Roles of the Reserve Bank of Australia - Essay Example

Reserve Bank of Australia Name: Institution: Date: Roles of the Reserve Bank of Australia The Australian government owned bank, the Reserve Bank of Australia (RBA) was founded ny the Australian parliamentary action in the Reserve Bank Act 1959 (Australia. 1971). RBA completely and effectively replaced the Commonwealth Bank of Australia’s role of being the central bank of Australia, a role the former had played since 1911, and RBA is also authorized to issue banknotes. The Reserve Bank Act of 1959 outlines with clarity the powers of the bank, goals and objectives of the policies of the bank (Australia. 1971). The policy states in section 10 close 2 that the Reserve Bank of Australia has a duty limited to the powers thereby given to make sure that the monitory and the banking policy are geared towards the benefits of Australian people and that the banks powers and obligations are exercised in such a way that will lead to: making and maintaining the Australia currency stable, maintaining full employment in the nation and improving the prosperity of the economy and Australian citizen’s welfare (Reserve Bank of Australia. 1987).  Currently, the RBA Board is structure in such a manner that in constitute the board of payment system, which rule the policy of payment systems, and the board of reserve bank with the mandate of controlling the rest of the monetary policies and the banking policies of this bank. The two committees are constituted by this bank, the national treasury and some other agents of the government. The Leaders of some other organizations that make up the economy are also incorporated in the boards. This structure has been so consistent periodic changes on the number of board members. Practically the reserve bank has much concentration on its first objective which is to control inflation through monetary policy (Brown, Karpavičius, and October 21, 2016). Because of its constitutional mandate and independence, the Reserve Bank of Australia has worked to check on the inflation rate keeping in check the strong Monetary policy(management of the Australia’s money supply) with the goal of maintaining consumer price inflation rate at 2-3 per cent over the medium to foster positive and constant growth of the economy. Involved in the monetary policy decision is the setting of interest rates on oversight loans in the money market though other factors and policies are available that tend to influence interest rate and intern the behavior of lenders and borrowers in the financial market, minatory policy is the greatest factor. The most important way means the policy helps to make a solid foundation for long-term growth in the economy us controlling inflation thus preserving the value of money. Apart from conducting monetary policy, RBA is mandated with the responsibility of: promoting the general stability of the Australian financial system, operating the major high value payment systems of Australia, stocking and handling the reserves for foreign currency of Australia, providing services of bank to the government and overseas institutions and designing, producing and issuing banknotes of Australia and note and coin issuance. RBA is also responsible for maintenance of smooth operation of the economy. In order to accomplish this it utilizes the financial systems to control the level of money supply. By doing so, reserve bank of Australia searches for a balance between healthy levels of inflation and unemployment. The differences responsibility between Reserve Bank of Australia (RBA) and the American Federal Reserve Bank (FeD) and Bank of England (BoE). The RBA, the BoE and the Fed all share a common responsibility making the monitory policy though they are notably minor differences in structure, the methods used to accomplish the mandate and the primary goals of the banks. The Bank of England (BoE) has the chief role in maintaining monetary and financial stability by keeping prices stable and maintaining people confidence in the currency with an inflation target of 2 per cent. The Fed probably forms the most influential central bank worldwide and has an effect on the valuation of, most currencies. Fed is the central bank of the U.S set up by the congress in 1913 to provide the state with a more flexible, a safer, and more stable final system and monetarysystem. Its banking and the economic roles has expanded greatly over the years. The Fed like RBA and BoE has the mandate of making the monetary policy a role it does by deciding on interest rates. The Federal Reserve Bank also conducts banking supervisions and financial services as part of its primary responsibilities. It thus clear that both the three bank systems herein mentioned converge at their core responsibilities that can be summarized as: conducting the nations’ monetary policy by controlling conditions of credit and money, directing and controlling banks and other financial institutions to ensure sound and safe banking and financial system of the states hence protecting credit rights of the final consumers, promoting and sustaining the resistance of the financial logistics and limiting planned danger that emerge in the money markets, and finally providing financial actions to their respective nations, institutions of financeand official foreign institutions as wells as overseeing the payment systems of the nations (Board