Reserve Bank of New Zealand

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Contents

Introduction

The Reserve Bank of New Zealand is the central bank of New Zealand. The Reserve Bank is responsible for New Zealand's currency and operating monetary policy. Unlike the United States Federal Reserve, the Reserve Bank does not have elements of private ownership; according to its website, "The Reserve Bank does not 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 Reserve Bank is not a government department, but is a body corporate whose finances are included in the Crown accounts." The Bank's current governor is Dr. Alan Bollard.

The Reserve Bank of New Zealand does not offer bank accounts or credit cards, and it's website refers people to other financial institutions. The Bank does not offer deposit insurance.

Monetary Policy

The Reserve Bank's primary function is to as defined by the Reserve Bank of New Zealand Act 1989 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 not secretly change the targets to gain a short term surge in economic growth.

The mechanism of this is the Official Cash Rate a percentage and this affects short term interest rates. The Bank will provide cash overnight at 0.25% above the cash rate to Banks aganced good security with no limit. Further more 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 through borrowing or offering loans with no limit on volumes in order to ensure that the interest rate in the market remains as 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 and it can made unscheduled adjustments but does not usually do so.

How the OCR works (http://www.rbnz.govt.nz/monpol/about/0072140.html) What is a Policy Target Agreement (http://www.rbnz.govt.nz/monpol/pta/0127027.html)

Issuing of Currency

The Bank by virtue of the Reserve Bank Act has the sole right of issuing New Zealand notes and coins. The control issuing of currency to banks and also replaces used and damaged money from circulation. In March 2005 the bank removed the 5 cent coin from circulation, as well as changes to the 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 this is 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 it is recongisable. The Reserve Bank website notes that as a rule of thumb if there is more than half a bank note they will pay it's full value. To recive payment people have to turn in the note to either the Reserve Bank in Wellington or any bank.

New Zealand Dollar

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 do not 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 (http://www.nzcoins.co.nz)

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 does not guarantee that a bank will not fail, or face problems.

As of April 2005 there are 16 registered banks with five main trading banks. List of registered banks (http://www.rbnz.govt.nz/nzbanks/0091622.html)

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 of:

  • A Key Information summary that provides a brief overview of the bank's financial condition
  • General Discolour statement to provide comprehensive information on the bank
  • Supplemental Disclosure Statement

External link

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