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Change underway at the Reserve Bank ruffles feathers, as questions are raised over whether the institution is distracting or future-proofing itself

Public Policy / opinion
Change underway at the Reserve Bank ruffles feathers, as questions are raised over whether the institution is distracting or future-proofing itself

There are major policy and organisational changes afoot at the Reserve Bank (RBNZ) at a time it’s confronting what could be its biggest inflation challenge in decades.

The resignation of two of the central bank’s four internal Monetary Policy Committee members in a matter of months is notable. 

While it’s unclear why Deputy Governor and General Manager Financial Stability Geoff Bascand, and Head of Economics and Chief Economist Yuong Ha are leaving, it is clear the RBNZ is joining other central banks in taking a broader view of its mandate.

Accordingly, the RBNZ is expanding its senior leadership team, and consulting on a proposal to change some senior management roles and reporting lines.

At best, the changes are modernising and future-proofing the central bank. At worst, they’re stripping it of experienced staff, and seeing it take its eye off the ball in the midst of a one-in-100-year event.

Either way, the changes are ruffling feathers.

Policy changes

Legislative changes, some of which pre-date Adrian Orr becoming Governor in 2018, have broadened the role of the RBNZ.

Its Monetary Policy Committee now needs to target employment as well as inflation. Critics of the move say it’s responsible for the RBNZ, in their view, overcooking its response to the pandemic.

The RBNZ has also taken a more hands-on approach towards regulating financial institutions, following the 2008 Global Financial Crisis, 2010/11 Canterbury earthquakes and advice from the International Monetary Fund.

Banks have to hold more capital and will soon become part of a deposit protection regime. The RBNZ is also consulting on changes to insurers’ capital requirements and is considering creating a scheme to effectively insure policyholders against their insurers folding.

These sorts of changes are rightly or wrongly continuing to draw criticism from financial institutions (and those they pay to lobby on their behalf), which would rather be left alone. 

Furthermore, the RBNZ is following other central banks in considering whether it needs to issue a digital currency. Central banks are worried the rise of cryptocurrencies could see them lose control of the monetary system.   

Then there’s climate change of course. Former Bank of England Governor Mark Carney famously warned of the risks climate change poses to financial stability in a 2015 speech. The RBNZ has subscribed to his approach.

Should insurers stop insuring flood-prone property, and should investors turn their backs on high-emitting companies, banks could be left exposed, threatening financial stability.  

Opponents of central banks incorporating climate change in their policymaking argue those in the financial sector are experts in risk assessment, and climate risk is just one of the many they need to manage.

Add to this debate, the public sector trying harder to imbed Māori values in policymaking, and the RBNZ looks quite different to the institution it was 30 years ago.

It's no wonder those faithful to the values of the 1980s, which still underpin our economic system, are among the Bank's most vocal critics. 

Personnel changes

A broadening in policy and approach is being accompanied by organisational restructure.

The RBNZ is expanding its senior leadership team from six to eight.

With both Bascand and the Bank’s Chief Financial Officer Mike Wolyncewicz leaving, and another senior leadership role temporarily filled, the RBNZ is looking for five new Assistant Governors.

Changes at this top level are being accompanied by changes to senior managers’ role and reporting lines. A RBNZ spokesperson said a proposal is still being consulted on.

The concern is that some of the Bank’s experienced senior managers could be managed out.

Coming back to Yuong Ha’s departure, he said he’d take “an extended break following the February 2022 Monetary Policy Statement”.

Ha’s resignation has come as a surprise. While he’s been at the Bank for more than 20 years, he hasn’t been Chief Economist for too long, and has time on his side to work his way further up the ranks.

Bascand is closer to retirement age and would need to become Governor to elevate his position. This is a role he put his hand up for in 2018 when Orr was appointed.

Bascand said he will now “seek board/governance positions - a mix of voluntary sector and commercial".

Both Bascand and Ha are members of the Monetary Policy Committee, which is responsible for mostly using interest rates to meet the Bank’s inflation and employment targets.

