Reserve Bank of New Zealand Totally Explained

Everything about The Reserve Bank Of New Zealand totally explained

The Reserve Bank of New Zealand is the central bank of New Zealand and is constituted under the Reserve Bank of New Zealand Act 1989. The Governor of the Reserve Bank is responsible for New Zealand's currency and operating monetary policy. The Bank's current Governor is Dr. Alan Bollard. Employees of the bank operate under the framework of a managerial hierarchy.
The Reserve Bank of New Zealand doesn't offer financial services to the public nor does it offer deposit insurance, and its website refers people to other financial institutions.

Ownership

Unlike the United States Federal Reserve, the Reserve Bank doesn't have elements of private ownership; according to its website, "The Reserve Bank doesn't have shareholders. It is 100% 'owned' by the New Zealand Government, with any extra revenue that the Reserve Bank makes going back into the Crown accounts. The National Bank isn't a government department, but is a body corporate whose finances are included in the Crown accounts."

Monetary policy

The Reserve Bank's primary function, as defined by the Reserve Bank of New Zealand Act 1989 is to provide "stability in the general level of prices."
   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. Also, Policy Target Agreements are public documents and hence a government can't secretly change the targets to gain a short term surge in economic growth.
   The mechanism of this is the Official Cash Rate (a percentage) which affects short term interest rates. The Bank will provide cash overnight at 0.25% above the cash rate to Banks against good security with no limit. Furthermore the bank will accept deposits from financial institutions with interest at 0.25% less than 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 doesn't usually do so. How the OCR works

What is a Policy Target Agreement

Issuing of currency

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's 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're recognisable. The Reserve Bank website notes that as a rule of thumb if there's more than half a bank note that'll 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 coins

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 don't circulate, but are legal tender. The Coins are sold for the Reserve Bank via New Zealand Post's business unit. New Zealand Post Collectors Currency

Supervision of the New Zealand Banking system by the Reserve Bank

The Reserve Bank also acts to supervise the New Zealand banking system to ensure that the system remains healthy, however it doesn't guarantee that a bank won't fail, or face problems.
   As of January 2008 there are 17 registered banks with five main trading banks (ANZ, ASB, BNZ, Kiwibank and Westpac).
   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:
List of registered banks

History

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.

Monetary policy

List of Governors of the Reserve Bank

Leslie Lefeaux (1 January 1934 – 31 December 1940)

William Fox Longley Ward (Acting Governor: 1 May 1941 – 1 February 1944), (1 February 1944 – 8 July 1948)

Edward Coldham Fussell (21 July 1948 – 20 July 1962)

Gilbert Wilson (21 July 1962 – 20 July 1967)

Sir Alan Robert Low (21 July 1967 – 11 February 1977)

Raymond W. R. White (12 February 1977 – 11 February 1982)

Dick L. Wilks (12 February 1982 – 17 May 1984)

Sir Spencer Russell (18 May 1984 – 31 August 1988)

Dr Donald Brash (1 September 1988 – 26 April 2002)

Dr Alan Bollard (23 September 2002)Further Information

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