Letter of Transmittal
Functions and Objectives of the Reserve Bank
The Reserve Bank of Australia is Australia's central bank. It was established by
the Reserve Bank Act 1959, which sets out the powers
of the Bank's Board and the objectives of its policies. The Act states
that it is the Bank's duty to contribute to the maintenance of price
stability, full employment, and the economic prosperity and welfare of the
Australian people. For almost 20 years, this general mandate has found concrete
expression in the form of a medium-term inflation target of 2–3 per
cent, on average, over the business cycle.
The activities undertaken by the Reserve Bank are overseen by the Reserve Bank Board,
Payments System Board and several permanent committees. The Reserve Bank
Board has responsibility for monetary policy and financial stability, as
well as a range of other statutory obligations, while the Payments System
Board determines the Bank's payments system policy. The Bank's permanent
committees include the Reserve Bank Board Audit Committee and Remuneration
Committee, the Executive Committee and the Risk Management Committee, both
of which comprise senior executives.
Reserve Bank Board
The Board comprises the Governor (Chairman), Deputy Governor (Deputy Chairman), Secretary
to the Treasury and six external members appointed by the Treasurer, a total
of nine. Two members completed terms on the Board during the past year. Ric
Battellino retired as Deputy Governor and was succeeded by Philip Lowe. Graham
Kraehe's term as a non-executive member ended and Heather Ridout was
appointed to the Board.
Accountability and Communication
The Reserve Bank seeks to ensure a high degree of transparency about its goals, decision-making
processes and the basis of its policy decisions. In addition to the regular
communication about monetary policy and decisions of the Reserve Bank Board,
the Bank has an active program of communication about its role and functions.
It informs financial markets, media and the public about its monetary policy
thinking through the quarterly
Statement on Monetary Policy and its assessment of Australia's
financial system through its bi-annual
Financial Stability Review. It disseminates research conducted by
its staff in the form of Research Discussion Papers and in articles in the
quarterly Bulletin, which in 2011/12 covered a range of topics,
including the terms of trade, the effects of conditions in financial markets
on the real economy and co-movements in inflation across countries. The Governor
and other senior staff gave more than 40 on-the-record speeches and attended
a number of parliamentary hearings.
Activities in 2011/12
Operations in Financial Markets
The Reserve Bank undertakes transactions in domestic and international financial
markets in order to implement the Board's monetary policy decisions,
manage the nation's foreign reserve assets and provide banking services
(mainly to the Australian Government). The structure of the Bank's
balance sheet, which grew by around
$6 billion over 2011/12, is influenced by the execution of these
functions as well as the Bank's role in issuing the nation's banknotes.
In response to new global liquidity standards, the Bank released details
of a ‘committed liquidity facility’, which is designed to enable
participating authorised deposit-taking institutions in Australia to access
a pre-specified amount of liquidity, by selling securities to the Bank
under repurchase agreements in an acute stress scenario. The Bank also
signed a bilateral local currency swap agreement with the People's Bank
of China, which allows the exchange of local currencies between the two
Banking and Payments
The Reserve Bank provides a range of banking, registry and payment settlement services
to participants in the Australian financial system, the Australian Government,
and other central banks and international bodies. These include services
associated with the operation of the Australian Government's principal
public accounts; transactional banking services to government agencies;
custodial, registry and related services; and the operation of the real-time
gross settlement system for high-value Australian dollar payments. During
2011/12, the Bank completed a number of significant upgrade projects to
the high- and low-value payments systems architecture and its own banking
platforms. The Bank also completed scoping the requirements for a major
program of work to upgrade its remaining banking systems and continues
to invest in its settlement infrastructure.
The Reserve Bank is responsible for ensuring that there are sufficient high-quality
banknotes in circulation to meet the public's demand. The Bank ensures
that enough banknotes are printed to meet public demand, maintains the
quality of banknotes in circulation by withdrawing worn banknotes and replacing
them with new banknotes and conducts research to ensure that Australian
banknotes remain secure against counterfeiting. At the end of June 2012
there were around
1.1 billion banknotes on issue, worth $53.6 billion. The growth
in banknote demand over the past year has returned to levels consistent
with that experienced in the years leading up to the financial crisis.