of Governors of the Federal Reserve System (U.S.) 1974). Inflation during Post-World War II After its establishment, the RBA had to search and implement the best measures to deal with the inflation that had hit the country because of the civil wars and the world wars. This was to be done promptly since there was persistence rise in the prices during the post-World War II. Before that there had occurred seasons of rise in inflation rates followed by seasons of decline in the rates of inflation, though the change in the prices was little. The major controller was the implemented monetary policy which has seen a silent revolution since the yar1993 in the manner in which the bank conducts its policy. In the 1993 the RBA developed a new centerpiece monetary policy framework as middle term target inflation. This framework has worked out well as it entails three core features in credulity, flexibility and transparency. This framework consolidates two significant principles that we have learned from both theory and practice: monetary policy is majorly about the money value, the monetary policy do affect the real economy since thy have effect on average demand. The objective of the RBA in this sense is to keep the inflation rate at 2-3 per cent, on the normal over a given period of time (Lowenstein, 2015).  It is now important to point out to the instances with a back-check at how inflation targeting has thus far performed as a system. Several reviews and researches show a success in the system since its establishment as a means to curb inflation rates and some writers recommends it as being the best model available for Australia though they add that the framework’s capacity to adapt to changes with time should be considered. There has been a lower absolute variability in inflation in Australia. The country has also had a bigger pickup in economic growth, an increased reduction in volatility of growth and a reduced volatility in growth than the even the other nations which have implemented the method (Brown, Karpavičius, October 21, 2016). The bank of England has experienced notable alterations in the monetary framework over the period of post-world war II error, out of the periods of the regime of Bretton Woods, to a floating exchange rate combined with the periodic use of the controls of value and earning after the sudden fall down of Bretton Woods, to the addition and eventual relinquishment of monetary targeting at the onset of 1980; to the introduction and establishment of inflation targeting in 1992, after the ERM had been abdicated and the eventual independence of operation by the Bank of England with a clearly outlined mandate and goal of the bank in 1997 (Beechen, Board of Governors of the Federal Reserve System 2008). During World War II and the following years, the Federal Reserve Bank was pressed by the then treasury to lower interest rates and keeps them for longer periods so that the government debt incurred during the war era could be cheaply financed. This led to economic breakdown and inflation (Siklos, 2006).  The treasury finally receded and allowed the Federal Reserve Bank to set interest rates independently in 1951, since then the bank conducts monetary policies to improve and maintain the stability of the economy independently. In the period between 1950s and 1960s the bank applied a monetary policy geared towards keeping inflation rates stable but this policy failed come 1980s where the bank had to come up with another approach to money policy that involved high interest rates to slow the economy and to fight inflation. This new policy led to sudden fall in inflation (Cheng, Federal Reserve Bank of San Francisco. 1988). This was though expensive due to increased interest rates thus an improvement to great moderation policy was necessary this further led to much lower end more stable inflation and hence economic stability in the broad perspective. References Australia. (1971). Reserve Bank Act 1959-1966: An act relating to the Reserve Bank of Australia, and for other purposes. Canberra: Commonwealth Printer. Australia. (1998). Review of the Reserve Bank of Australia annual report. Canberra: House of Representatives. Beechey, M. J., & Board of Governors of the Federal Reserve System (U.S.). (2008).Lowering the anchor: How the Bank of England's inflation-targeting policies have shaped inflation expectations and perceptions of inflation risk. Washington, D.C: Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board. Board of Governors of the Federal Reserve System (U.S.). (1974). The Federal Reserve System: Purposes and functions. Washington, D.C: Board of Governor Brown, A., & Karpavičius, S. (October 21, 2016). The Reaction of the Australian Stock Market to Monetary Policy Announcements from the Reserve Bank of Australia.Economic Record. Cheng, H., & Federal Reserve Bank of San Francisco. (1988). Monetary policy in Pacific Basin countries: Papers presented at a conference sponsored by the Federal Reserve Bank of San Francisco. Boston: Kluwer Academic Publishers Lowenstein, R. (2015). America's bank: The epic struggle to create the Federal Reserve. Reserve Bank of Australia. (1987). Reserve Bank of Australia: Functions and operations. Sydney: Reserve Bank of Australia. Siklos, P. L. (2006). The changing face of central banking: Evolutionary trends since World War II. Cambridge: Cambridge University Press. Read More