Role of the New Zealand Reserve Bank :: essays papers

Role of the New Zealand Reserve Bank The Reserve Bank of New Zealand’s Role and Polices. The 1980’s saw some major changes for New Zealand, but none as significant as the deregulation of the financial institutions and economic policy undertaken by the Labour government. The trigger for these changes occurred in 1984 whilst the country was still under the National party control. The economy was in a bad way, with inflation high, foreign debt through the roof, and the subsequent lack of equity left in the country. The National, ruled under Robert Muldoon, called a snap election, which lead to the Labour party taking control of the country. The new Prime Minister, David Lange, immediately froze the foreign exchange market due to the major flow of currency out of the country, caused by speculation of the New Zealand dollar being devalued. Five later the exchange was reopened with the New Zealand dollar being devalued by 20 cents. This first major reform conducted by the newly elected government was to be just one of many carried out during the deregulation of the next eight months. By March 1985 a number of reforms had been passed by government to help save the economy and bring it in line with other modern economies and financial systems throughout the world. These reforms included the removal of interest rate controls, removal of the limit on interest paid to savings accounts (previously 3%), removal of the 30-day rule (a rule for trading banks, halting them from paying interest on money deposited for less than 30 days), removal of the special position given to a number of dealers on the short term money market, removal of the limitations placed interest rates and maturity for off shore borrowings, reduction in boarder controls, and the floating of the New Zealand dollar on the exchange market. Perhaps the most important changes made, however, were the reforms of the Reserve Banks monetary policies (Spencer, 1990)(Spencer & Carey, 1988)(Peare, 1999). In 1986 the reforms, by the Labour party, of the New Zealand banking system began with expansion of the financial system to incorporate new domestic and foreign banks, with no limits placed of the number of new banks allowed. As well as leading to a more competitive banking system, it also lead to an increase in the powers of supervision allocated to the Reserve