Working Papers

More of the Same for the RBA Board

The new Labor government’s changes to the appointments process for the RBA Board are seen by the RBA and Treasury as preserving the status quo:

Documents obtained by The Australian under Freedom of Information laws show Reserve Bank governor Glenn Stevens and Treasury secretary Ken Henry began discussing Labor’s promised register of nominees in early December last year.

Mr Stevens had some names to suggest early on, as did Dr Henry, but did not regard Labor’s pledge as a bid for radical change.

“I have already had a question on whether this process will result in more economists on the board, to which my answer was that as far as I knew, the idea wasn’t to change the nature of the board, simply to ensure that the best people could be approached,” Mr Stevens told Dr Henry on December 12.

In reply, Dr Henry agreed “the intention is not to change the composition of the board”.

As I predicted here, the new arrangements serve primarily to entrench bureaucratic influence over monetary policy.

In another triumph for transparency and accountability, the names on the register have been suppressed:

The names on the register were deleted in the documents released by Treasury, with the decision-maker ruling their publication would undermine the appointment process.

The documents concede the argument I make in the linked article above, that the composition of the RBA Board ‘was unusual by international standards,’ but maintain that the existing arrangements ensure that Board members ‘operate in, and are seen as representatives of the broader national interest, rather than representing a specific section of the Australian economy.’

Unfortunately, the RBA also argues that the only way in which external Board members can be expected to represent the national rather than their own sectional interests is if the contributions of individual members are suppressed from the minutes of Board meetings.  In any other context, the idea that a conflict of interest can be resolved through increased secrecy would be considered absurd.  The RBA’s defence of the existing Board arrangements shows they are incompatible with modern demands for central bank transparency and accountability.  It says a lot about the RBA that most of our insights into the official rationale for the current governance arrangements come via Freedom of Information requests.

posted on 09 July 2008 by skirchner in Economics, Financial Markets

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Presumably the rationale for such secrecy is that Board members who are union bosses or business group heads might be less inclined to support increases in interest rates if they knew that their stance would be revealed to their members/constituents. Is the solution to simply get rid of effective ex officio Board membership?

Posted by .(JavaScript must be enabled to view this email address)  on  07/09  at  03:17 PM

If you can’t openly contribute to monetary policy deliberations, then I would suggest you have no business being there.  This does not require a change in the composition of the Board, but it does require that monetary policy be separated from the Board’s wider responsibilities and placed in the hands of a separate body.  This would solve the problem.

Posted by skirchner  on  07/10  at  01:17 PM

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