With only around 6.9 counterfeits detected per million genuine banknotes
in circulation, the level of banknote counterfeiting declined substantially
from the previous year and is low relative to international experiences.
International Financial Cooperation
The Reserve Bank actively participates in work aimed at addressing the ongoing challenges
facing the global economy and improving the global financial architecture.
It does so through its membership of global and regional fora, including
the G-20, the Financial Stability Board, the Bank for International Settlements,
the Basel Committee on Banking Supervision, the Committee on Payment and
Settlement Systems, the International Monetary Fund, the Executives’
Meeting of East Asia-Pacific Central Banks, and the Organisation for Economic
Co-operation and Development. The Bank also maintains close bilateral relationships
with other central banks.
The Reserve Bank in the Community
In addition to its Head Office in Sydney, the Reserve Bank maintains offices in Melbourne,
Brisbane, Adelaide and Perth. These offices play an important role in the
Bank's business liaison program and form a key component of the Bank's
communication with members of the public, business, government and academia
in their respective states. The staff involved in the liaison program conducted
around 900 interviews around the country over the past year. The Bank also
convenes a Small Business Advisory Panel and this year convened a Small
Business Finance Roundtable to better understand current concerns of this
sector regarding access to finance, as well as to consider the characteristics
of small businesses and challenges faced by the sector. The Museum of Australian
Currency Notes, which houses a permanent collection of artefacts and also
hosts periodic exhibitions, welcomed 12,500 visitors in the past year.
The Bank continued to sponsor economic and financial research in areas
that are closely aligned with its responsibilities, and contributed to
various charitable initiatives.
Management of the Reserve Bank
Most of the Reserve Bank's operating costs are incurred in pursuing its objectives
in the areas of monetary policy and financial stability, its operational
responsibilities in banking and settlements, and in providing currency securely
to the Australian community. Specific new initiatives in 2011/12 included
establishing a representative office in Beijing in late 2011, to provide
enhanced monitoring of economic and financial conditions in China. The Bank
has 1,051 employees and maintains offices across Australia and in key locations
overseas (Beijing, London and New York). The Bank is committed to improving
the environmental performance of its operations and has made significant
improvements in its energy and water use for most of its facilities.
The Reserve Bank is exposed to a broad range of risks in carrying out its responsibilities.
The most significant risks are those associated with the financial assets
held by the Bank to support its operations in financial markets. However,
the Bank also faces operational risks through its banking, settlement and
note issue functions and from the administration of the organisation itself.
The Bank seeks to manage its risk profile carefully, with the Risk Management
Committee providing oversight of the risk management process.
Earnings and Distribution
The Reserve Bank's balance sheet is largely made up of financial assets, primarily
used for the purpose of conducting operations in financial markets in pursuit
of its monetary policy objectives. While the Bank's balance sheet fluctuates
in size, total assets averaged around $80 billion in 2011/12. These assets
include Australia's foreign exchange reserves as well as domestic securities
used to carry out liquidity management operations. The counterpart liabilities
to these assets are banknotes on issue, deposits of the Australian Government
and other customers, as well as capital and reserves. The Bank recorded an
accounting profit of $1,076 million in 2011/12. The Deputy Prime Minister
and Treasurer determined that a sum of $596 million be placed to the credit
of the RBRF from earnings available for distribution in 2011/12 and a sum
of $500 million paid as a dividend to the Australian Government. With the
substantial depletion of the Reserve Bank Reserve Fund in previous financial
years, the Board will seek to replenish this reserve over time to a level
more appropriate to the risks faced by the Bank.
The Reserve Bank is required to report to the Australian Parliament each year on
its equity and diversity program. The major focus of work in this area last
year was to better understand the equity and diversity issues associated
with career progression and development, employee participation and work/life
balance. The Bank is also required to report each year on matters of work
health and safety, workers' compensation and rehabilitation as they affect
the Bank. The Bank has a strong track record in all aspects of work health
and safety, and compliance with the relevant legislation and the Bank's
Conditions of Licence was confirmed by external audits of the Bank's
safety, compensation and rehabilitation arrangements. In addition, the Bank
is an Australian Government agency subject to the Freedom of Information Act 1982.
16 requests for access to documents under the FOI Act in the past
Pro Forma Business Accounts
Executives of the Reserve Bank
Legislative Requirements Index