Their departures will fall a few months ahead of the terms of two of the committee’s external members, Bob Buckle and Peter Harris, ending.

So, come April, only three of the current seven committee members could still be there.

But wait, there’s more.

Under the RBNZ Act 2021, the RBNZ will need to have a new statutory board by July. Three members have already been appointed, including the current RBNZ Board Chairman and an Advisory Board member. Up to five additional members need to be selected. 

So, all up at the highest levels, the RBNZ needs to recruit up to (note some contracts could be renewed) five board members, a Chief Economist, five Assistant Governors and two external Monetary Policy Committee members.

The hiring spree follows the Bank increasing its staffing levels from 274 full time equivalents in 2019, to 349 in 2020, and 411 in 2021.

Accordingly, the average length of time RBNZ employees have been at the bank has been falling. At 5.2 years, it’s below the 20-year average of 7.9 years.

Annual staff turnover since 2018 has generally also been above the 20-year average of 13.0%.

Leadership

A common criticism of the Bank’s leadership is that Orr doesn’t like dissent. 

This was recently displayed at a virtual Institute of Financial Professionals conference, when he called another speaker (Northern Trust Chief Economist Carl Tannenbaum), who didn’t share his view on climate change in relation to central banking, a “dinosaur”. The comment was edited out of a video recording later posted on the conference website. 

Nonetheless, Orr is community-minded and isn’t afraid to stand up to those with corporate interests, who spinelessly try to discredit their regulator by attacking his personality.

Some say Orr takes such a broad view of central banking, he would be well-suited to politics.

Tying it together

One has to ask how the RBNZ will actually walk the talk while adhering to its legislative mandates.

When it comes to monetary policy for example, it’s tasked with using blunt instruments to meet its inflation and employment targets.

It’s difficult to see how the RBNZ has/will factor Māori values into this. Many Māori are arguably worse off following the RBNZ boosting asset prices in response to Covid-19.

This has supported employment. But people on low incomes will now be hit disproportionately hard by rising consumer inflation, and will find it more difficult to enter the property market due to prices being higher and RBNZ-imposed bank lending restrictions being tighter. 

Looking ahead, the health of the organisation will be reflected in the calibre of new hires.

The RBNZ will also be judged on how it manages to remove monetary stimulus while we figure out what it means to live with Covid-19, and households chip away at the mountain of debt they’ve taken on. 

It will be easier for the RBNZ to add (organic) jam to its pantry if it gets its bread and butter right.

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52 Comments

"Orr takes such a broad view of central banking, he would be well-suited to politics." and there's likely to be a vacancy coming up soon!

As this article rightly suggests, Orr isn't an idiot. But he's held hostage to his education, experience and crucially, The Cartel of Central Banks, for whom he ultimately works.

We need more tangible proof of his "community-minded(ness, and lack of fear) to stand up to those with corporate interests". He has it in him. But does he have the courage to bring his tenure to a close in a blaze of glory, or will it be with the dam whimper of his predecessors? Let's hope for the former!

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Orr has always reminded me of a 70s Henry Kissinger for some reason.

(In appearance only, just to make that clear).

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And right now he has a chance to be a modern-day New Zealand version of Paul Volker. All that's needed is "Craft; Speed and Courage".

 

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No. he doesn't.

Kissinger and Volker still had a reasonably intact planet, and they were a hegemonic Empire.

Orr is presiding as the Titanic (globally) sinks.

How much any of them - left, right, neolib, whatever - understand of that, is a moot point. They are never - despite prodding - asked.

 

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2 Things.

1 He presided over and has to take total responsibility for the over stimulation of the economy that has resulted in house price rises that have pretty much destroyed any residual hope that many FHB's will ever be able to buy a home in NZ.  On that basis alone he should be fired and no amount of restructuring and firing of his underlings can ever excuse him for his total failure.

