Posted in Commentary on the Investment Environment.

The Reserve Bank of New Zealand

The Reserve Bank of New Zealand is New Zealand's central bank.

New Zealanders are lucky it operates the way it currently does. But there is always room for further improvement, and an understanding of what it can and cannot do helps the discussion.

rbnz museum exteriorThe Reserve Bank of New Zealand (RBNZ) has a number of responsibilities. The main ones are:

  1. To maintain the stability of the New Zealand Financial system (http://www.rbnz.govt.nz/financial_stability/), and
  2. To keep inflation in New Zealand at a rate as defined in the Policy Targets Agreement - currently between 1 and 3 percent on average over the medium term. (http://www.rbnz.govt.nz/monetary_policy/inflation/)
  3. Looking after the New Zealand currency
  4. Overseeing and operating New Zealand's payment systems.

It is a prestigious organisation, it pretty much has its pick of the brightest financial minds in the country, indeed the world. They have people who spend all day, everyday, trying to ensure the RBNZ does what it is tasked with doing. Most of the staff have spent many years of study and most of them have years more of working experience in various banks and other company's and institututions to gain their knowledge and insight.

A successful career at the RBNZ opens many lucrative employment opportunities throughout the world. There is a strong incentive for the people working there to do a good job. Is it more likely that they know what they are doing or that an economist who can't get a job at the RBNZ or a reporter who has a degree in media studies knows what's what?

Of course neither the institution nor the staff are perfect, they don't get everything right all the time. But since the current regime was introduced by the Labour Government in the early 1980s the RBNZ has done a pretty good job of both. The New Zealand model has been widely copied by other countries.

The RBNZ can't do whatever it likes or whatever the Government of the day would like. The actions are strictly controlled by laws and regulations. It is widely regarded as one of the strengths of the New Zealand system that the Reserve Bank acts independently of the Government of the day.

The Reserve Bank of New Zealand website has a section entitled Financial Education which is worthwhile reading if you want to be informed of the facts of how the Reserve Bank of New Zealand works. http://www.rbnz.govt.nz/financial_education/ .

They also have a section The RBNZ - On the Money a series of videos in which they attempt to explain important financial concepts and the RBNZ's role.

Research, Video, Economy