Reserve Bank of New Zealand

The Reserve Bank of New Zealand (RBNZ, Māori: Te Pūtea Matua) is the central bank of New Zealand. It was established in 1934 and is currently constituted under the Reserve Bank of New Zealand Act 2021.[3] The governor of the Reserve Bank, currently Adrian Orr, is responsible for New Zealand's currency and operating monetary policy.

Reserve Bank of New Zealand
Te Pūtea Matua (Māori)
Reserve Bank of New Zealand logo.svg
HeadquartersWellington, New Zealand
Coordinates41°16′44″S 174°46′30″E / 41.278814°S 174.77503°E / -41.278814; 174.77503Coordinates: 41°16′44″S 174°46′30″E / 41.278814°S 174.77503°E / -41.278814; 174.77503
Established1 August 1934
OwnershipState-owned and governed under the 2021 Act
GovernorAdrian Orr
Central bank ofNew Zealand
CurrencyNew Zealand dollar
NZD (ISO 4217)
ReservesNZ$14,899 million[1]
Reserve requirementsNone
Interest on reserves4.25% (OCR)[2]
Websitewww.rbnz.govt.nz

The Reserve Bank of New Zealand does not offer financial services to the public nor does it offer deposit insurance, and its website refers people to other financial institutions.

OwnershipEdit

The Reserve Bank has been wholly owned by the New Zealand Government since 1936. The Reserve Bank is established by an Act of Parliament (the Reserve Bank of New Zealand Act 2021) and it has statutory independence. The Reserve Bank is accountable to Parliament and provides an annual dividend to the Government.[4][3]

Monetary policyEdit

RBNZ headquarters in Wellington

Primary FunctionsEdit

The Reserve Bank's primary function, as defined by the Reserve Bank of New Zealand Act 2021 is to provide "stability in the general level of prices" and "maximum sustainable employment".[5]

The Reserve Bank is responsible for independent management of monetary policy to maintain price stability. The degree of price stability is determined through a Policy Target Agreement with the Minister of Finance.[6] Policy Target Agreements are public documents and hence a government cannot secretly change the targets to gain a short term surge in economic growth.

The mechanism of this is the official cash rate which affects short-term interest rates. The Bank will provide cash overnight at 0.50% above the cash rate to banks against good security with no limit. Furthermore, the Bank will accept deposits from financial institutions with interest usually at the official cash rate.

Banks that offer loans at interest higher than the official cash rate will be undercut by banks that offer cheaper loans, and banks that loan out lower than the official cash rate will make less compared to other banks which can simply deposit their money in the Reserve Bank with a higher rate of return. The Reserve Bank borrows and offers loans with no limit on volumes in order to ensure that the interest rate in the market remains at the official cash rate level.

Through controlling this, the Reserve Bank can then influence short term demand in the New Zealand Economy and use this to control prices.

Adjustments to the official cash rate are made eight times a year. It can make unscheduled adjustments but does not usually do so.[citation needed]

Fractional-reserve bankingEdit

Like all modern monetary systems, the monetary system in New Zealand is based on fiat and fractional-reserve banking. In a fractional-reserve banking system, the largest portion of money created is not created by the Reserve Bank itself. Private sector commercial banks create 80% or more.

Issuing of currencyEdit

The Bank by virtue of the Reserve Bank Act has the sole right of issuing New Zealand legal tender notes and coins. The Reserve Bank controls the issuing of currency to banks and also replaces used and damaged money from circulation. In March 2005, the Bank decided to remove the 5 cent coin from circulation (the following year), as well as reducing the size of 10, 20 and 50 cent coins.

The Reserve Bank accepts all New Zealand currency for payment at face value. This applies to all demonetised or withdrawn currency, however such currency need not be accepted by money changers as it is no longer legal tender. All decimal notes are legal tender except $1 and $2 notes as these have been withdrawn. Damaged notes are still worth something so long as they are recognisable. The Reserve Bank website notes that as a rule of thumb if there is more than half a bank note they will pay its full value. To receive payment people have to turn in the note to either the Reserve Bank in Wellington or any bank.

Collectors coinsEdit

The Reserve Bank from time to time produces limited runs of legal tender coins for collectors and have a New Zealand theme and design. These coins generally do not circulate, but are legal tender. The coins are sold for the Reserve Bank via New Zealand Post's business unit.[7]

Supervision of the banking systemEdit

The Reserve Bank also acts to supervise the New Zealand banking system to ensure that the system remains healthy, however it does not guarantee that a bank will not fail, or face problems.

