Graeme Wheeler has announced he will not be seeking reappointment as the Governor of the Reserve Bank. A change in leadership is an appropriate time to consider what reforms the new Governor may usher in.
There are a number of central banking developments overseas which we might draw upon to refresh and modernise our own Reserve Bank.
1. The Reserve Bank Board could set the OCR
The Reserve Bank of New Zealand is now an outlier in that one person – the Governor – is responsible for setting the official cash rate. In every single other OECD country, the central bank’s board makes this crucial decision. Why? Boards tend to make better decisions than individuals. Boards have superior institutional memory, judgement, experience, and expertise. Boards provide greater continuity when a governor changes, and the role of the Reserve Bank has broadened since its inception, increasing the range of skills needed to deliver effective monetary policy. Finally, there are higher risks of poor judgement with a single decision-maker.
The Treasury supports a review and so did some senior people within the Bank, but their reasoning was withheld from release despite repeated attempts to secure it. Which leads me my second recommendation for modernisation.
2. Board minutes should be published within 14 days of each meeting
The Reserve Bank has become less transparent in recent years. Our requests for public information were always delayed and then highly redacted. Again, in a majority of developed countries, including Australia, the UK, and the USA, minutes of board meetings are published soon after the meetings are held, as a matter of course. Greater information flow means fewer surprises for markets, more stability for businesses, and greater continuity for employment. The timely release of board minutes is one obvious way our Bank can be made more transparent.
3. The Bank should implement deposit insurance to protect everyday savers
New Zealand is now the only country left in the OECD that doesn’t offer deposit insurance on savings. Graeme Wheeler has repeatedly defended New Zealand’s exceptionalism – but failed to address why we didn’t deserve the same levels of wealth protection offered in every other developed economy. The OECD agrees.
It’s time to enhance our country’s financial security with deposit insurance for all New Zealand savers up to a level of, say $100,000. We’ll pay a small premium for the peace of mind, but an extra $5-10 per year will mean we’ll never have to worry about losing our savings if our bank ever gets into difficulty.