The Reserve Bank of New Zealand is the central bank of New Zealand. It was established in 1934 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 Mr. Graeme Wheeler. Employees of the bank operate under the framework of a managerial hierarchy.

The Reserve Bank of New Zealand does not offer financial services to the public nor does it offer deposit insurance, and its website refers people to other financial institutions.

History

The Origins of The Reserve Bank
The origins of the Reserve Bank stretch back many years before its founding in 1934. Initially – apart from one short-lived experiment – New Zealand had no central bank able to issue currency. Notes were issued by the main trading banks.

That worked after a fashion, but by the early twentieth century, central banks also fulfilled a number of policy roles within national economies. The British were eager for New Zealand and Australia to set up their own, modelled after the Bank of England. Although interested, the New Zealand government was initially reluctant to do so. But that changed during the 1920s and in 1930, visiting British expert Otto Niemeyer recommended a New Zealand central bank.

The government of the day was still reluctant, but some of the economic issues driving the need for a central bank – including exchange-rate and foreign reserve control – were sharpened by the Great Depression that began in 1930-31. The Finance Minister J. G. Coates, talented economist Bernard Ashwin and others began developing legislation to create New Zealand’s central bank.

This work continued during 1932 and 1933, culminating in the Reserve Bank Act 1934, which came into effect from 1 April. The Bank itself began operations on 1 August when the new Governor, former Bank of England Chief Cashier Leslie Lefeaux, began work in the office of the Postmaster General.

Although prompted by what amounted to technical policy reasons, the Bank also had the task of issuing New Zealand’s first centralized banknotes – and that day, one of the largest cheques ever written in New Zealand up to that time changed hands as part of the Reserve Bank’s acquisition of the trading banks currency.

Currency Issue
The Reserve Bank’s initial public impact was immediate and obvious – all the old trading bank notes disappeared and were replaced by Reserve Bank tender. The first note series, issued in 1934, was hastily designed and intended to be temporary. The second series, issued in 1940, survived until decimalization in 1967.

Changing technology and styles prompted further revisions. The decimal notes were redesigned in the early 1990s, and by 2009 the Bank was issuing sophisticated polymer notes containing a range of security features. Authority over coins, gained in 1989 from The Treasury, gave the Bank full responsibility for all New Zealand’s currency. In 2006, smaller plated-steel coins replaced the original cupro-nickel coins that had been circulating since 1967.

75 Years of Policy Developments
Wider policy developments affecting the Bank’s operations over the 75 years of its operations have been profound, ultimately reflecting the way that economy, society and politics have changed over three generations.

When founded, the Bank was partly privately owned and the main policy role was exchange rate stability. In 1935, however, a newly elected Labour government changed the basis of operations, nationalized the Bank, and gave it authority to underwrite loans. This was the beginning of what can be called New Zealand’s ‘big government’ era, a period when the state took a significant role across a wide range of functions, including the economy.

A succession of amendment acts revised and expanded the functions of the Bank over the next few years – most notably in 1936, 1950, and 1960. While some of these changes were technical or administrative and did not affect the broader role, there was a significant revision in 1964.

Working for The Bank
The size of the Bank has changed dramatically over 75 years. Initial plans called for a staff of just 20. This was far too low even by 1930s standards, and by 1935 the Bank had sixty staff. This grew dramatically as the role and task of the Bank was altered by successive governments.

Regulatory functions demanded people, particularly in pre-computing days. The culture of the Bank was very much that of a contemporary government department, infused with a degree of tradition imported from the Bank of England. Staff policies were strict and, by later standards, rather stuffy. But with a fair number of long-standing career staff on board, the organisation gained something of the feel of a family.

During the late 1980s the Bank underwent down-sizing and restructuring as much of the regulatory role was shed, and by 2002 staff numbers had fallen from highs of more than 600 to just over 170. Further role changes in the early 21st century produced another expansion and by 2009 there were around 230 staff working for the Reserve Bank of New Zealand.

Housing The Reserve Bank
The Reserve Bank first operated from temporary premises in the Dominion Farmers Institute building on Feathers ton Street in central Wellington – complete with a replica moa in the foyer. Although intended only as a stop-gap until the Bank could obtain purpose-built premises, this remained the Bank’s home for 38 years. Efforts to develop a permanent building began in the 1940s, but a final decision proved elusive. A property was finally purchased on the corner of The Terrace and Bowen Street, however an early proposal in 1954 was cancelled for cost reasons. Work finally began in the mid-1960s to a new design by Allied Architects, and the Reserve Bank building opened in 1972. It has been the home of the Bank since and includes office and vault facilities.

Functions

• Operating monetary policy to achieve and maintain price stability;
• Assisting the functioning of a sound and efficient financial system;
• Meeting the currency needs of the public;
• Overseeing and operating efficient payment systems;
• Providing effective support services to the Bank.

The Reserve Bank is required to ensure that, throughout the economy, money works as well as possible as a mechanism for making transactions, storing value, and keeping account.

The bank also promotes a sound and efficient financial system. To fulfill these functions, the Bank carries out a wide range of tasks, from operating monetary policy to monitoring and supervising the health of the financial system, maintaining foreign reserves, operating in the financial markets if necessary, and issuing currency as required.

Vision
The Reserve Bank promote a sound and dynamic monetary and financial system.

Values

• Integrity - Being professional and exercising sound judgement;
• Innovation - Actively improving what we do;
• Inclusion - Working together for a more effective Bank.

Management and Board structure

The Reserve Bank's senior management team is made up of the Governor, a Deputy Governor, a Head of Operations, and the heads of the Bank's various departments.

The Reserve Bank has a Board of Directors whose primary function is to review the performance of the Governor and the Bank. The Board holds regular meetings at which it receives extensive briefings on the Bank's activities, decisions and policies. At these meetings the Board also provides advice to the Governor.

The Board, through an Audit Committee, also reviews the Bank's financial statements.

Financial stability

The Reserve Bank has a number of functions and powers, and undertakes a number of activities, for what are broadly "financial stability" purposes, including:

• Banking system oversight - registration and supervision of banks in New Zealand;
• Non-bank deposit takers - information for industry participants and the general public on the current development of the prudential regulation regime for non-bank deposit takers (NBDTs);
• Insurance sector - information about the prudential supervision of insurance;
• Anti-money laundering - information for banks, non-bank deposit takers, life insurers and other interested parties on the AML regime;
• Payment system oversight - monitoring the New Zealand payment system;
• Financial stability and market analysis - monitoring the New Zealand financial system.

Monetary Policy

The Reserve Bank uses monetary policy to maintain price stability as defined in the Policy Targets Agreement (PTA). The current PTA requires the Bank to keep inflation between 1 and 3 percent on average over the medium term. The Bank implements monetary policy by setting the Official Cash Rate (OCR), which is reviewed eight times a year.

The Reserve Bank Act requires that price stability be defined in a specific and public contract, negotiated between the Minister of Finance and the Reserve Bank. This is called the Policy Targets Agreement.

Useful links

Currency of New Zealand:

New Zealand dollar

List of Central Banks:

Central Banks

Official website of Reserve Bank of New Zealand:

www.rbnz.govt.nz

Ministry of Business, Innovation and Employment:

www.mbie.govt.nz

New Zealand Treasury:

www.treasury.govt.nz