Looking forward to a robust assessment of the Reserve Bank’s performance?

The Children’s Commissioner has today released its first annual State of Care report.  The Commissioner is not required to publish such a report, but he is required as follows:

13 Functions in relation to Children, Young Persons, and Their Families Act 1989

  • (1) The Commissioner has the following functions in relation to the Children, Young Persons, and Their Families Act 1989:
    • (a) to investigate any decision or recommendation made, or any act done or omitted, under that Act in respect of any child or young person in that child’s or young person’s personal capacity:
    • (b) to monitor and assess—
      • (i) the policies and practices of the department; and
      • (ii) the policies and practices of any other person, body, or organisation that relate to the performance or exercise by the person, body, or organisation of a function, duty, or power under that Act or regulations made under that Act:
    • (c) to encourage the development, within the department, of policies and services that are designed to promote the welfare of children and young persons:
    • (d) on the Commissioner’s own initiative or at the request of the Minister, to advise the Minister on any matter that relates to the administration of that Act or regulations made under that Act:

The State of Care report is to be is “an annual summary from our independent monitoring of Child, Youth and Family’s policies, practices and services”. The report is 60 pages long , and it appears to ask some pretty serious and searching questions. It has certainly resulted in considerable media coverage this morning.

The Reserve Bank’s Board will, if last year’s schedule holds, just have finalised their Annual Report for the year ending June 2015. Last year’s report was signed by the Board on 26 August 2014.

The Reserve Bank Act lays down the responsibilities of the Board. They aren’t the same as those of the Children’s Commissioner as regard CYF, but the Board acts primarily as the agent of the Minister of Finance and the public to hold the Reserve Bank Governor to account.  They must report to the Minister if the Governor isn’t performing, and may recommend dismissal.

For the last decade or so, the Board has had to publish an Annual Report

The Board must prepare, for each financial year, a report setting out the Board’s assessment of the matters referred to in section 53(1).

And section 53(1) reads as follows

53 Duties of Board
• (1) Subject to this Act, the Board of the Bank shall—
• (a) keep under constant review the performance of the Bank in carrying out—
• (i) its primary function; and
• (ii) its functions relating to promoting the maintenance of a sound and efficient financial system; and
• (iii) its other functions under this Act or any other enactment:
• (b) keep under constant review the performance of the Governor in discharging the responsibilities of that office:
• (c) keep under constant review the performance of the Governor in ensuring that the Bank achieves the policy targets agreed to with the Minister under section 9 or section 12(7)(b):
• (d) determine whether policy statements made pursuant to section 15 are consistent with the Bank’s primary function and the policy targets agreed to with the Minister under section 9 or section 12(7)(b):
• (e) keep under constant review the use of the Bank’s resources.

Last year’s Board Annual Report (pages 6 and 7) was totally anodyne. It was the first report since former Acting (and Deputy) Governor, Rod Carr took over as chair. The report was less two pages long and is almost totally descriptive (and still manages to contain a relatively minor, but telling, factual error, which I have recently drawn to their attention). The Board’s report comes bound in the middle of the Bank’s own Annual Report.

The contrast with the Children’s Commissioner’s report is striking. I think it sheds some light on the weakness of this area of the governance/accountability of the Reserve Bank. The office of the Children’s Commissioner isn’t heavily resourced, but it has resources of its own. By contrast, the Reserve Bank’s Board has no independent financial or staff resources – indeed, its Secretary is one of the senior managers of the Bank. The Board meets on Bank premises – in “the Board room”, although of course the room is primarily used for a range of day-to-day management and policy meetings. For a Board whose primary responsibility is about holding the Governor and Bank to account (ie a very different role from a corporate or even Crown entity board), it is curious (and inappropriate) that the Governor is a member of the Board itself. In the years since the Governor ceased being chair, both subsequent chairs have been former senior managers of the Bank.   Reading past Annual Reports it sometimes seems that the Board sees part of its role as being to help the Governor spread the good news and explain the choices the Governor is making.

It simply isn’t a recipe for being able to maintain appropriate distance from the Governor, to enable critical evaluation and commentary to take place. However good the individuals are – and there are able people on the Board – the structure is set up in ways that make it unlikely that they will be willing or able to stand up to a Governor (at least to one who has any ability at all to manage his relationships with Board members). The Governor has resources, profile, and spends all day on this stuff. Board members gather for a few hours a month, and consider papers submitted and prepared by staff (who all work for the Governor).

This year’s Annual Report might perhaps cover, in some depth, issues such as:
The way that core inflation has now been well below the middle of the target range for some years
• The significant policy mistake that was made last year, in raising the OCR repeatedly and only very belatedly beginning to slowly cut it again.
• The poor quality of the Bank’s research, analysis and argumentation around the housing market, and around the new investor finance restrictions in particular.
• The obstructive and non-transparent approach the Bank has taken, including with respect to compliance with the Official Information Act

What is about the Governor’s performance, and stewardship of resources, that has led to these outcomes? And what steps are being taken to avoid a repetition?  Many outsiders might have a view, but the Board has unique access to the inner workings of the Bank, and the ability to grill management.