2 As I have gone on about for years the whole Reserve Bank CPI/OCR model is totally and fundamentally flawed.  We have witnessed decades of it's application around the world and it has been very ineffective at healthy stimulation of any economy except indirectly via the very damaging fixed asset speculation bubbles that are very directly stimulated by this mechanism.  Any tweaking is just shuffling the deck chairs on the Titanic.  The whole ship needs a very extensive overhaul, if not scraping and starting with a clean sheet of paper.

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"CPI/OCR model is totally and fundamentally flawed"

Spot on. As I suggested on the "ANZ" thread:

"We know the OCR is in the debating chamber - but how, exactly? The level; it's mandates - it's very existence? (NB: There was no OCR, for instance, until 20 odd years ago)"

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Which sectors of the economy outside of housing has Orr over stimulated?

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There's other sectors of the economy?

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Ashley Church

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Once we note that the Reserve Bank doesn't create new wealth but just shifts existing wealth around, the last year or so's transfer of wealth to asset owners is simply morally obscene.

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A central bank focused on climate change and Maori values is a disaster in the making. Price stability and avoiding financial bubbles should be the focus. On both those counts, they are way behind the curve. 

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Right, but wrong.

Climate is merely the exhaust-gases of our burn. Our ferocious, never-to-be-repeated energy burn.

Maori is irrelevant; if they'd had bulldozers there would be more than the Moa missing; we're all the same that way.

The financial bubble was the inevitable result of attempting growth within a bounded system. Really, it represents limits; lack of underwrite. At this stage, we need physical stability; finance is a totally artificial construct related to nothing.

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Yes, Maori values are neither superior nor inferior - people are all fundamentally the same across space and time. Europeans simply had the means to enforce hegemony at that historical moment.

The fate of the Moriori should be a salutary lesson in that respect.

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Yes, Maori values are neither superior nor inferior 

Agreed. But there is always value of understanding the values of 'the other'. If you're interested in this, Edward Said covers it well in Orientalism. Disregarding Maori values because they don't easily fit into those of the Pakeha majority is too easy to do. 

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"always value in understanding the values of the other" - absolutely , no argument there .

Trying to shoehorn those values ( belonging to a culture  that  had no currency , finance of reserve banking ... ) to the business of running a central bank is more than silly though. 

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Reserve bank theocracy?

The same time they shoehorn those values into the reserve bank is the same time they've disproportionately disaffected poorer people (which is disproportionately Maori) with their policies.

Maori did trade with each other and early settlers but it was almost exclusively bartering.

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The RBNZ and government appears to have been trying to keep jobs as a way to help poorer people, but by keeping interest rates so low for so long they caused a massive housing bubble.

Just proves you can't have your cake and eat it too, best to just stick to pure economic facts as your guide, rather than trying to artificially insert a culture into something that has nothing to do with any culture.

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Trying to insert Maori values into how the RBNZ operates is complete quackery, more signs of how cult and religion like this whole movement is becoming.

You could just as well insert some Celtic values or Viking values into it, but it would also achieve nothing.

 

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Easy to see why insurance companies and banks don't want to hold more capital for their risk. It positions them for Govt bailout while they have had years shoveling profits out the back door. After all if you can get away with socialising the losses and risk, while privatising the profits, history shows that exactly what happens. They are very resistant to a good thing changing away from their favour.

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Orr's mandate was accepted when he signed up. It was Labour Party policy to include employment so he knew damn well what he was in for. The RB staff number increases quoted above are unbelievable. How many people do you need to say Yes? If we look at their actions, and especially at the May 2020 ones, we can see now that they were following a global template of print & hope, during the global lockdown. As it turned out, they not only over reacted (much to the delight of all asset owners around the planet) but most of the QE money ended up in the hands of the home-owner class anyway, which isn't ideal as we know. Especially if you're poor. 

On the subject of the poor, NZ has been investing in the poor for the past 80 years through generous welfare arrangements. Whilst this huge transfer of wealth to the lower classes is done with a good heart, the reality half a century later is that all it really does is create more poor people. In my time (60 years) we have gone from around 5% of the total population being poor to today's 25% or more. All welfare does is keep the poor poor while expanding their market share. Someone with some balls has got to have a go at resetting this astounding societal failure. 

