Role of the RBA

Relationship between the Government and the RBA

There is a lot of ignorance regarding the function of the RBA and its relationship to the government. In order to remedy this situation - let's start by looking at the relationship between the Australian government and the RBA:

RBA-government

 

What this extract says - is that the RBA (and not the government) will determine the monetary policy of Australia. We prefer to call it as we see it, namely that the government has abdicated to the RBA its sovereign right to set the monetary policy of this nation.

 

Role of the RBA

The RBA defines its role to be:

  • Conduct monetary policy
  • Maintain a strong financial system
  • Issue the nation's currency (i.e. bank notes - more on this later)

 RBA-role

The statement above about "issuing the nation's currency" is highly misleading - since it imparts the impression that the RBA creates all of the money that is used in Australia. This is not the case, since in 2011 the RBA reported that it had created a total of $50 billion of "currency" (i.e. bank notes) - while the RBA also reported that in December 2011 the total broad money supply stood at a figure of $1.43 trillion (i.e. notes, coins and all deposits).

It should be obvious that currency ($50 billion) is not the same as broad money ($1.43 trillion). Consequently - the Reserve Bank only creates banknotes, and not the digital money that Australians use for their daily purchases.

 

The ASP finds it baffling - that our elected representatives are competent enough to debate and set policies on tax, defence, housing etc, but that we have delegated our sovereign right to set our monetary policy to a group of unelected individuals from industry.

Monetary policy is the most important of all policies - and it is the sole prerogative of our government.