The Reserve Bank of New Zealand (RBNZ) is the central bank of New Zealand and is responsible for operating monetary policy and currency in New Zealand. The Reserve Bank is controlled entirely by the Government of New Zealand and as such is not privately owned like the central banks of some other countries. As a result, any extra revenue earned by the Reserve Bank goes back into the state sector. The current Governor of the Reserve Bank is Dr. Alan Bollard, who has held the position since September of 2002. The Reserve Bank of New Zealand's main overall purpose is to maintain the stability and efficiency of the financial system. It uses three main tools to accomplish this goal, monetary policy, the promotion of a sound and efficient financial system, and making sure the public's currency needs are met.
The Reserve Bank maintains price stability through monetary policy, which operates in the Policy Targets Agreement. The current PTA requires inflation to be held between 1 and 3 percent over the medium term. This is accomplished through the implementation of monetary policy through the Official Cash Rate, which is determined eight times a year. The OCR is an interest rate set to stabilize prices through the short term interest rates, in theory having some control over the general level of economic activity, as well as over inflation.
Promoting a sound and efficient financial system is the Reserve Bank's goal, and some of the activities it undertakes include monitoring banking system oversights, payment system oversights, and financial stability through market analysis. The banking system oversight is essentially in charge of the registration and supervision of banks in New Zealand. Payment system oversight includes monitoring how efficient the payment system in New Zealand is. This is done by making sure the risk levels of participants in the financial system are as low as possible as well as by making sure the system can operate relatively well in the case of a financial or other crisis. Perhaps most importantly, the stability of the payment system is ensured by making sure the payment system is open, flexible, competitive, and that no barriers are in place that could be seen as barriers to entry. Financial stability is assisted through market analysis by understanding how different components of the markets, financial institutions, and other aspects of the economy impact each other.
The third tool of the Reserve Bank is the control of currency in order to meet the public's needs. The Reserve Bank has the sole right to issue legal notes and coins in New Zealand. It also acts as a distributor to trading banks and manages the quality of currency in circulation by withdrawing damaged currency. The Reserve bank also deals with currency by producing and designing new coins and notes. For example, in July of 2006, the RBNZ will replace all of the existing coins with new, smaller versions, and begin to phase out the 5 cent piece, which will no longer exist.
