Reserve Bank of Australia facts for kids

Quick facts for kids
Reserve Bank of Australia

Reserve Bank of Australia Building, Sydney
Headquarters	Reserve Bank of Australia Building, Sydney
Coordinates	33°52′05″S 151°12′42″E / 33.8681°S 151.2117°E / -33.8681; 151.2117
Established	14 January 1960 (1960-01-14)
Ownership	100% state ownership
Governor	Michele Bullock
Central bank of	Australia
Currency	Australian dollar AUD (ISO 4217)
Reserves	$80,837 million (AUD)
Reserve requirements	None
Interest rate target	4.35%

The Reserve Bank of Australia (RBA) is like Australia's main bank. It's in charge of the country's money and prints banknotes. It started this important job on January 14, 1960. Before that, the Commonwealth Bank handled these tasks.

The RBA's main goal is to keep prices stable. It aims for inflation (how fast prices go up) to be between 2% and 3%. To do this, it tries to manage the official cash rate, which affects how much people borrow and spend. The RBA also tries to keep the unemployment rate (how many people don't have jobs) at a certain level. Since 1975, this target has been around 5-6%.

The RBA also helps the Government of Australia and other central banks around the world. The RBA has two main groups that make decisions: the Payments System Board and the Reserve Bank Board. The Payments System Board looks after how money is moved around, like through bank transfers. The Reserve Bank Board makes all the other big decisions about money and banking.

Both boards include people from the RBA, the Australian Treasury, other government groups, and leaders from different parts of the Australian economy. The way the Reserve Bank Board is set up has been mostly the same since 1951. The Governor of the RBA is chosen by the Treasurer of Australia. The Governor leads both boards and settles any disagreements between them.

What the RBA Does

The Reserve Bank follows rules set out in the Reserve Bank Act 1959. This law says the Reserve Bank Board must use its powers to help the Australian people. It does this by working with the government and making decisions that help with:

• the stability of Australia's money;
• keeping many people employed in Australia; and
• the overall wealth and well-being of Australians.

In simple terms, the RBA mostly focuses on keeping Australia's money stable. It does this by controlling inflation, which is how quickly prices for goods and services go up. The RBA aims to keep inflation between 2% and 3% on average over time. This goal was first set in 1993 by the RBA Governor at the time, Bernie Fraser. It was made official in 1996 by the Treasurer, Peter Costello, and the new Governor, Ian Macfarlane.

The Reserve Bank also provides banking services to government groups, other central banks, and official organisations. The bank holds Australia's gold and foreign money reserves. These are worth about A$101 billion.

Most of the RBA's 926 employees work in its main office in Sydney. The rest work in other Australian cities like Adelaide, Brisbane, Canberra, Melbourne, and Perth. Some also work in London and New York City. The RBA also owns a company called Note Printing Australia. This company has 257 employees and makes Australian dollars and other important documents for Australia and other countries.

The Payments System Board decides how the bank handles payments. The Reserve Bank Board handles all other money and banking decisions. It's rare for these two boards to disagree. If they do, the Governor makes the final decision.

Governors of the RBA

The Governor is the most important person at the RBA. The Treasurer appoints the Governor for up to seven years. They can be chosen again after their term ends. The Governor leads both the Payment Systems Board and the Reserve Bank Board. They also solve any arguments between the two boards.

The RBA Governor must stay in touch with the Treasury Secretary. They talk about things that affect both the Treasury and the RBA. The RBA board also tells the government about its money policies. The Governor often does this by meeting with the Treasurer. Since 1996, the Governor and other senior RBA members have met twice a year with the House of Representatives Standing Committee on Economics. They explain how the bank is doing its job.

Past RBA Governors

H. C. Coombs is the only governor to have headed both the Commonwealth Bank and the Reserve Bank of Australia.

The person who served the longest as Governor, including time at both the Commonwealth Bank and the RBA, is H.C. Coombs. He worked for over 19 years. He was known for trying to keep inflation low in the 1950s and 1960s. The longest-serving Commonwealth Bank Governor was Sir Ernest Riddle (over 11 years). The longest-serving RBA Governor was Ian Macfarlane (10 years). James Kell served the shortest time, only 2 years.

In July 2023, Michele Bullock was announced as the new RBA Governor. She started in September 2023. This made her the first female Governor of the RBA.

The Reserve Bank Board

The Secretary to the Treasury is one of the board members. This is the Treasury Department building in Canberra.

