Reserve Bank of Australia Annual Report
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- Letter of Transmittal
- Governor's Foreword
Functions and Objectives
The Reserve Bank of Australia is established by statute as Australia's central bank. The Bank's responsibilities include determining and implementing monetary policy, promoting financial stability, issuing banknotes, providing banking services to government, managing Australia's foreign reserves, setting payments system policy and operating the high-value payments system. The Reserve Bank Act 1959 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 people of Australia. Since the early 1990s, this general mandate has found practical expression in a flexible, medium-term inflation target of 2-3 per cent, on average, over the business cycle. The sixth Statement on the Conduct of Monetary Policy was signed by the Governor and the Treasurer in October 2013 following the election of the Coalition Government.
The activities undertaken by the Reserve Bank are overseen by the Reserve Bank Board, Payments System Board and several board and management committees. The Reserve Bank Board has responsibility for monetary policy and banking policy and the Bank's policy on all other matters except payments system policy. The Payments System Board has responsibility for the Bank's payments system policy. The Bank's committees include the Reserve Bank Board Audit Committee and Remuneration Committee, the Executive Committee and the Risk Management Committee.
Reserve Bank Board
The Board comprises nine members: the Governor (Chair), Deputy Governor (Deputy Chair), Secretary to the Treasury (ex officio member) and six other non-executive members appointed by the Treasurer.
Accountability and Communication
The Reserve Bank seeks to ensure a high degree of transparency about its activities, goals, decision-making processes and the basis of its policy decisions. In addition to regular announcements about monetary policy decisions of the Reserve Bank Board, the Bank has an active communication program. It provides information to the general public, financial markets and media about its views on monetary policy and developments in financial markets and the condition of the financial system through the quarterly Statement on Monetary Policy and the biannual Financial Stability Review. It disseminates research conducted by its staff in the form of Research Discussion Papers and in articles in the quarterly Bulletin. The Governor and senior staff gave 42 on-the-record speeches and attended a number of parliamentary hearings during 2013/14. The Bank also made a number of submissions to parliamentary inquiries during the year and to the Financial System Inquiry.
Activities in 2013/14
Operations in Financial Markets
The Reserve Bank undertakes transactions in domestic and international financial markets in order to meet the Bank's policy objectives. These transactions include implementing the Board's monetary policy decisions, facilitating the smooth functioning of the payments system, managing the nation's foreign reserve assets and providing banking services to clients (mainly the Australian Government and its agencies and foreign central banks). The structure of the Bank's balance sheet, which grew by around $43 billion to about $141 billion over 2013/14, is influenced by these transactions as well as the Bank's role in issuing Australia's banknotes. Part of the increase in the balance sheet in 2013/14 was driven by an increase in Exchange Settlement balances, which are held by authorised deposit-taking institutions with the Reserve Bank, as a consequence of changes to the payments system to facilitate faster settlement of electronic payments. The Bank is also an active participant in the foreign exchange market (mainly on behalf of the Australian Government) and manages Australia's official reserve assets. During 2013/14, the Bank reallocated part of its foreign currency reserves to the Chinese renminbi for the first time and signed a bilateral currency swap agreement with the Bank of Korea.
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. The Bank works closely with its agency customers and the government generally to ensure that they can access services that are consistent with their needs and those of the public.
The Reserve Bank is responsible for ensuring that there are sufficient high-quality banknotes in circulation to meet public demand. The Bank maintains the quality of banknotes in circulation by withdrawing worn banknotes and replacing them with new banknotes, and conducting research to ensure that Australian banknotes remain secure against counterfeiting. At the end of June 2014 there were 1.3 billion banknotes worth $60.8 billion in circulation, with only around 15 counterfeits detected per million genuine banknotes in circulation. Although there was an increase in counterfeit activity in 2013/14, the level is still low relative to international standards. In September 2012, the Bank announced plans to upgrade the security of Australia's banknotes as part of the Next Generation Banknote program. While retaining many of the key design elements of the current banknote series, the upgraded banknotes will incorporate a number of new features designed to keep Australia's banknotes secure into the future.
International Financial Cooperation
The Reserve Bank actively participates in work addressing the challenges facing the global economy and improving the global financial architecture. It does so through its membership of global and regional forums, including the G20, 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, the Organisation for Economic Co-operation and Development, the Government Partnership Fund and South Pacific Central Bank Cooperation. The Bank also maintains close bilateral relationships with other central banks. Australia has held the Presidency of the G20 since late 2013 and the Bank is deeply involved in the G20 agenda and related activities for 2014.