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411 staff is obscene, even 277 was.

And you see the staff numbers like this, as bloated as Grant Robertson's waistline, right across the bureaucracy.

Just think how many front line medical staff a thousand or so bureaucrat roles would fund...

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I wounder what all these people do? Probably nothing.

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.. that would not actually be so bad .. 

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Are you prepared for the carnage - violence, crime - that would come with disestablishing welfare?

Just not going to happen, for this as well as other reasons.

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Scaremongering me thinks.  NZ actually had a fairly meaningful welfare reset down under Ruth Richardson  ; that has not resulted in " .. carnage - violence, crime " . 

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As someone who grew up in a low-decile area, in a family on welfare, yes it did result in those things.

Plenty of lead times on the changes that they're not instantly attributable, but I saw lives and families change at that time, and how those lives have played out. Carnage, Violence and Crime.

 

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Over 50% of our social welfare budget is a universal benefit, handed out to folk regardless of need just for being a certain age.

Post-war we did it better by focusing on making housing affordable and achieving that high rate of home ownership we had by the 1980s. The older generations benefited from that. Far better to actually invest in social mobility like that (affordable housing, reasonable wages) than the ambulance at the bottom of the cliff that is money for food for those shoved out the bottom of our current policy.

The present approach has pushed many people out the bottom and it's that which creates the welfare dependency especially when welfare is not financially significant enough to provide a boost upward for many. Compare to previous times when welfare lifted John Key and Paula Bennett up and gave them opportunity and social mobility, didn't just sink them into dependence.

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🕉

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The CC issue and Orr's dinasaur comment about another economist. I wonder what his personal view is on CC or is he going with the flow of his political masters.  Perhaps the ex BOE governor is his role model.

 I also view the need for RBNZ to get embroiled in CC issues over the top. They probably appointed outside consultants to come up with some weasel words and simply passed the buck to the insurers.

And JT forget to mention the big increase in spin doctor staff that was in the last year or so and I'm sure there was an article about it in interest.co.nz

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Which side if the Titanic would sir enjoy his deckchair reshuffled to?

Crypto and DeFi, the game is over. The more currency is debased and rules imposed the faster the decline will come.

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Homeownership isn't really practical under ever increasing communism - it's actually antithetical.

NZ is declining fast concerning:

- Private property rights
- Right to work
- Monetary policy
- Inflation
- Insurance issues

It's a total s*** show out there.. many people might have to flee areas of NZ or NZ itself to make a living and/or for safety. All this is incongruent to FHB demand.

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At least the move to allow intensification will grant people more freedom to build on their own land.

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Stalinist purge?

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Bringing in the World Economic Forum's globalist 'climate change' agenda, couched in identity politics..

..so yup, probably lol

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Maori values? Pse elaborate on how these differ from European, Indian, Asian and Pasifika. 

Reminds of the call by University academics to consider Maori science. There is just science, whether it's a Swiss Jew in a patent office or a German microbiologist discussing germ theory, it's just science.

Same arguement for Economics and financial theory. FFS

 

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It's RACIST to claim/imply ALL Maori people [or any lineage/race for that matter] ALL hold the same views, values and beliefs.

Labour are a very racist party IMO and the RBNZ seem to be following? But yeah, I believe we are all God's children, most Labour party members [probably??] believe we come from monkeys.. so yeah.. concerning.

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Central Banks everywhere are trying hard to justify their existence. 

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How on earth do you quantify and then apply 'Maori values' (whatever that means...) into monetary policy?

I mean this sounds like left-winged ideology at play, and how would those applied monetary policy values be any different from any other culture in NZ?

I think the exodus of senior leadership should be the red flag to anybody paying attention that the path forward has not been thought through well enough and that a significant portion of the leadership team do not agree.

I think given the COVID response, Orr has created asset price + inflation problems that impact more than just Maori's

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Lol Bring on NZ Bitcoin!

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"How on earth do you quantify and then apply 'Maori values' (whatever that means...) into monetary policy?"

