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| Headquarters | Wellington, New Zealand |
|---|---|
| Coordinates | 41°16′44″S174°46′30″E / 41.278814°S 174.77503°E /-41.278814; 174.77503 |
| Established | 1 August 1934 |
| Ownership | State-owned and governed under the 2021 Act |
| Governor |
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| Central bank of | New Zealand |
| Currency | New Zealand dollar NZD (ISO 4217) |
| Reserves | NZ$50,125 million[1] |
| Reserve requirements | None |
| Interest on reserves | 2.50% (OCR)[2] |
| Website | rbnz.govt.nz |
TheReserve Bank of New Zealand (RBNZ) (Māori:Te Pūtea Matua) is thecentral bank ofNew Zealand. It was established in 1934[3] and is currently constituted under theReserve Bank of New Zealand Act 2021.[4] The current acting governor of the Reserve Bank, Christian Hawkesby, is responsible for New Zealand's currency and operatingmonetary policy.[5]
The Reserve Bank of New Zealand was established from 1 August 1934 by theReserve Bank of New Zealand Act 1933.[3] The Reserve Bank first issued banknotes in 1934, seeNew Zealand pound.
TheBanking (Prudential Supervision) Act 1989,[6] which came into effect in February 1990, resulted in the Reserve Bank becoming independent of government control in RBNZ's role of managing monetary policy by introducing aninflation targeting mandate. New Zealand was the first country in the world to try this regime, which was later adopted in other countries.[7]
TheReserve Bank of New Zealand Amendment Act 2008[8] included amendments to theBPSA 1989,[6] including the introduction of capital requirements for deposit takers.
TheNon-Bank Deposit Takers Act 2013[9]gave RBNZ the role of prudential regulator and licensing authority for non-bank deposit takers.
In December 2018, theSixth Labour Government of New Zealand passed theReserve Bank of New Zealand (Monetary Policy) Amendment Act 2018,[10] which created the bank's monetary policy committee and codified "maximum sustainable employment" as an objective of monetary policy alongside price stability.[11]
In 2021, the Parliament passed theReserve Bank of New Zealand Act 2021,[12] which created a new statutory governance board that was appointed by theGovernor-General of New Zealand on the advice of the Government and Reserve Bank Governor.[13] TheRBNZA 2021 also designated theNew Zealand Treasury as the bank's external monitor, mandated that the bank publish annual performance expectations andfinancial risk management statements, and establish a newForeign Reserves Coordination Framework.[14]
2021 also saw theFinancial Market Infrastructures Act 2021[15] enacted, creating a regulatory regime for financial market infrastructures.[16]
In December 2023, theSixth National Government of New Zealand passed theReserve Bank of New Zealand (Economic Objective) Amendment Act 2023[17] eliminating the "maximum sustainable employment" objective.[18][19]
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The Reserve Bank Museum, based at the bank's headquarters inWellington Central, has been open to the public since 2006.[20][21]
The Reserve Bank has been wholly owned by the New Zealand Government since 1936. The Reserve Bank is established bytheReserve Bank of New Zealand Act 2021[4] and has statutory independence. The Reserve Bank is accountable to Parliament and provides an annual dividend to the Government.[22][4]
The Reserve Bank is responsible for independent management of monetary policy to maintainprice stability. The degree of price stability is determined through a Policy Target Agreement with theMinister of Finance.[23] Policy Target Agreements are public documents and hence a government cannot secretly change the targets to gain a short term surge in economic growth.
The mechanism of this is theofficial cash rate which affects short-term interest rates. The Reserve Bank will provide cash overnight at 0.50% above the cash rate to banks against good security with no limit. Furthermore, the bank will accept deposits from financial institutions with interest usually at the official cash rate.
Banks that offer loans to other financial institutions with interest more than 50 basis points above the OCR will be undercut by the Reserve Bank. Banks that offer loans below the OCR will generate less revenue than if they deposited money in the Reserve Bank instead. This ensures wholesale interest rates remain between the OCR and 50 basis points above it.
By directly controlling wholesale interest rates, the Reserve Bank can indirectly control retail interest rates, such as those on home or business loans. If retail interest rates decrease, discretionary income increases as the cost of housing and doing business decreases. This leads to increased spending
Adjustments to the official cash rate are made seven times a year. It can make unscheduled adjustments but does not usually do so.[24]
Like all modern monetary systems, the monetary system in New Zealand is based onfiat andfractional-reserve banking. In a fractional-reserve banking system, the largest portion of money created is not created by the Reserve Bank itself. Private sector commercial banks create 80% or more.
The bank by virtue of the Reserve Bank Act has the sole right of issuing New Zealandlegal tender notes and coins. The Reserve Bank controls the issuing of currency to banks and also replaces used and damaged money from circulation. In March 2005, the bank decided to remove the 5 cent coin from circulation (the following year), as well as reducing the size of 10, 20 and 50 cent coins.[25]
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 it 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 they are recognisable. The Reserve Bank website notes that as a rule of thumb if there is more than half a bank note they will pay its full value. To receive payment people have to turn in the note to either the Reserve Bank in Wellington or any bank.
