I will have some thoughts on the Monetary Policy Statement itself later, but I wanted to comment briefly on the answer Graeme Wheeler gave to a question at the press conference.
Jenny Ruth from NBR asked him whether he thought the governance model for the Reserve Bank should be changed. He simply never answered the question.
Instead, he gave a fairly long description of the current system, although only as it applies to quarterly Monetary Policy Statement decisions. He suggested that people were misunderstanding the current system, but as he described it, it is all very well known. The process starts with several days of meetings with lots of staff in attendance. Then a Monetary Policy Committee, apparently now with 12 members including the two external participants, offers advice on the appropriate OCR decision. The Governor now makes his final decision on the OCR in a meeting of the Governing Committee (himself, his two deputy governors and the assistant governor). He added that for the last decade there has not been an occasion when the Governor made an OCR decision that went against the advice of the majority of his advisers. That is no doubt true (I was on the relevant committee for most of the time), although there were several episodes in earlier years when the Governor went against the majority of his advisers (and on at least one of those occasions was right to do so).
But Graeme Wheeler deliberately avoids addressing the issues that those calling for change have made:
- There is no other advanced country central bank or financial regulatory agency that gives so much legal power to a single official.
- There is no other autonomous public agency in New Zealand which gives so much legal power to a single individual.
- The only independent review of New Zealand’s monetary policy framework since the 1989 Act was put in place recommended changing the law (as it happens, to something like the Governor’s de facto model).
- The issues are really about risk – not about, say, the current stance of monetary (or prudential policy). We need regimes that cope with mediocre governors, not just good ones.
- All the advisers owe their appointments, and in most cases their pay and promotion prospects to the Governor. That alters their incentives to disagree with the Governor, at least in respect of Governors – like the current one – who do not welcome debate or dissenting opinions).
The issue has never been one around whether, in normal circumstances, a Governor would take decisions his staff disagreed with, but about institutionalising a regime that encouraged challenge, debate, and openness to a range of perspectives, not just those of the Reserve Bank’s staff.
In his reply to Jenny Ruth, the Governor mentioned the speech on governance he gave in 2013. I mentioned that a couple of weeks ago.
In 2013 he gave a speech in which he informed the public that he had decided to make decisions in the forum of a Governing Committee – himself and his three deputy/assistant governors. He retained the legal powers and responsibilities, but he envisaged working formally in that committee model. In his speech, he spoke quite favourably of central banks where decisions are the responsibility of executive committees. And there was no first principles defence of a single decision-maker model.
So it is pretty clear that the Governor favoured legislative change, and along the lines of an internal executive body (which also happen to be much the same lines as Lars Svensson recommended in that review 15 years ago). He has also made some rather rash comments to staff about his views on the rather different governance ideas of some particular political parties.
Why is he not willing to come out and say that he favours legislative change, even if only to cement the de facto position? It could be argued that such law changes are matters for politicians not central bankers themselves, but the Governor hasn’t been shy of, eg, offering his support for tax changes and other matters rather further from his patch.
As it happens, it isn’t clear that anyone is now strongly defending the current law, which still vests all the legal powers in a hands of a single individual. But for the Governor to openly favour change would open up debate to a wider range of governance options, and more searching scrutiny of the Governor’s powers outside monetary policy. And he isn’t keen on debate.
We know that the Reserve Bank has been doing work on the matter. Only recently they refused to release any of it to me, including on the implausible, surely spurious, ground of potential damage to the “substantial economic interests of New Zealand”. This is, sadly, par for the course when it comes to our highly non-transparent central bank. It doesn’t publish its economic model, it doesn’t publish submissions on its regulatory changes, it won’t publish work it has been doing on governance reform, it doesn’t publish minutes of the Governing Committee meetings on policy issues, and it won’t publish the background papers to its Monetary Policy Statements.
It is past time for change.