Regular readers will know that one of the constants of this blog has been making the case for reforming, and modernising, the governance of the Reserve Bank. The current model is out of step with international practice, and with the way other government agencies are run in New Zealand. I’ve held this view for a long time, although the concerns are becoming more pressing as the Reserve Bank assumes, and is given, ever more discretionary power. The current Governor is probably in the wrong job (a huge role, making the holder probably the most powerful unelected person in New Zealand). But the case for reform would be strong even if we had the best conceivable person as Governor. Typically, we will have someone who is about average.
There has been a growing recognition of the case for change. In 2012 The Treasury recommended to the Minister of Finance, before the current Governor was appointed, that further work be undertaken with a view towards moving to a committee-based decision-making framework. At the time they found that most market economists were sympathetic to change. At a political level, the Green Party has openly and repeatedly argued for change, while the Labour Party has come and gone on the issue. But it isn’t an obviously ideological issue – just a matter of finding a good governance model for an increasingly powerful New Zealand policy agency.
Graeme Wheeler himself recognised some of the weaknesses of the current system, and established the Governing Committee as the forum in which major decisions would be made. He retains the legal power, and all the other members of the committee owe their positions, and remuneration, to the Governor, but in principle it represented a small step forward. Whether it represents any real gain is impossible for outsiders to tell. The Bank has flatly refused to release minutes of the meetings of the Committee, on any topic whatever, and – in truth – governance arrangements are really only tested in times of stress, and where there might be strong differences of view. Quasi-insiders – the Bank’s Board – could provide us with an assessment of how the new model is working, but their Annual Reports suggest that they are more interested in being champions of the Governor and the Bank rather than in providing substantive reports analysing and scrutinising the performance of the Governor and Bank.
The Bank has also refused to release any papers from its own work on reforming the governance model. That refusal confirmed that a substantial amount of work had been done, at least some of which had been discussed with the Minister of Finance.
Fortunately, the Treasury generally takes a more accommodative approach to Official Information Act requests. There are plenty of things about The Treasury that I am critical of, but they seem over the years to have displayed considerably more respect for the spirit of the Official Information Act and its role in New Zealand’s system of governance. When the Reserve Bank refused my request for governance papers, I lodged a very similar request with The Treasury.
Yesterday, they released several papers, which are available here.
There are a couple of nice and substantive background papers. Some are focused just on monetary policy governance, but Treasury also recognises that the Reserve Bank has a much wider range of functions, and hence that any review of the legislative governance model really needs to look at the entire institution and all its roles and responsibilities.
Treasury still appears to favour change. In particular, in a June paper to the Minister of Finance, commenting on the Reserve Bank’s draft Statement of Intent (page 48 in the release document) they note:
A key change from the previous year’s SOI is that a workstream on “best practice institutional frameworks…has been dropped. In the Treasury’s view, this workstream would be worth continuing. Nevertheless, we understand that the decision to drop this workstream is consistent with your feedback that the current decision making structure best supports accountability.
Note that the RBNZ is discontinuing its workstream on “best practice institutional frameworks”. The Treasury would prefer this workstream to continue.
They have withheld a variety of other documents. I’m not sure quite what the first ground (below) means in this context – perhaps information from foreign agencies? – but what is interesting is that the statement declining to release the other documents reveals that Treasury is continuing its own work on the issue.
At one level, it is nice to finally have public confirmation of the fact that the Minister of Finance has again rejected reforming the governance of the Reserve Bank. Treasury reports that this is because the Minister thinks a single decision-maker best supports accountability. But hardly any other country agrees with Mr English, and none do so among those who have reformed their arrangements for the central bank and financial supervision activities in the last couple of decades. And we don’t apply that model to any other area in public life in which government agencies are making policy decisions. There is a strong case for change, and no doubt in time change will happen. It is a shame that the Minister is clinging to an outdated model, which is not serving New Zealand that well. But well done to the Treasury for continuing the background work in thinking through the issues and options,