  1. Antoine 1

    I agree with much of what you say, but it is a nonsense to say that electricity lines are cartel-like and face ‘barely any price regulation’. Most lines companies are under heavy price regulation. They have to be, as there is not competition in the sector. Not comparable with the other items in your list.

    A.

    • KJT 1.1

      One of the hidden costs of privatization. The cost of regulations, monitoring and controls, to ensure one eyed profit centred private companies do not plunder the public and run down the infrastructure.
      Underlines the stupidity, of the whole privatisation of the power companies. Not to mention privatising control of banking.

  2. Phil 2

    Your entire post is woefully under-informed. The ‘anodyne’ changes you note represent only Phase One (specifically focusing on how monetary policy and inflation targeting are implemented) of a huge review of the RBNZ.

    There is a consultation paper out in the public arena right now focusing on how the RB deals with regulation and supervision of banks.

    https://treasury.govt.nz/news-and-events/reviews-consultation/reviewing-reserve-bank-act/public-consultation

  3. Blazer 3

    Reform of the banking sector is well overdue.
    They have proved time and again that they cannot be trusted.

    Still cannot understand why more NZ’ers do not embrace Kiwi Bank.
    The present ANZ chairman in his former role did his best to sideline it.

    Since the repeal of Glass Steagal the Wall St banks have dominated politics ,with disasterous results ,culminating in the GFC and ludicrous inequality and an international debt money go round that can never be repayed.

    I love the way ,most peoples biggest financial burden,i.e rent or mortgage is excluded from inflation figures.

    The Reserve Bank needs more teeth and to tear the cosy banking cartels to…shreds.

    • Antoine 3.1

      Can you please not tear my bank into shreds as i am still using it

      A.

    • Good comments and good article by Advantage. And while some parts may seem to some to be broad brush strokes, that is only because space would not permit. This govt at least is recognizing that the whole ‘deregulation thing’ is feeding overseas fat wallets and bleeding us and our govt coffers dry… so to speak.

  4. Draco T Bastard 4

    Specifically for the part that monetary policy is expected to play, the Government “expects monetary policy to be directed at achieving and maintaining stability in the general level of prices over the medium term and supporting maximum stable employment.”

    Then they’re doing it wrong as evidenced by the GFC and other recessions over the years.

    The problem is two fold:
    1. The private bank’s creation of money which massively pushes up inflation especially in housing
    2. The hot flow of money across borders which can cause recessions when rich people, acting as a herd, remove all the money that they can get their hands on from an economy

    Both of these need to be addressed. The first one by banning the private banks from creating money and the second by banning foreign ownership and sales of NZ goods in foreign currency.

    Earlier this year the IMF carried out a comprehensive review of New Zealand’s financial system against international standards, with a focus on the quality of financial sector regulation.

    So, what did they say?

    It is bizarre that our Reserve Bank Governor should think – particularly after the recent Panama Papers revelations – that the most useful thing is to design a system of banking regulation that fits New Zealand conditions. What it needs to do is protect us from the shits that run the money in this world. To do that is needs big, sharp regulatory teeth. And it doesn’t want them.

    Not bizarre at all when it’s obviously a Priest of the Church of Deregulation who’s in charge of the RBNZ. It doesn’t help that the government are worshippers at the same church.

    So at least there’s one government politician who gets this. It’s not as if we need another GFC to remind us of what a “self-regulating” banking sector does to a society when its’ profits are threatened. It sucks us dry.

    The banking sector sucks us dry. It’s actually designed to do that which is why it charges interest.

    The fix is a state banking system that makes both business and mortgages available at 0% interest. The money is created by the RBNZ (Reserve currency) as needed to make those loans. The funding to run this banking system would be from taxes but it is not a subsidy as everyone needs and uses those services.

    Banking is but one of a series of oligopolies exercising cartel-like behaviour over this country that are sucking us to a husk. These near-cartels include:

    … and other goods and services with barely any price regulation that we totally rely on for our very lives as well as a functioning society.

    Essential services which have a demand monopoly should always be provided by government and not the private sector.

    That list above contains a multitude of regulatory nightmares, affecting millions of New Zealanders, and this government will face a couple of terms just getting to grips with any of them.

    I’m pretty sure that they won’t even look at them as the still believe the lie that the private sector does it best despite all the evidence proving otherwise.

    And if this government doesn’t understand after the debacle it is facing in NZTA of “self-regulation” in the car and truck industry, it is only a matter of time before we get yet another avoidable disaster in any of them, including banking.