As of February 2020 there are 26 registered banks.[citation needed]

All registered banks operating in New Zealand must issue a quarterly disclosure statement, and the Reserve Bank supervises these.

The purpose of these disclosure statements is to:

  • Assist depositors to make sound decisions
  • Encourage banks to maintain sound banking practices

The summary comprises:

  • A key information summary that provides a brief overview of the bank's financial condition
  • General disclosure statement to provide comprehensive information on the bank
  • Supplemental disclosure statement

More information, see list of registered banks at the RBNZ website.[8]

Regulation of non-bank deposit takers (NBDTs)Edit

Under Part 5D of the Reserve Bank of New Zealand Act 1989 (the "Act"), the RBNZ is charged with the enforcement of the credit rating and prudential requirements applying to non-bank deposit takers (NBDTs) in New Zealand. These functions were introduced by the enactment of the Reserve Bank of New Zealand Amendment Act 2008. Further amendments to Act have been foreshadowed to complete the regulatory framework for the NBDT sector.[9]

Prudential supervision of the insurance industryEdit

Under section 12 of the Insurance (Prudential Supervision) Act 2010, the RBNZ is charged with the prudential supervision of the New Zealand insurance industry. This includes the licensing of persons to carry on insurance business in New Zealand.

HistoryEdit

The Reserve Bank of New Zealand was established from 1 August 1934 by the Reserve Bank of New Zealand Act 1933. The Reserve Bank first issued banknotes in 1934, see New Zealand pound.

GovernorsEdit

The following have served as governors of the Reserve Bank:[10]

MuseumEdit

The Reserve Bank Museum, based at the Bank's headquarters in Wellington Central, has been open to the public since 2006.[11][12]

Coat of armsEdit

Coat of arms of the Reserve Bank of New Zealand
 
Notes
The Arms of the Reserve Bank of New Zealand was granted on 1 June 1965[13]
Crest
A wreath of the colours Out of a Mural Crown Sable charged with three Bezants a demi Griffin Or holding between the paws a Portcullis Sable
Escutcheon
Gules two Keys in saltire wards downwards and outward, Argent in chief a representation of the Head of King Tāwhiao couped proper and in base an ancient Ship sail furled pennon and flags flying oars in action and in fess a Bull's Head couped and a Fleece Or
Supporters
On either side a Lion Sable each gorged with a collar of Bezants pendant therefrom a Key wards downwards and inwards Or
Motto
Securitas et Vigilantia (Latin: security and vigilance)

See alsoEdit

ReferencesEdit

  1. ^ "New Zealand's official overseas reserves – E1". Reserve Bank of New Zealand. Retrieved 17 September 2020.
  2. ^ "Higher interest rates necessary". Reserve Bank of New Zealand. 23 November 2022.
  3. ^ a b "The Reserve Bank's Institutional Regime". www.treasury.govt.nz. Retrieved 19 January 2023.
  4. ^ "Ownership of the Reserve Bank of New Zealand" (PDF). Reserve Bank of New Zealand. Retrieved 7 April 2020.
  5. ^ "Reserve Bank of New Zealand Act 2021 No 31 (as at 01 September 2022), Public Act Contents – New Zealand Legislation". www.legislation.govt.nz. Retrieved 19 January 2023.
  6. ^ "Policy Targets Agreement". rbnz.govt.nz.
  7. ^ "New Zealand Post Coins". nzcoins.co.nz.
  8. ^ "Register of registered banks in New Zealand". rbnz.govt.nz.
  9. ^ "Overview of NBDT regime". rbnz.govt.nz.
  10. ^ "Governors of the Reserve Bank – past and present". Reserve Bank. Retrieved 9 February 2016.
  11. ^ "The Reserve Bank of New Zealand Museum and Education Centre". Reserve Bank of New Zealand.
  12. ^ "The Reserve Bank Of New Zealand Museum on NZ Museums". nzmuseums.co.nz. Te Papa.
  13. ^ "Reserve Bank of New Zealand Coat of Arms Letters Patent, 1965". NZMuseums. Retrieved 19 June 2022.

External linksEdit