A report of two pages, effectively stating that they have lots of meetings, see lots of papers, and generally think the Governor does a good job, doesn’t really cut it. I’m not a huge fan of the Children’s Commissioner, but in this area he seems to have shown a way that the Reserve Bank’s Board might think about following. It is important to have external review of CYF – children in their care are very vulnerable. But when a single unelected official has as much clout as the Governor of our central bank does – having a huge impact on the short-term performance of the economy, and the numbers of people unemployed, speculating with a huge balance sheet, and with the seemingly arbitrary ability to decide who banks can and can’t legally lend money to, it is also very important that we have serious and substantive evaluative monitoring and reporting on the Governor’s conduct. When he makes mistakes – and he’s human so he will – we pay the price.  The Board is charged with doing that assessment, and we should expect to see evidence of it.

I don’t expect we’ll get what I’m looking for. The system needs far-reaching institutional reform. But even under the current law, the Board could offer us much more evidence of critical scrutiny than we’ve been seeing so far. 60 pages might be a little too much, at least annually, but 10 pages of serious reporting and evaluation, published separately from management’s reports, might be a start. If the Board hasn’t engaged substantively with the sorts of issues I’ve outlined above, the annual report isn’t due until 30 September, so perhaps they should pull what they‘ve done already back from the printers and start again.

8 thoughts on “Looking forward to a robust assessment of the Reserve Bank’s performance?

  1. How ironic that that this decision not to release even a literature review on central bank governance and decision making calls into question the current decision making structure so starkly.


  2. Michael, you stated that the governor of the RBNZ has the seemingly arbitrary ability to decide who banks can and can’t legally lend money to.
    One could argue, and I am, that banks don’t lend money, because to lend something, one has to have it in the first place, and banks don’t — well, not to lend, anyway. What they do is swap IOUs with their ‘borrowers’. It is ‘we the people’ who, in our collective ignorance, choose to use these bank IOUs as a means of exchange that effectively enable them to be labelled as ‘money’, thus making our monetary and banking system systemically unstable, necessitating we long-suffering taxpayers having to pay for hordes of so-called experts at the RBNZ to try to ensure that the system is stable.
    Observing all this as a professional engineer, surely it would be far more efficient, and make more sense, to outlaw these bank IOUs and have our RBNZ create ex nihilo ALL of the electronic sovereign money that our economy needs, at a rate just sufficient to ensure a zero rate of inflation, and gift it to the government for spending (according to its democratic mandate) into permanent circulation, with, hopefully, a corresponding reduction in taxation. By this means, the total annual tax take could be reduced by about $7 billion, along with a significant reduction in staff numbers and salaries of the people remaining in the RBNZ.
    In a Sovereign Money system, there would be only one kind of money, albeit in three forms — coins, notes and electronic — and no need whatsoever for RBNZ reserves, which would cease to exist.
    As overall a Sovereign Money banking and monetary system would be more efficient than the private debt-money system we have now, and save taxpayers a huge amount of money, why isn’t the governor of the RBNZ considering it? Isn’t he required to under his mandate? What work has the RBNZ done on it?
    Merely stating that we should keep the present private debt-based monetary and banking system because we’ve had it for three or four hundred years or so, doesn’t cut it. It’s time for some fresh thinking and serious analysis.
    By the way, it is now official policy of the NZ First party to switch New Zealand to a Sovereign Money banking and monetary system.
    Readers may learn more at http://www.sovereignmoney.eu and www,positivemoney.org and www,positivemoney.org.nz


  3. Can’t imagine that the Gov. nor his board are in any way interested in explaining themselves nor in doing anything much but running by the seat of their pants.

    They demonstrate this by the way they interfere in the housing market.

    Isn’t Rod Carr in charge of the Christchurch University? Are they that successful?

    The Bank needs a hard nosed Commercial Chairman.


  4. Excellent stuff. I look forward reading their report and your comments. The requirements of the act do seem to be quite prescriptive of what they have to cover in their report. Of course they could just say nothing to see here.

    Regarding the independence of the Children’s Commissioner and the RBNZ Board. I would suggest the consequences are obvious, decent report from independent CC, (likely) waffle from the non-independent board. If that happens again, then it should be enough to kick start a review of the board personnel and structure, but probably not the overall RBNZ interest rate setting process that you would like.

    I liked your final sentence “If the Board hasn’t engaged substantively with the sorts of issues I’ve outlined above … perhaps they should pull what they‘ve done already back from the printers and start again”. You could have added, “particularly if they want to keep their roles when changes are made in the future”.


  5. With $3.4 billion in open foreign currency exposure, I would have expected the RB to be buying NZD aggressively unless they perceive the NZD to fall further.


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