    QFT

  5. CHCOff 5

    A House is a Home, the common market of and by all NZ citizens of all classes.

    Those the type of feathers which would give the most benefit being ruffled.

    Why put further resources into the outer shells of speculation and money laundering? Better to have an approach where such things naturally atrophy and die.

    Decoupling, not regulating.

  6. Tuppence Shrewsbury 6

    FInd it a bit strange that a government that wants to reform electoral law that blatantly favours it’s support parties should “just be allowed as it’s 30 years since muldoon” to reform one of the sanest, safest and most bipartisan pieces of legislation ever enacted in New Zealand.

    But ok, nothing bad could happen here.

    • KJT 6.1

      What fantasy world do you live in. The RBA, has been one of the most destructive legacies of the 84 and 90’s Governments.

      http://kjt-kt.blogspot.com/2013/05/the-reserve-bank-debt-and-property.html

      “In New Zealand we have the “Reserve Bank Act”.

      Which basically requires the reserve bank to kill the rest of the economy, whenever Auckland house prices, or wages, rise.

      Originally enacted, as a circuit breaker, to cap excessive inflation in the 80’s, politicians have kept it, long past its use by date, because in their limited view, what works once, briefly, will work perpetually.
      It could be argued that it was somewhat successful in curbing very high inflation, on that limited occasion, though others would note that the end of very high inflation ended with the slowing of the rise in oil prices.

      Now, every time the New Zealand productive economy struggles off its knees, the reserve bank delivers another knockout.”

  7. Philj 7

    There is an alternate narrative to the MSM banking one, almost the opposite to what you have been told.
    In summary, the mainstream Bank/financial system is the problem. You decide.
    Michael Hudson is well qualified to critique the fraud that we are in. Happy thinking!