New Zealand Banknotes are signed by the RBNZ Governor. Between 1940 and 1984 they were signed by the RBNZ Chief Cashier, the first of whom wasT. P. Hanna.[26]
The RBNZ has been evaluating the pros and cons of issuing acentral bank digital currency since 2018. In April 2024, the RBNZ held a public consultation on the move toward a digital dollar. This digital currency would coexist with physical cash while offering privacy, security, and trust for users.[27][28]
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 generally do not circulate, but are legal tender. The coins are sold for the Reserve Bank viaNew Zealand Post's business unit.[29]
The Reserve Bank is responsible for thePrudential regulation of 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 2023[update] there are 27 registered banks.[30][31][32]
New Zealand-incorporated registered banks are required to maintain a minimum level of capital relative to their risk-weighted assets, measured by theirCapital adequacy ratio. This helps ensure that banks have enough money to cover any losses they might incur.[33]
policy mandating the minimum amount that a commercial bank must hold in liquid assets. Theliquidity policy of New Zealand's locally incorporated registered banks is primarily governed by two banking prudential requirements documents: 'Liquidity policy' (BS13) and 'Liquidity policy annex – liquid assets' (BS13A). These documents are part of the banks' conditions of registration. Additionally, reporting requirements are imposed under section 93 of the Banking (Prudential Supervision) Act 1989.[34]
All registered banks operating in New Zealand must issue a quarterly disclosure statement, which the Reserve Bank scrutinise. The purpose of these disclosure statements is to assist depositors to make sound decision and encourage banks to maintain sound banking practices
The disclosure comprises:
Under section 80 of the BPSA 1989, the RBNZ requires that all registered banks must have a valid credit rating for their long-term, senior, unsecured obligations in New Zealand dollars. These ratings, provided by independent agencies, assess a bank's financial stability and likelihood of repaying its debts. The RBNZ maintains a register of these ratings for each registered bank, which are also disclosed in the banks' semi-annual statements.[35]
The RBNZ outsourcing policy, Banking Standard 11, applies to large New Zealand-incorporated registered banks. Outsourcing occurs when a bank uses another party to perform business functions that would traditionally have been undertaken by the bank itself. Common examples include IT processing, accounting, and call centers.The outsourcing policy aims to ensure that large banks have the legal and practical ability to control and execute outsourced functions. It ensures that outsourcing arrangements do not compromise a bank's ability to be effectively administered under statutory management and operate for the purposes of continuing to provide and circulate liquidity to the financial system and the wider economy.The bank must be able to facilitate basic banking services by any new owner of all or part of the bank. They must also address the impact of service or function provider failures on the bank's ability to carry on its business.Large banks must achieve specific outcomes, including:
NZ registered banks are required to report their large exposures to RBNZ. This includes not only the large exposures but also the 20 largest exposures, even if they do not meet the large exposure threshold.
Connected exposures occur when multiple counterparties are linked through control relationships or economic interdependence. For example, if one company controls another, or if the financial health of one entity directly affects another, they are considered connected.
TheBasel Committee on Banking Supervision (BCBS) has set guidelines to limit large exposures. A large exposure is defined as any exposure that is 10% or more of a bank’sTier 1 capital. For global systemically important banks (G-SIBs), the limit is stricter, capping exposures to other G-SIBs at 15% of Tier 1 capital.
These regulations aim to prevent banks from incurring significant losses due to the default of a single counterparty or a group of connected counterparties. This helps in maintaining the stability of the financial system by reducing the risk of cascading failures.[37][38]
'Open Bank Resolution (OBR)' is a tool for dealing with a bank failure. OBR allows authorities to reopen a failed bank the next day under statutory control. It seeks to prevent abrupt disruptions to the bank's essential functions. while a long-term solution to the bank's failure is found, customers can promptly access their accounts to make and receive payments. OBR places the cost of a bank failure on the bank's shareholders and creditors, rather than taxpayers. Shareholders lose their investment first, followed by creditors if necessary.Creditor claims may be frozen to absorb losses, and they may suffer financial loss if the bank is unable to satisfy its obligations.In the absence of OBR, the only ways to deal with a bank failure are liquidation, government bailout, or acquisition by a competitor.OBR covers banks with local incorporation that have more than $1 billion in retail deposits. The OBR programme is voluntary for other registered banks to participate in.[39]
The goal ofMacroprudential regulation is to reduce the likelihood of a financial crisis by limiting excessive lending during upturns and making banks and households more resilient during downturns. It focuses on risks to the financial system as a whole.
A Memorandum of Understanding between the Minister of Finance and the RBNZ Governor defines macroprudential policy and has guidelines for how we use the policy.[40]
The RBNZ is a member of the council, which promotes the coordination and harmonisation of trans-Tasman bank regulation, where appropriate. Its mandate also covers potential issues relating to financial stability, efficiency, and integration throughout the wider financial sector.
The Reserve Bank largely follows the 2010 Basel III standards in implementing its bank capital requirements.[41]
In June 2023 the Deposit Takers Act replaced theRBNZ Act 1989[6] and theNBDTA 2013[9] as the foundational law regulating Deposit Takers (New Zealand banks, building societies and credit unions).
It creates a single regulatory regime for all deposit takers and a deposit insurance scheme.[42][43]
Under section 12 of theInsurance (Prudential Supervision) Act 2010,[44] the RBNZ is charged with the prudential supervision of the New Zealand insurance industry. This includes the licensing of persons to carry on insurance business in New Zealand.
Under Part 5D of theRBNZ Act 1989,[6] the RBNZ was charged with the enforcement of the credit rating and prudential requirements applying to non-bank deposit takers (NBDTs) in New Zealand. These functions were introduced by the enactment of theReserve Bank of New Zealand Amendment Act 2008.
Under theNBDT 2013[9] the RBNZ acts as the prudential regulator and licensing authority for NBDTs.[45]
The Governor is accountable for the Bank’s performance in maintaining price stability, promoting a sound and efficient financial system, and meeting the currency needs of the public but retains statutory independence as to how these key outcomes are achieved.[46]
The following have served as governors of the Reserve Bank:
All current New Zealand banknotes are signed by the governor of the RBNZ, however between 1940 and 1984 banknotes were signed by the chief cashier. Signatories since 1934 are as follows:[50]
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