In addition to its Head Office in Sydney, the Reserve Bank has offices in Adelaide, Brisbane, Melbourne 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, community organisations and academia in their respective states. The staff involved in the liaison program conducted around 1,000 interviews around the country over the course of 2013/14. The Bank continues to convene its Small Business Advisory Panel to discuss issues relating to the provision of finance and the broader economic environment for small businesses. The Museum of Australian Currency Notes houses a permanent collection of artefacts and hosts periodic exhibitions and talks. The Museum welcomed more than 15,000 visitors in 2013/14. The Bank also continued to sponsor Australian and international economic research in areas that are closely aligned with its primary responsibilities and contributed to various charitable initiatives.
- Operations in Financial Markets
Management of the Reserve Bank
A high proportion of the Reserve Bank's call on resources comes from activities associated with its key policy and operational responsibilities in financial markets, settlements and banking. New services were delivered in banking and settlements and a number of other large projects moved to a more mature stage of development, including those in financial markets, payments and settlements and in relation to the development of new banknotes. These initiatives have added significantly to the Bank's operating costs and will continue to do so for the next two years or so before costs recede. This work will help the Bank to continue to meet its responsibilities in a changing financial landscape. The Bank has 1,026 employees and maintains offices across Australia and in select locations overseas (Beijing, London and New York). During 2013/14, the Bank announced a strategy for its People and Culture, and made significant progress in meeting the objectives of that strategy. The Bank remains committed to improving the environmental performance of its operations and continues to set targets and pursue lower energy and water consumption.
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. The Bank also manages material risks arising from its banking and settlement operations, the implementation of large and complex projects across the Bank and from the administration of the Bank itself. The Bank seeks to manage its risk profile carefully, with the Risk Management Committee providing oversight of the risk management process. Risks inherent to the Bank's core monetary policy, financial stability and payments policy functions are the responsibility of the Governor, Reserve Bank Board and Payments System Board.
Earnings and Distribution
The Reserve Bank's balance sheet fluctuates in size according to operations in financial markets conducted to pursue its monetary policy objectives and support an efficient and orderly payments system in Australia. The expansion in the balance sheet in 2013/14 was largely due to the start of same-day settlement of direct entry payments in November 2013. Assets include Australia's foreign exchange reserves as well as domestic securities used to manage liquidity. Liabilities on the balance sheet comprise banknotes on issue, deposits of the Australian Government and other customers, and capital and reserves. The Bank recorded a net accounting profit of $9,392 million in 2013/14, which included proceeds of a grant of $8,800 million from the Commonwealth. Earnings available for distribution in terms of the Reserve Bank Act 1959 amounted to $10,035 million. Following consultation with the Reserve Bank Board, the Treasurer determined that a sum equivalent to the proceeds of the grant would be placed from distributable earnings to the credit of the Reserve Bank Reserve Fund, the Bank's permanent capital reserve, which had been depleted by large accounting losses in previous years. Of the remainder of distributable earnings, half was paid as a dividend to the Commonwealth in August 2014 and the remainder will be paid in 2015/16.
- Pro Forma Business Accounts
- Organisational Chart
- Organisation Overview and Executives
Statutory Reporting Obligations
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 in 2013/14 was to enhance the Bank's culture of inclusiveness, to encourage diversity of people, ideas and approaches to work. The Bank also reports each year to the Safety, Rehabilitation and Compensation Commission 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. Its compliance with the relevant legislation and the Bank's conditions of its licence as a Licensed Authority was confirmed by external audits of the Bank's safety, compensation and rehabilitation arrangements. In 2013/14 the Bank received 23 requests for access to documents under the Freedom of Information Act 1982. No requests were outstanding at the end of the financial year. In conjunction with the replacement of the Commonwealth Authorities and Companies Act 1997 by the Public Governance, Performance and Accountability Act 2013 on 1 July 2014,consequential changes were made to the Reserve Bank Act 1959. Following these changes, the Governor is the accountable authority of the Bank; however, the Reserve Bank Board continues to be required to approve the Bank's annual financial statements.
- Statutory Reporting Requirements Index
- Financial Statements
- Contact Details
ISSN 1448–5303 (Print)
ISSN 1448–5192 (Online)