The Reserve Bank of New Zealand in Wellington. File photo / Mark Mitchell
The Reserve Bank of New Zealand in Wellington. File photo / Mark Mitchell
COMMENT
Over the past couple of years, the Reserve Bank of New Zealand has increasingly asserted it needs to "bolster" its "social license to operate". The organisation says it wants to "put the New Zealand back into the Reserve Bank of NZ". In fact, it never went missing.
The bank'sprevious governors have been among the finest public servants ever, in the history of this country, who carried out their legislative duties with the utmost of competency and regard for others. Our central bank has reigned for the past 30 years as one of New Zealand's most nationally and internationally respected institutions. But not any longer.
The RBNZ we have now has even begun suggesting that it can help address the issue of unequal structural rates of unemployment among different sub-groups of the population.
Like most Kiwis, I applaud the aim of reducing inequities in our nation, particularly when they concern Māori. However, the RBNZ has zero powers to affect structural unemployment, which refers to persistent dislocations caused, for example, by workers not having the skills that employers need. To help solve this problem education and welfare policies are needed. Yet the RBNZ does not possess these levers.
More generally, the phrase "social license to operate", which the RBNZ has adopted, is typically applied to private businesses seeking to ensure that their practices are supported by stakeholders and the public. The RBNZ, however, is not a private business. It is part of the New Zealand Government.
Robert MacCulloch says the Reserve Bank would do itself, and a the country, a disservice in taking its eyes off on monetary and banking policy. File photo / Mark Mitchell
It already has a legal license to operate, democratically granted by all of us. It is called the Reserve Bank of New Zealand Act, which confers monopoly powers. No one else can print our currency.
The act defines narrow tasks for the RBNZ to pursue. The main ones are to keep inflation low and the financial system sound.
In stark contrast to the RBNZ, acquiring a social license can be an important issue for businesses. There is much concern about issues ranging from the environment to inequality to bad behaviour of bankers and fund managers. More generally, distrust of capitalism has been growing since the 2008 Global Financial Crisis. Bernie Sanders is basing his presidential campaign on it.
As a consequence, there has been a push by many companies to seek greater legitimacy. They would like to be seen as good corporate citizens. They know unpleasant behaviour can lead to punishment in the form of more taxation and regulation, courtesy of our elected representatives. The Prime Minister made this link last year when she called on private banks to remember their "social license to operate" and improve their conduct, or else face a legislative response.
However, the RBNZ cannot be punished for bad behaviour like a business can. And it is behaving badly. It shocks the markets whenever it makes an interest rate announcement. Last year it sharply cut rates when there was no need.
Now, when there is an urgent need, it is not able to lower rates much more before they hit zero. Incredibly, in the midst of the Coronavirus meltdown, the RBNZ tweeted that the economy would grow strongly this year. It shocked the banking sector by announcing capital requirements far higher than in Australia. It has formally stated, in writing, that it has an employment target, when no such target exists.
If the RBNZ cannot get these basic monetary and banking policies right, then how can we trust it to get far more complex social policy right? Like addressing unequal rates of structural unemployment, when it isn't even allowed to do so and doesn't possess the right tools?
The root of the problem seems to be that the RBNZ is no longer content with its limited authority. It wants more. More power. More attention. It sees itself as a political beast, fully part of the political process.
To garner popular support, it is adopting populist policies, under the phony cover of obtaining a "social license".
Such policies need conspiracies. It has easily found them: the bankers are conspiring against us so need reining in. Academics and monetary policy experts are against us. That's why it has cut the numbers of those kinds of people on its senior management team.
The RBNZ is marketing itself as a place that helps the ordinary guy. It wants to accentuate the positive "New Zealand" in its brand name and eliminate the negative "bank" bit. Why not rebrand itself entirely?
Ironically, the RBNZ is an elite institution, comprised of powerful, unelected staff, most of whom live in Wellington. The Governor and Assistant Governor are former fund managers.
No one has ever voted for them. That is why the Act of Parliament under which they operate does not allow them to try to save the world from itself.
The RBNZ should go back to focusing on monetary and banking policies. Its legitimacy in the eyes of our society, which it appears to crave, but which was always there, at least up until recently, would best be achieved by that means.
• Robert MacCulloch is the Matthew S Abel Professor of Macroeconomics, University of Auckland.
