Time to restore RBA charter’s integrity

Next week our central bank has the opportunity to restore confidence to the business community and hasten recovery of small business and manufacturing industry in this country.

Earlier this year, Australian Workers Union national secretary Paul Howes said it was time to review the Reserve Bank’s charter to make it more responsive to the problems of the manufacturing sector.

More than 50 years ago, on January 14, 1960, when the Reserve Bank opened for business, it had 1,800 staff from the Commonwealth Bank, including its first governor, Dr HC ‘Nugget’ Coombs. The Reserve Bank has since maintained the same charter but it does not appear to retain the integrity of its three roles.

The words on the charter remain the focus of the modern Reserve Bank, and are inscribed on the wall of the Reserve Bank’s head office building in Sydney. They charged the bank with the obligation to conduct policies as best to contribute to:

A.  The stability of the currency of Australia;

B.  The maintenance of full employment in Australia; and

C.  The economic prosperity and welfare of the people of Australia.

Glenn Stevens, the current head of the RBA, appears to regard these three goals as hierarchical rather than as an integrated package. Full employment appears to be considered in terms of arcane economic constructs such as NAIRU and the Phillips Curve rather than in terms of more than two million people being used as economic pressure upon unions to keep wages low and justify the activity tests imposed upon sole parents, disabled people and long-term unemployed

Glenn Stevens recognises that our labour market shows only moderate employment growth, with job shedding in some industries, and still asserts that the rate of unemployment has thus far remained low. While interested in getting the Roy Morgan surveys of the numbers unemployed and underemployed, his board continues to fail to address roles B and C. Full employment and the welfare of the people of Australia need to be restored to the objectives of the central bank by taking into account the people who have been left out of their academic equations.

Nobody denies that our central bank has an enviable record of dealing with the stability of the currency of Australia but there can be no doubt that it has failed to retain the meaning of full employment that was assumed by ‘Nugget Coombs’ when he set out the RBA charter.

Historian Selwyn Cornish, author of the forthcoming third volume of the RBA’s official history, says:

“From the early 1970s to the early 1990s, we had inflation running at times as high as 20%, unemployment on two occasions just short of 11%, and five recessions. Since then we have negligible inflation and close to full employment. The Reserve Bank is not the only reason for that, but it’s arguably one of the main reasons.”