Headline: Treasury support modernisation of Reserve Bank governance
“A board will make better decisions than our single decision-maker.”
Treasury recommendations to modernise the Reserve Bank align with Green Party legislation that will require the bank to move to a board governance model and regularly publish its minutes, the Green Party said today.
Papers just released under a Green Party Official Information Act request show that Treasury advised Finance Minister Bill English in May 2012 to move away from the current single decision-maker policy which is now ‘out of line with common international practice’. Treasury said boards make better decisions, have better skills to deal with the expanding role of the Bank, and provide better continuity between governors.
“The modernisation of the Reserve Bank’s governance structure is long overdue,” said Green Party Co-leader Metiria Turei.
“No other country in the OECD gives full responsibility for the Official Cash Rate (OCR) decision to one person – the Reserve Bank Governor.
“Boards make better decisions than a single decision-maker.
“OCR decisions have a significant impact on the wider New Zealand economy. Having the board make the decision would lessen the risk of a poor decision and the huge economic costs that are associated with getting it wrong.
“The role of the Reserve Bank has broadened considerably since its inception. This increases the range of skills needed, which are increasingly difficult to find in a single person. A board can encompass the wide skill set and expertise needed to run an effective central bank.
“Treasury’s consultation with outside stakeholders – the BNZ, Westpac, NZIER, Infometrics, and BERL – shows their unanimous support for a move to a board approach to decision-making.”
Treasury were also critical of the lack of Reserve Bank transparency around the publication of board minutes.
“The publication of board minutes is the norm overseas,” said Mrs Turei.
“The UK, US, and Australian central banks all publish their minutes within a fortnight of meeting.
“Treasury say that publishing board minutes is an important part of the policy feedback loop laying bare good and bad decisions and the important counter views discussed before the decision.
“We have legislation to modernise the Reserve Bank’s governance structure and require greater transparency with the publication of board minutes.
“Increased Reserve Bank transparency translates to stronger, more stable financial markets leading to a more resilient and prosperous economy.”
Link to Treasury papers:
http://www.treasury.govt.nz/publications/informationreleases/monetarypolicy/framework
Link to legislation:
https://www.greens.org.nz/sites/default/files/reserve_bank_of_nz_setting_official_cash_rate_and_publishing_minutes_amendment_bill_0.pdf
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