In early December, the Reserve Bank’s briefing to the incoming Minister of Finance (BIM) was released, as part of the general release by the new government of the set of BIMs. I wrote about the Bank’s briefing, and in particular about the appendix they included on the governance and decisionmaking issues. In a departure from the now-common practice of including nothing of substance in BIMs the (unlawful) “acting” Governor – I think I’ve gone a whole month without using that description – took the opportunity to make his case in writing for minimal reform.
The Bank indicated that the appendix was itself a summary of a fuller document that they would make available to the Minister on request. So I lodged an Official Information Act request for the fuller document, which they have released in full to me today. It is really the sort of document that should be included with the collection Treasury has made available as part of the current Treasury-led review of the Reserve Bank Act, but as it isn’t there, I thought I should make it available for anyone interested ( RBNZ Memo – Review of policy decision process 16 Oct 2017 (1) ).
The paper was written by a couple of Reserve Bank managers – Roger Perry, who manages a monetary policy analysis team, and Bernard Hodgetts who head the macrofinancial stability area – and is dated 16 October, a few days before it became clear who would form the next government. The paper itself is not described as Bank policy, but in the release I got today it is stated that
Please be aware that the document encapsulates Reserve Bank thinking at the time it was prepared.
Which suggests that at time it did represent an official view – probably workshopped with senior management before the completed version we now have. There is a pretty strong tone to the document suggesting that the authors did not expect a change a government (with only a couple of footnote references to possible implications of Labour Party policy positions in this area).
But, frankly, I was surprised how weak, and self-serving, the document was. The Reserve Bank has been doing work on these issues off and on for several years – there was the secretive bid a few years ago by Graeme Wheeler to get his Governing Committee enshrined in statute – and yet there was little evidence of any particularly deep thought, and no sign of any self-awareness or self-criticism (over 30 years was there really nothing the authors – or Bank – could identify as not having worked well?).
There was also, surprisingly, no sign of any engagement with the analysis or recommendations of the Rennie report. It is hard to believe that a report, on Reserve Bank governance issues, completed months earlier had not been shown to the Reserve Bank itself. There was no substantive engagement with the models adopted in various countries that we tend to be closest too, or which are generally regarded as world-leaders in the field (by contrast, several references to the Armenian model – to which my reaction was mostly “who cares”). There was no reference at all to how Crown entities are typically governed in New Zealand – that omission isn’t that surprising, given the Bank’s track record, but it should be (the Bank is after all just another government agency). There wasn’t even any reference to how other economic and financial regulatory agencies in New Zealand are governed, even though the Financial Markets Authority is a new creation with a markedly different (but more conventional Crown entity) governance and decisionmaking model.
For what it is worth, on 16 October, the Bank seemed to favour:
- enshrining the idea of the Governing Committee in law, but perhaps with slightly different versions of membership for monetary policy and financial stability functions,
- legal decisionmaking power continuing to rest with the Governor,
- the Governor’s appointment continuing to be largely controlled by the Board,
- no publication of minutes or votes,
- no external members of the committee(s).
But they make no serious attempt at critical analysis to support their case, let alone to engage with the risks of a system in which a single decisionmaker is key, and where that single decisionmaker is the boss of the other members of (what is really just) an advisory committee. Or the anomalous nature of such a system in the New Zealand system of government, where even elected individuals rarely have such unconstrained authority, where committee-decisions are the norm (from Cabinet, the higher courts, through major Crown entities to school Boards of Trustees) and where Cabinet ministers (or Cabinet collectively) typically have the key role in appointing those who exercise considerable statutory powers.
The management of a central bank that can’t come up with better analysis than this really makes it own case for change – legislative change, personnel change, and cultural change.