Recent Comments

Recent Posts

  • NZ announces a third P-3 deployment in support of UN sanctions
    The Government has deployed a Royal New Zealand Air Force P-3K2 Orion (P-3) maritime patrol aircraft to support the implementation of United Nations Security Council (UNSC) resolutions imposing sanctions against North Korea, announced Minister of Foreign Affairs Winston Peters and Minister of Defence Ron Mark. “New Zealand has long supported ...
    BeehiveBy beehive.govt.nz
    3 days ago
  • Pacific trade and development agreement a reality
    Pacific regional trade and development agreement PACER Plus will enter into force in 60 days now that the required eight countries have ratified it. Trade and Export Growth Minister David Parker welcomed the announcement that the Cook Islands is the eighth nation to ratify this landmark agreement. “The agreement represents ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Securing a pipeline of teachers
    The Government is changing its approach to teacher recruitment as COVID-19 travel restrictions continue, by boosting a range of initiatives to get more Kiwis into teaching. “When we came into Government, we were faced with a teacher supply crisis,” Education Minister Chris Hipkins said. “Over the past three years, we ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Border exceptions for a small number of international students with visas
    The Government has established a new category that will allow 250 international PhD and postgraduate students to enter New Zealand and continue their studies, in the latest set of border exceptions. “The health, safety and wellbeing of people in New Zealand remains the Government’s top priority. Tight border restrictions remain ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • First COVID-19 vaccine purchase agreement signed
    The Government has signed an agreement to purchase 1.5 million COVID-19 vaccines – enough for 750,000 people – from Pfizer and BioNTech, subject to the vaccine successfully completing all clinical trials and passing regulatory approvals in New Zealand, say Research, Science and Innovation Minister Megan Woods and Health Minister Chris Hipkins. ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • International statement – End-to-end encryption and public safety
    We, the undersigned, support strong encryption, which plays a crucial role in protecting personal data, privacy, intellectual property, trade secrets and cyber security.  It also serves a vital purpose in repressive states to protect journalists, human rights defenders and other vulnerable people, as stated in the 2017 resolution of the ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Ministry of Defence Biodefence Assessment released
    The Ministry of Defence has today released a Defence Assessment examining Defence’s role across the spectrum of biological hazards and threats facing New Zealand. Biodefence: Preparing for a New Era of Biological Hazards and Threats looks at how the NZDF supports other agencies’ biodefence activities, and considers the context of ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • New Approaches to Economic Challenges: Confronting Planetary Emergencies: OECD 9 October 2020
    New Approaches to Economic Challenges: Confronting Planetary Emergencies: OECD 9 October 2020 Hon David Parker’s response following Thomas Piketty and Esther Duflo. Good morning, good afternoon, and good evening, wherever in the world you might be. I first acknowledge the excellent thought provoking speeches of Thomas Piketty and Esther ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Kaipara Moana restoration takes next step
    A Memorandum of Understanding has been signed today at Waihāua Marae between the Crown, local iwi and councils to protect, restore and enhance the mauri of Kaipara Moana in Northland. Environment Minister David Parker signed the document on behalf of the Crown along with representatives from Ngā Maunga Whakahī, Ngāti ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • New Zealand and Uruguay unite on reducing livestock production emissions
    Agriculture Minister Damien O’Connor and Uruguayan Minister of Livestock, Agriculture and Fisheries Carlos María Uriarte have welcomed the launch of a three-year project that will underpin sustainable livestock production in Uruguay, Argentina, and Costa Rica.  The project called ‘Innovation for pasture management’ is led by Uruguay’s National Institute of Agricultural ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • 3100 jobs created through marae upgrades
    Hundreds of marae throughout the country will be upgraded through investments from the Provincial Growth Fund’s refocused post COVID-19 funding to create jobs and put money into the pockets of local tradespeople and businesses, Regional Economic Development Minister Shane Jones and Māori Development Minister Nanaia Mahuta have announced. “A total ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Health volunteers recognised in annual awards
    Health Minister Chris Hipkins has announced 9 teams and 14 individuals are the recipients of this year’s Minister of Health Volunteer Awards.  “The health volunteer awards celebrate and recognise the thousands of dedicated health sector volunteers who give many hours of their time to help other New Zealanders,” Mr Hipkins ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Community COVID-19 Fund supports Pacific recovery
    The Minister for Pacific Peoples, Aupito William Sio says a total of 264 groups and individuals have successfully applied for the Pacific Aotearoa Community COVID-19 Recovery Fund, that will support Pacific communities drive their own COVID-19 recovery strategies, initiatives, and actions. “I am keen to see this Fund support Pacific ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Community benefits from Māori apprenticeships
    Up to 50 Māori apprentices in Wellington will receive paid training to build houses for their local communities, thanks to a $2.75 million investment from the Māori Trades and Training Fund, announced Employment Minister Willie Jackson today. “This funding will enable Ngāti Toa Rangatira Incorporated to provide its Ngā Kaimahi ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Training fund supports Māori jobseekers
    Rapidly growing sectors will benefit from a $990,000 Māori Trades and Training Fund investment which will see Wellington jobseekers supported into work, announced Employment Minister Willie Jackson today. “This funding will enable Sapphire Consultants Ltd. to help up to 45 Māori jobseekers into paid training initiatives over two years through ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Ruakura Inland Port development vital infrastructure for Waikato
    The Government is investing $40 million to develop an inland port at Ruakura which will become a freight super-hub and a future business, research and residential development for the Waikato, Urban Development and Transport Minister Phil Twyford, and Māori Development Minister Nanaia Mahuta announced today. The funding has been has ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Appointments made to Defence Expert Review Group
    Defence Minister Ron Mark announced today the establishment of an Expert Review Group to review a number of aspects of the New Zealand Defence Force’s (NZDF) structure, information management and record-keeping processes.  The Expert Review Group’s work arises out of the first recommendation from the Report of the Government’s Inquiry ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • No active community cases of COVID-19
    There are no active community cases of COVID-19 remaining in the country after the last people from the recent outbreak have recovered from the virus, Health Minister Chris Hipkins said today. “This is a big milestone. New Zealanders have once again through their collective actions squashed the virus. The systems ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Clean energy upgrade for more public buildings
    More public buildings will be supported by the Government to upgrade to run on clean energy, the Minister for Climate Change James Shaw announced today. Minister Shaw announced that Lincoln and Auckland universities will receive support through the Clean-Powered Public Service Fund to replace fossil fuel boilers. Southern, Taranaki, and ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Schools back donations scheme for the second year
    More schools have opted in to the donations scheme for 2021, compared to 2020 when the scheme was introduced. “The families of more than 447,000 students will be better off next year, with 94% of eligible schools and kura opting into the scheme,” Education Minister Chris Hipkins said. “This is ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Ruapehu cycle trails gets PGF boost
    The spectacular Mountains to Sea cycle trail in Ruapehu District will receive $4.6 million in funding from the Provincial Growth Fund for two additional trails, Regional Economic Development Minister Shane Jones announced today. “This is an exciting development for the local community, and one that will provide significant economic opportunities ...
    BeehiveBy beehive.govt.nz
    3 weeks ago