The Reserve Bank Board has nine members. Three of these members are there because of their job (called ex officio members). These are the Governor of the RBA (who leads the board), the Deputy Governor (who is the second in charge), and the Secretary to the Treasury.

The other six members are chosen by the Treasurer for five-year terms. These members cannot work for a bank that takes deposits. The way the board is set up has been mostly the same since 1951, except for changes in the number of members.

Here are the current members of the board:

The board usually meets eleven times a year. These meetings happen on the first Tuesday of every month, except January. Most meetings are at the RBA's main office in Sydney. Two meetings each year are held in other Australian cities. At least five members must be present for a meeting to happen. The Governor, or the Deputy Governor if the Governor is away, must lead the meeting.

The board usually agrees on decisions without needing to vote. Meetings are held in the boardroom at the RBA's Sydney office. If meetings are held in other states, they use a similar secure place. Meetings start at 9:00 am and last for three and a half hours. A summary of the meeting is published two weeks later.

Payments System Board

The Reserve Bank Act 1959 allows the Payments System Board to set rules for how payments work in Australia. This helps to control risks, make payments more efficient, and encourage fair competition in the financial system. The RBA can make rules for payment systems to ensure they are safe and work well. If groups in a payment system disagree, the RBA can help them find a solution. The RBA can also collect information from payment systems. Since August 2001, the bank has also been able to regulate how different payment systems compete.

The Payment Systems and Netting Act 1998 made some legal areas clearer. It changed old rules so that payments made on the same day could not be easily cancelled, even if a bank went bankrupt. This was important for systems like real-time gross settlement, where payments are meant to be final. The Australian Competition & Consumer Commission (ACCC) usually stops competitors from making agreements. However, it can make exceptions for payment systems. The ACCC and the Payments System Board are encouraged to work together on issues of access and competition.

The Payments System Board has up to eight members. Three members are there because of their job or represent another organisation. These are the Governor of the RBA (who leads the board), one person from the RBA, and one person from the Australian Prudential Regulation Authority (APRA). Up to five other members are chosen by the Treasurer for up to five years. The board meets four times a year, usually in Sydney. At least five members must be present, and the Governor or Deputy Chair must lead the meeting. The Chairman of the Payments System Board meets with the Chairman of the ACCC at least once a year to discuss payment system issues.

Here are the current members of the Payments System Board:

History of Australia's Central Bank

Ideas for a national bank in Australia started in the mid-1800s. They became more popular in the 1890s after many banks failed during a financial crisis. In 1911, the Commonwealth Bank was created. However, it didn't have the power to print money; the Treasury did that. After World War I, there was a push to return to the gold standard. This meant that the value of money was tied to gold. Australia returned to the gold standard in 1925.

During the Great Depression, the Australian dollar lost value. It was no longer worth the same as the British pound. Australia officially left the gold standard in 1932. In 1945, new laws brought more rules for private banks. Later, in the 1960s, the bank started using more flexible interest rates. This made it easier for the bank to manage the money supply. In 1980, the way the government sold short-term bonds changed. This allowed the market to decide the price.

In 1983, the Australian dollar started to "float." This means its value was set by the market, not by the government. Around the same time, Australia's financial system became less regulated. In 1998, the job of overseeing banks moved from the RBA to the Australian Prudential Regulation Authority (APRA). The Payments System Board was also created that year. The RBA was given power within this new board. The current RBA Governor is Michele Bullock. She took over from Philip Lowe on September 18, 2023.

In May 2022, the RBA raised interest rates for the first time in over ten years. This was done to fight high inflation. This decision caused a lot of discussion, especially because it happened during a federal election. The election was largely focused on the rising cost of living.

Early Ideas for a National Bank (1800s-1924)

Prime Minister Andrew Fisher's government created a government-owned bank, but it wasn't a central bank at first.

People first suggested a national bank in Australia in the mid-1800s. These ideas gained strength in the 1890s after a banking crisis. Many banks failed, leading to a tough economic time. The Australian Labor Party suggested a bank that would offer safe and affordable financial services. For the 1908 election, their plan was for a "Commonwealth Bank." This bank would act as both a regular commercial bank and a central bank.

However, Prime Minister Andrew Fisher's government created the Commonwealth Bank in 1911. This new bank was owned by the government and acted as a commercial bank. It didn't have central bank powers at first. Fisher said that "Time and experience will show how its functions for usefulness may be extended." The only central bank-like role it had was being the bank for the Australian government and the states. At that time, the Treasury of Australia was in charge of printing banknotes. The Commonwealth Bank was also the first bank in Australia to have its deposits guaranteed by the federal government.

