Reserve Bank of New Zealand

Reserve Bank of New Zealand

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The Reserve Bank of New Zealand is the central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...

 of New Zealand and is constituted under the Reserve Bank of New Zealand Act 1989. The Governor of the Reserve Bank is responsible for New Zealand's currency and operating monetary policy. The Bank's current Governor is Dr. Alan Bollard
Alan Bollard
Alan Bollard is the current governor of the Reserve Bank of New Zealand, having been appointed on 23 September 2002. He succeeded Donald Brash in this role....

. Employees of the bank operate under the framework of a managerial hierarchy.

The Reserve Bank of New Zealand does not offer financial services to the public nor does it offer deposit insurance
Deposit insurance
Explicit deposit insurance is a measure implemented in many countries to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay its debts when due...

, and its website refers people to other financial institutions.


Unlike the United States Federal Reserve, the Reserve Bank does not have elements of private ownership; according to its website, "The Reserve Bank does not have shareholders. It is 100% 'owned' by the New Zealand Government, with any extra revenue that the Reserve Bank makes going back into the Crown accounts. The Central Bank is not a government department, but is a body corporate whose finances are included in the Crown accounts."

Primary Functions

The Reserve Bank's primary function, as defined by the Reserve Bank of New Zealand Act 1989 is to provide "stability in the general level of prices."

The Reserve Bank is responsible for independent management of monetary policy to maintain price stability. The degree of price stability is determined through a Policy Target Agreement with the Minister of Finance.
Also, 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 the Official Cash Rate
Official Cash Rate
The official cash rate is interest rate paid by banks in the overnight money market in Australia and New Zealand. Through the regulated use of exchange settlement accounts, a central bank is able to adjust the interest rates of a nation's economy. The OCR cannot be changed by transactions between...

(a percentage) which affects short term interest rates. The Bank will provide cash overnight at 0.25% above the cash rate to Banks against good security with no limit. Furthermore the bank will accept deposits from financial institutions with interest at 0.25% less than the official cash rate.

Banks that offer loans at interest higher than the official cash rate will be undercut by Banks that offer cheaper loans, and banks that loan out lower than the official cash rate will make less compared to other banks which can simply deposit their money in the Reserve Bank with a higher rate of return. The Reserve Bank borrows and offers loans with no limit on volumes in order to ensure that the interest rate in the market remains at the Official Cash rate level.

Through controlling this, the Reserve Bank can then influence short term demand in the New Zealand Economy and use this to control prices.

How the OCR works
What is a Policy Target Agreement

Adjustments to the official cash rate are made eight times a year. It can make unscheduled adjustments but does not usually do so.

Fractional-reserve banking

Like all modern monetary systems, the monetary system in New Zealand is based on fiat and fractional-reserve banking
Fractional-reserve banking
Fractional-reserve banking is a form of banking where banks maintain reserves that are only a fraction of the customer's deposits. Funds deposited into a bank are mostly lent out, and a bank keeps only a fraction of the quantity of deposits as reserves...

. In a fractional-reserve banking system, the largest portion of money created is not created by the Reserve Bank itself, 80% or more is created by private sector commercial banks.

Issuing of currency

The Bank by virtue of the Reserve Bank Act has the sole right of issuing New Zealand legal tender
Legal tender
Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation. Paper currency is a common form of legal tender in many countries....

 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.

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.

Collectors coins

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 do not circulate, but are legal tender. The Coins are sold for the Reserve Bank via New Zealand Post's business unit. New Zealand Post Collectors Currency

Supervision of the New Zealand Banking system by the Reserve Bank

The Reserve Bank also acts to supervise 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 June 2011 there are 20 registered banks, with five main trading banks (Australia and New Zealand Banking Group, ASB Bank
ASB Bank
ASB is a New Zealand bank owned by the Commonwealth Bank of Australia, which is listed on the Australian Stock Exchange. It is one of the largest New Zealand banks, with branches throughout the country. It operates BankDirect, a branchless banking service that provides service via phone, Internet,...

, Bank of New Zealand
Bank of New Zealand
Bank of New Zealand is one of New Zealand’s largest banks and has been operating continuously in the country since the first office was opened in Auckland in October 1861 followed shortly after by the first branch in Dunedin in December 1861...

, Kiwibank
Kiwibank Limited is a wholly owned subsidiary of the state-owned enterprise New Zealand Post Limited. Through Kiwibank, New Zealand Post provides banking services through its PostShops and joint venture Books & More and Papermate outlets throughout New Zealand.The bank was initiated as part of Jim...

, and Westpac
Westpac , is a multinational financial services, one of the Australian "big four" banks and the second-largest bank in New Zealand....


All registered banks operating in New Zealand must issue a quarterly disclosure statement, and the Reserve Bank supervises these.

The purpose of these disclosure statements is to:
  • Assist depositors to make sound decisions
  • Encourage banks to maintain sound banking practices

The summary comprises:
  • A Key Information summary that provides a brief overview of the bank's financial condition
  • General Disclosure statement to provide comprehensive information on the bank
  • Supplemental Disclosure Statement

More information:

List of registered banks

Regulation of non-bank deposit takers (NBDTs)

Under Part 5D of the Reserve Bank of New Zealand Act 1989 (the "Act"), the RBNZ is 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 the Reserve Bank of New Zealand Amendment Act 2008. Further amendments to Act have been foreshadowed to complete the regulatory framework for the NBDT sector.

Prudential supervision of the New Zealand insurance industry by the Reserve Bank

Under section 12 of the Insurance (Prudential Supervision) Act 2010, the RBNZ is charged with the prudential supervision of the New Zealand insurance industry. This includes the licencing of persons to carry on insurance business in New Zealand.


The Reserve Bank of New Zealand was established from 1 August 1934 by the Reserve Bank of New Zealand Act 1933. The Reserve Bank first issued banknotes in 1934, see New Zealand pound
New Zealand pound
The pound was the currency of New Zealand between 1840 and 1967. Like the British pound, it was subdivided into 20 shillings each of 12 pence. As a result of the great depression of the early 1930s, the New Zealand agricultural export market to the UK was badly affected...


List of Governors of the Reserve Bank

  • Leslie Lefeaux (1 January 1934 – 31 December 1940)
  • William Fox Longley Ward (Acting Governor: 1 May 1941 – 1 February 1944), (1 February 1944 – 8 July 1948)
  • Edward Coldham Fussell (21 July 1948 – 20 July 1962)
  • Gilbert Wilson (21 July 1962 – 20 July 1967)
  • Sir Alan Robert Low (21 July 1967 – 11 February 1977)
  • Raymond W. R. White (12 February 1977 – 11 February 1982)
  • Dick L. Wilks (12 February 1982 – 17 May 1984)
  • Sir Spencer Russell (18 May 1984 – 31 August 1988)
  • Dr Donald Brash
    Don Brash
    Donald "Don" Thomas Brash , a New Zealand politician, was Leader of the Opposition, parliamentary leader of the National Party from 28 October 2003 to 27 November 2006 and the leader of the ACT Party for 28th April 2011 - 26 November 2011...

     (1 September 1988 – 26 April 2002)
  • Dr Alan Bollard
    Alan Bollard
    Alan Bollard is the current governor of the Reserve Bank of New Zealand, having been appointed on 23 September 2002. He succeeded Donald Brash in this role....

    (23 September 2002)

External links