The aim is to make money so cheap, for an extended period of time, that businesses and consumers start investing and spending so that economic activity starts to increase. Explore Australia’s banknotes from before Federation to the introduction of decimal currency and our current banknote series. Learn about banknote designs and the people on them, including First Nations peoples, other Notable Australians and Queen Elizabeth II.
Founded in 2004 by a group of leading electronics companies committed to supporting the rights and well being of workers and communities worldwide affected by the global electronics supply chain. The bank’s main policy role is to control inflation levels within a target range of 2–3%, by controlling the unemployment rate according to the ‘non-accelerating inflation rate of unemployment’ (NAIRU) by controlling the official cash rate. The NAIRU was implemented in most western nations after 1975, and has been maintained at a target of 5–6% unemployment. The average unemployment rate in Australia between the end of the Second World War and the implementation of the NAIRU was consistently between 1 and 2%.
Funding
Since the early 1990s, these objectives have found practical expression in a target for consumer price inflation, of 2–3 per cent per annum. Monetary policy aims to achieve this over an appropriate timeframe that depends on economic circumstances and, where necessary, balances the Board’s price stability and full employment objectives. In the long run, this is the principal way in which monetary policy can help to form a sound basis for long-term growth in the economy.
Where did reserve banks come from – and what’s monetary policy?
The Parliament of Australia has given the Reserve Bank some very important responsibilities. It is our duty to promote the economic prosperity and welfare of the people of Australia, both now and into the future. Most central banks believe that keeping inflation at a particular level delivers key economic outcomes such as moderate wages growth and a stable currency. By keeping inflation in this tight band, businesses (and workers) can have confidence that price rises or falls won’t disproportionately affect any decision they may make.
The Bank’s mission and key statistics
The history of the Reserve Bank of Australia’s dates back to 1911 when legislation established the Commonwealth Bank of Australia, a decade after the country achieved independence from Great Britain. It was not initially conceived as a central bank, and it was not charged with managing the Australian currency until 1924 when the Commonwealth Bank Act put it in charge of issuing the Australian pound. Australia retired the Australian pound in 1966 and replaced it with the Australian dollar what is system development life cycle (AUD), which was divided into 100 cents. In 2006, Cyclone Larry wiped out large parts of the nation’s banana crop. This contributed towards an uptick in inflation with the Reserve Bank increasing official interest rates on three separate occasions that year. Current governor Philip Lowe has noted on many occasions the letters of complaint he receives from people who have savings, upset at another cut in deposit rates.
Since the implementation of the NAIRU, the average unemployment rate in Australia has been close to 6%. While many central banks, such as the Bank of England and the Riksbank, started as private businesses, they gradually became government entities (more on that later). But the Reserve Bank of Australia is pivotal to the national economy. From house prices to wages, the Reserve (RBA) influences even the smallest financial transaction in the country.
Soon afterwards the tender system was extended to the issue of longer-term government bonds. Probably the thing we do that is most familiar to people is set the level of interest rates. This is known as ‘monetary policy’, where we change interest rates to try to smooth fluctuations in the economy. The interest rate we control is the cash rate, which is the rate that banks charge each other to borrow overnight. Now this interest rate influences other interest rates in the economy, such as those charged on your loans, or those you earn on your savings. Changes in interest rates influence people’s decisions to buy things or invest money, and they affect the exchange rate and the value of any assets that people might hold, such as homes or shares.
- In 2006, Cyclone Larry wiped out large parts of the nation’s banana crop.
- Through the 1970s and 1980s, the importance of monetary policy being set independently of politicians became clear to economists, academics and, finally, the political class.
- Now this interest rate influences other interest rates in the economy, such as those charged on your loans, or those you earn on your savings.
- RBA members commit and are held accountable to a common Code of Conduct and utilize a range of RBA training and assessment tools to support continuous improvement in the social, environmental and ethical responsibility of their supply chains.
The new bank was a government-owned commercial bank, without any central bank functions. At the time, the Treasury of Australia exploration & production sub maintained the role of issuing bank notes through the Australian Notes Act 1910.[16] The bank was also the first bank in Australia to receive a federal government guarantee. Sound financial policy requires that the Government fully fund any budget deficit by issues of securities to the private sector at market interest rates, and not borrow from the central bank.
Anyone with a note or two in their wallet also has a reminder of the Reserve Bank’s other key function. The signature of the bank’s governor is on every note – it is the RBA that prints our colourful collection of currency. It is not possible to ensure that the Australian Government’s need for funds are exactly matched day-by-day by issues of securities to the market. To overcome this mismatch between daily spending and financing, the Treasury keeps cash balances with the Reserve Bank that act as a buffer. The Reserve Bank also provides an overdraft facility for the Government that is used to cover periods when an unexpectedly large mismatch exhausts cash balances.
Commercial banks lend and borrow money among themselves in the “cash market”. The price on that money is the “cash rate”, targeted by the RBA – it cut the cash rate target to a record low 0.1 per cent last November. A central bank aims to maximise the performance of an entire economy. Sometimes that means slowing the economy or making it more difficult to take out a loan, or adopting policies that undermine the profit-making efforts of commercial banks.
It might surprise many people that despite the use of electronic payments increasing, there is still a lot of demand for banknotes, particularly as a store of value. For each meeting, the Bank’s staff prepare a detailed account of developments in the Australian and international economies, and in domestic and international financial markets. The Board meets eight times a year, following the release of key economic data on inflation and economic activity. The meetings start on a Monday afternoon and conclude the following day. It would take another 30 years before the Reserve Bank was separated from its private day-to-day banking activities. But the notion of a board made up of senior executives and people from the broader economy overseeing the bank had been planted and remains today.
The RBA Code of Conduct is a set of social, environmental and ethical industry standards. While the Code of Conduct originated with the electronics industry in mind, it is applicable to and used by many industries beyond electronics. “We actually know what the price of bananas are,” he said, becoming the only RBA governor to ever comment directly on banana prices. So confused was the bank that it asked the governor of the Bank of England to visit Australia. It had failed to meet its key metric – of holding inflation between 2 and 3 per cent – for almost six years while wages growth had slumped to near record lows. We are committed to supporting teachers and students who want to learn more about our activities and the Australian economy.
Just days out from the 2007 federal election, the Reserve Bank used its traditional Melbourne Cup Day meeting to lift official interest rates by a quarter percentage point to 6.75 per cent. The election of the Scullin government, just days before the Black Friday collapse of Wall Street in October 1929 that precipitated the Great Depression, resulted in a renewed effort to set up Australia’s central bank. Instead of banks sitting around a large table, working out every day how much they owe each other and then handing over great wads of cash, they use exchange settlement accounts at the RBA, which records their value. Central banks can also play the role of honest broker with commercial banks if there are issues that need to be resolved among competitors. Over the past year, the bank has been forced into lowering interest rates to an all-time low of just 0.1 per cent. It has also started buying government what is day trading and how does it work debt, creating close to $200 billion (with more to come) as it tries to strengthen the economy (see the section on jawboning, below).
And we are looking at how the nature of money and the payments system could evolve as technology changes. We have some of the highest quality and most secure banknotes in the world and they use technology that we in Australia invented, the Bank invented it with the CSIRO in the 1980s – polymer, or if you like, plastic banknotes. We have a purpose-built banknote printing facility and vault in the outer suburbs of Melbourne.