The Commonwealth Bank slowly gained more central bank roles. During World War I, it became responsible for managing the Australian government's debt. But after the war, its main job was still as a savings and trading bank. During the war, Australia's money was no longer tied to gold. This caused inflation to increase.

Many people felt Australia needed a central bank. The Commonwealth Bank Governor, Denison Miller, argued that the bank should be in charge of printing Australian money. He said the bank had more staff and better money knowledge than the Treasury.

In 1920, the Australian Notes Board (ANB) was created. It had four directors, and the Governor of the Commonwealth Bank was one of them. The ANB started to reduce the amount of money in circulation. Their goal was to lower prices so that the Australian pound could be exchanged for gold again at its pre-war value. This was done by not allowing people to exchange notes for gold. When gold arrived from New York, the government sold bonds to reduce the money supply. This was Australia's first attempt at central banking.

From 1924 to Today

The Australian Notes Board (ANB) was part of the Treasury and printed notes until 1924. Then, this job moved to the Commonwealth Bank. The ANB was closed down in 1924.

The Treasurer, Earle Page, wanted to stop the money supply from shrinking. This was hurting farmers who were getting less money for their exports. A new board of directors was formed, with John Garvan as chairman. He continued his policies. In 1925, both the British pound and the Australian pound returned to the gold standard. Even though the government tried to make the Commonwealth Bank a central bank in 1924, its main role was still as a savings and trading bank.

In May 1930, during the Great Depression, a plan was put forward to move central banking powers from the Commonwealth Bank to a new central bank. But this plan failed. In 1931, the Australian pound lost value and was no longer tied to the British pound. The Reserve Bank left the gold standard in 1932. This meant notes could no longer be exchanged for gold, and the bank didn't need to keep gold reserves. From 1931 until the early 1970s, the bank's main goal was to keep the exchange rate with the British pound stable.

In 1945, new laws changed the board to a six-member council. It included bank and treasury officials. These laws also made the bank's powers over money policy and exchange control official. They also said the Governor was responsible for managing the bank. New laws in 1945 put many rules on private banks. Later, Governor H.C. Coombs was against these rules. When he became Governor in 1949, he gave private banks more control over their money. He also tried to use market-based money policies.

In 1951, new laws replaced the council with a 10-member board. This board included the Governor, Deputy Governor, and Treasury Secretary. The board took over managing the bank from the Governor. The Reserve Bank Act 1959 separated the central bank parts of the Commonwealth Bank and put them into the Reserve Bank. The regular banking parts stayed with the Commonwealth Bank. This finally created a separate central bank for Australia in 1959, which started on January 14, 1960. This happened many years after other countries already had their own central banks.

In the mid-1960s, the RBA started using flexible interest rates. This made it easier for the bank to manage the money supply. In 1983, the Australian dollar started to float. This meant its value was set by the market. In the five years after the Campbell Committee looked into the financial system (1979–1984), Australia's financial system became less regulated. Another review, the Wallis Committee in 1996, led to changes in 1998. These changes moved the job of overseeing banks from the RBA to APRA. The Payments System Board (PSB) was also created to keep payment systems safe and working well. The bank was given powers within the PSB through new laws in 1998.

In August 1996, the RBA Governor, Ian Macfarlane, and the Treasurer made a "Statement on the Conduct of Monetary Policy." This statement explained the roles of the Reserve Bank and the Australian Government. It confirmed that the government supported the RBA's goal of controlling inflation, which started in 1993. A change in government in 2007 led to another statement. This new statement gave the bank more independence and encouraged it to be open and communicate well.

RBA Buildings

Reserve Bank of Australia Building, Canberra

Some buildings linked to the Reserve Bank are listed as important heritage sites. These include:

• 20-22 London Circuit, Canberra: Reserve Bank of Australia Building, Canberra
• 65 Martin Place, Sydney: Reserve Bank of Australia Building, Sydney

Images for kids

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  Reserve Bank of Australia logo

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  Reserve Bank of Australia Building, Sydney

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  H. C. Coombs, former Governor

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  Australian Treasury building in Canberra

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  Prime Minister Andrew Fisher

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  Reserve Bank of Australia Building, Canberra

See also

In Spanish: Banco de la Reserva de Australia para niños