The same way you do it to Health, 3 Waters, and then whatever is next on the agenda.

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Vote Bank politics is a poison unfortunately demand of modern day democracy.

Democracy system has to evolve and change but will not come from politicians as they are the one exploiting so will be from common men, when one has to wait and watch.

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"Reserve Bank restructures as its role broadens and inflation finally hits"

Do you mean to say that inflation was low till now and NOW hitting OR do you mean that the lie (Inflation is transitory and not to be worried as is just a word with no effect on economy)  spread by RBNZ to justify their action to support housing ponzi / go with least regret policy and avoid being question is Finally out in open and Mr Orr and likes stand exposed with nowhere to run.

Will someone ask Mr Orr

: what is his defination of Transitory 

: Should one still not be worried about inflation

: On March/April was saying that he had data/information that housing market was slowing......where is that data AND has the house market slowed OR will he again say the same        that has information/data that housing market is slowing (In hope that alteast sometime will slow this time - like dead clock will be right twice in a day)

: Does he still believe in his policy of Wait and Watch unlike earlier when their was a need to support went overnight with least regret Policy to support ponzi.

Finally Biggest joke from the Joker :

Does he still feel that RBNZ policy has no control on housing market (did he actually had the audacity to say it, may be yes as feel that Kiwis are dumb and can get away with any shit - This is blot/insult to Kiwi) and if has no control, why did he went out of the way in Marc/April last year with policy to support housing market, if have no control.

OR

Does he feel that rbnz can only control and support the housing ponzi but has no control or role otherwise in housing market except to boost ponzi.

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Should ask him will he agree that removing LVR for a Blunder as at that time, understand that had to support existing home owners so mortgage holiday was required along with low interest rate at that time to boost economy but HOW DID REMOVING LVR HELPED EXISTING HOUSE OWNER AS THAT WOULD AND WAS TO BOOST THE HOUSE PRICE AND NOT PROTECT AS PROCLAIMED BY THEM SPECIALLY WHEN THEY KNEW OF LOW INTEREST RATE AND STIMULUS.
 

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Inflation is probably one of the worst metrics,

Headline inflation is single digits but excludes basic necessities such as housing costs that suck up 20-40% of the middle or lower class incomes...

If housing was included in headline inflation, it would have been in double digits for at least the last 10 years which would have put pressure on the super low interest rates a long long time ago...

Worst metric ever...!

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The Reserve Bank had subscribed to Carney 2015 approach? Not going by the papers they have released.

'Preliminary analysis suggests that climate change need not be a significant threat to the soundness and efficiency of the financial system, provided all risks are proactively analysed, understood (to the extent possible), communicated and appropriately factored into decision making from the outset. However, climate change could be a significant aggravating factor in the event of a broader negative shift in market sentiment or conditions.'

https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Financial%20stabilit…

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And the  $5.7 billion LASP losses elephant in the room Jenee? The equivalent of couple of defense forces down the gurgler nary worth a mention? Has Robbo put a news black out on it?

https://croakingcassandra.com/2021/11/17/5-7-billion/

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Anyone who has a rudimentary understanding of finance will know that number is rubbish. The RBNZ held bond yields artificially low which means, drumroll......that the Government were able to borrow cheaper which in turn means they are saving an equivalent amount (actually quite a bit more), There are other factors but probably wasted discussing here.

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'...I know some readers found the basic point a little hard to grasp'

https://croakingcassandra.com/2021/11/17/5-7-billion/

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Hi Jenee,

Is it a time of reckoning for Orr !!!!

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Looks like the implosion is inevitable.

The fall out will be interesting and good money will be made.

Don't waste a crisis when it comes.

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“It’s difficult to see how the RBNZ has/will factor Māori values into this. Many Māori are arguably worse off following the RBNZ boosting asset prices in response to Covid-19.”

This is one of the peculiarities of our modern system of Government. I’ve noticed that it seems to place more importance on optics then outcomes. 

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Good observation. A politician cannot have power without good optics so naturally it takes precedence.

 

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