National’s Amy Adams is concerned the RBNZ’s Monetary Policy Committee will allow the Finance Minister to ‘exert political influence’ over the RBNZ

National’s Amy Adams is concerned the RBNZ’s Monetary Policy Committee will allow the Finance Minister to ‘exert political influence’ over the RBNZ

National’s Finance Spokeswoman Amy Adams is raising concerns around what she calls the politicising of the Reserve Bank and its newly established Monetary Policy Committee (MPC).

But a former Reserve Bank employee says Adams is “barking up the wrong tree,” and the move to have the Finance Minister appoint members of the committee puts New Zealand more in line with other countries.

Under the new Policy Targets Agreement (PTA), a seven-member Board – with four internal Reserve Bank members and three external appointees, selected by the Minister on the recommendation from the RBNZ board – will be established.

There will be a Treasury representative who will sit on the committee as well but will not have voting rights.

Adams says the fact that Robertson is able to appoint almost half of the board “creates a live question about the degree to which that allows him to exert political influence.”

Although National supports the introduction of the MPC, she says the Reserve Bank already operates with an informal decision-making committee within the bank and that process was working well.

Adams has also taken a swipe at the fact a Treasury representative will sit on the MPC.

“They are the senior Government official, their job is to deliver on the Government’s objective,” she says.

“So, you’re effectively going to have a senior Government official that reports to the Minister and three people who are appointed by and able to be removed by the Minister, sitting in and influencing those decisions and those discussions.”

Finance Minister Grant Robertson said on Monday that the Reserve Bank itself did not favour having a Treasury representative on the Board.

He also said the representative’s role won’t include reporting back to his office as the minutes of the MPC meeting will be publicly available.

‘Barking up the wrong tree’

Former Head of Financial Markets at the Reserve Bank Michael Reddell says Adams is “completely wrong” to say the appointment process is political.

“In almost every other central bank in the world, all the members of [its policy committees] are appointed directly by the Minister of Finance or, in the US, the President.”

In the UK, for example, there are nine people on the Bank of England’s MPC – seven of whom are appointed by the Chancellor.

“What’s puzzling is how out of step the New Zealand model will continue to be with international practice.”

On the Treasury representative, he is again critical of Adams’ position saying she is “barking up the wrong tree.”

“If you look at every other government agency in New Zealand – the Police Commissioner is appointed directly by the Prime Minister and members of Crown entity boards are appointed by all sorts of Ministers.

“The Ministers who are democratically elected are the people who typically should have the say in who serves in those roles.”

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Correct me if I am wrong but was not the last National government at one point promoting measures that looked more than likely to reduce the independence of the RB?

When , how ?

Silence critics?

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Unlike the US and UK and to less extent Canada, and to much less extent the AUS, where incompetent political leaders' devastating effects to the nation can be outweighed by genius business leaders' acumen, NZ does not have such luxury.

Michael Reddell blogs at Croaking Cassandra, a calm and learned place.

DO NOT EVER ALLOW THE RESERVE BANK TO BE HIJACKED BY POLITICIANS !

Look what happened with Gideon Gono

Google his name , the Wikipedia summary is excellent

"Move along now. Nothing to see here."

I am not convinced by the move to a committee based decision making model. Yes, I know committee decion making is something of a laughing stock, but that is with good reason. When all is well, it works as well as can be expected, that is, not bad, but not great either. So maybe a C+ or a B- grade, if you like.

In times of crisis, when decisive, timely action is required, then it is a whole other matter. They will "Need more information before making a decision", and tend to miss the moment, choosing the default option of waiting until their options have narrowed to a) Bad and b) Very Bad. At this point they will say "There is no alternative" and "Nobody saw it coming", and get away with it. A single person is more likely to get blamed for having insufficient foresight and acting when there were more options available, rather than "Keeping a Very Close Eye on What's Happening" and doing ...nothing.