Reserve Bank Purpose and Brief History of its Development
The Reserve Bank of Australia (RBA) refers to the central bank of Australia, which drives its power and function from the 1959 Reserve Bank Act. This was an advance step after the establishment of the Australian Commonwealth Bank by the legislation in the 1911.The corporate original body of the Australian Commonwealth Bank was in 1959 preserved in the legislation as the Reserve Bank of Australia (Rba. gov.au, 2017).The RBA duty is to add to the currency stability, economic welfare and prosperity, and full employment to the Australian people. RBA manages this by setting the rate of cash to meet an approved medium-term inflation goal, working to uphold an efficient payment system and strong financial system, and delivering the country’s banknotes. The RBK offers specific required baking services to the Australian Government as well as its agencies, and to several official institutions and central banks in the foreign nations. It also manages the foreign exchange and gold reserves of the country (Fsi.treasury.gov.au, n.d.). The RBA also carries out monetary policy and participate as the policy-making body in the country. This institution is divided into boards based on the 1959 Reserve Bank Act. The two boards include the Payment System Board and the Reserve Bank Board.
Main Argument in Favour of the Reserve Bank
The RBA is one of the most important government institutions in the Australia. This is because the institution plays a great role in determining the general economic welfare of the country, and individuals’ financial ability. According to Rba.gov.au (2015), the Reserve Bank works in the financial market, conducts market analysis, operates the key high-value Australian payment system, and enhance the institutional developments. The Bank is also involved in government as well as other local regulatory discussion regarding regulatory structure initiatives, mainly via the Council of Financial Regulators (CFR). The CFR bring the Australian Treasury, the Bank, Australian Securities and Investments Commission and Australia Prudential Regulatory authority together in order to make a contribution to the effectiveness and efficiency of the financial system stability and regulation (Bnm.gov.au, 2009).
The Reverse Bank under the 2001 Corporation Act, via the Payments System Board has a duty for establishing standards for financial stability for licensed settlement and clearing facilities and evaluating compliance of these facilities with the set standards. In addition, the Corporations Act determines over-the-counter (OTC) derivatives markets regulation regime that comprises of Bank advisory role on various matters. The diverse responsibilities help the Reserve Bank in enhancing the general financial system stability (Rba.gov.au, 2015). Although the bank does not contain the financial institutions prudential supervision responsibility, the Bank and all appropriate agencies would work during disturbance of financial system eliminate the systemic consequential risks. This means that the Reverse Bank of Australia play a very vital role in protecting the country against unnecessary financial crisis.
The RBA is very important in the country since it ensure high level of integrity during its operation. This is because the RBA is accountable to the legislation body of the county. This is as guided to the 2013 Public Governance, Performance and Accountability Act. Having a bipartisan operation power, this clearly means that any malpractice the institution considers all its actions carefully to avoid cases of integrity which can be propagated further easily after or when being discussed in the parliament by the media. The fear of losing the public and government trust, and the tight supervision makes the Bank work with high level of integrity to the advantage of the country. This simply means that the Reserve Bank of Australia act independently without government interference, however, its actions are closely monitored, with a high need to show accountability. This prevents the government officials from imposing their own rules or procedure for personal political gains and also pushes the bank to work with high level of integrity to pass the legislation scrutiny. This plays a major role in enhancing effective functionality of this institution for the betterment of the people of Australia.
Main Argument against the Reserve Bank
The RBA is highly involved in the development of monetary policies that governs the Australia country, without government interference. These policies are mostly developed without much consultation with the affected parties. Although the bank seeks the government approval, their policies are not lobbied like other policies that are effectively scrutinized in the parliament and lobbied by the affected stakeholders to ensure that all the involved parties benefit equally or the policy benefits the majority. In most cases, some stakeholders feel oppressed by these policies as the normal citizen enjoys the benefits. However, their concerns are never taken into much consideration. In the recent past, the Reserve Bank reduced the housing investment borrowing interest rate. Although this was done in good faith, to boost citizens in acquiring their own homes, the rate of borrowing in this sector has gone extremely high such that there is a possibility of eruption of financial crisis in the country (Lowe, 2015). This demonstrates a considerable level of incompetence in the Reserve Bank’s ability of setting economically sound decisions and policies to protect the economy of the country. While the bank plays great role in protecting some of its stakeholders, it oppresses others by minimizing their profitability and increasing their level of liability. In the long run,some of the policies created by the Reserve Bank maybe creating a wanting situation such as economic crisis, where all individuals in the country may experience the impact of the past policies made to promote the citizens.
Although the Reserve Bank is scrutinized by the legislation body, this only happens twice per year. There is no scrutiny of the policies made by the legislators before they are implemented. This implies that the legislative body only scrutinizes the outcome of the applied policy and it is never given a chance to determine the practicability of the policy. Thus, some of the applied policies may highly affect the financial welfare of some stakeholders in the country before it is rectified (Rba.gov, 2016). Moreover, all the Bank applied policies are approved by the government. This simply means in a bipartisan argument, the party ruling the country may easily protect the bank decision as a way of protecting the government credibility. This neutralises the independence that the body is given and the strength of legislative body scrutiny. This simply means, while majoring on promoting the welfare of the citizen, the Reserve Bank may develop measures that highly undermine the ability of other financial institutions to grow and do their business effectively.
Reserve Bank Recommendation for Reform
The Reserve Bank of Australia plays a major role in controlling economic health and citizens’ financial welfare in the country. The Bank develops policies that govern the economic performance of the country. However, unlike other government policies, the Bank policies are only reviewed by the government officials and once approved, these policies are implemented. This forces the affected stakeholders to follow policies that they were never involved in their development or which were developed without considering their opinion on the matter (Stevens, 2010). This seems oppressive to all stakeholders especially those in the financial institutions whose operations are always regulated by the Reserve Bank. In this regard, I would recommend that the Reserve Bank policy making policy may integrate all the affected stakeholders through lobbing. This implies the policies should be presented to the public after the governmental approval for public scrutiny. The institution should then review the public view before making the final decision on the policy, and consider them in decision making or creating a balance in its policies. This will ensure fairness and balance in the experiencing of the possible impact of the provided rules. The Bank should work to ensure a state of balance where the welfare of all is regarded.
The Bank is closely supervised by the legislation to ensure that it stays within its limit. However, this scrutiny happens on events that have taken place. This scrutiny takes place twice per year. This means that the Bank is only scrutinized on events that have already taken place. The bank does not offer accountability to the legislative body on the formed policies before they are implemented. This may mean that the legislative scrutiny may be sometimes late especially when the applied policies have negative short-term effect on the economy. Thus the law governing the institution scrutiny may need to be changed. The institution should be scrutinized regularly, especially in events where a new policy needs to be implemented. However, it should still be given an upper hand in the policy development due to high expertise on economic matters. The legislator in the new changes should be given a chance to review the policy and give their opinion on the same. This will ensure that the citizens are fully represented in the formation of the policy. Nevertheless, the Reserve Bank has played a great role in ensuring that the Australian economy is highly protected and the financial welfare of the people is put into great consideration. Its measures in ensuring the financial health of the country and has for a long time managed to instil economic balance in the country. The Bank only needs to ensure that it consider both short and long-term impact of its policies before they are implemented.
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