The politics of money

Adrian Orr’s fate as Reserve Bank governor may be decided by next year’s election result, while a story last night hinted at the government moving to challenge the dominance of the retail banks, writes Anna Rawhiti-Connell in this excerpt from The Bulletin. To receive The Bulletin in full each weekday morning, sign up here.

Boring by design

It’s fair to say that monetary policy is usually pretty boring and partially invisible to most people, most of the time. The Reserve Bank and indeed its governors are meant to be kind of boring and partially invisible by design. In 1986, Roger Douglas resolved to “Muldoon-proof” the Reserve Bank after Robert Muldoon cycled through four governors between 1975 and 1984, and lost the Bank and Treasury’s confidence after ignoring their advice. Wonderful reminder of the times via this James Robert Lynch cartoon. The role of the Reserve Bank and its independent, seemingly apolitical status has been tinkered with over time but since the 1989 Reserve Bank Act, the Bank has had operational autonomy on monetary policy.

National party “appalled” by Adrian Orr’s reappointment

That independent status is why it’s very unusual for the opposition to express such strong feelings about the current Reserve Bank governor, Adrian Orr, who was reappointed for a second five-year term yesterday. The National Party’s finance spokesperson Nicola Willis said the party was “appalled” by the decision. National, Act and the Greens have been calling for an inquiry into economic decision-making during the pandemic. The appointments are made for five years to keep them distinct from our three-year election cycles but it means Orr could, hypothetically, serve under a National government.

Orr’s fate could end up being decided by pinnacle of political process, the election

The Herald’s Thomas Coughlan has an excellent piece of analysis (paywalled) that outlines why this is very unlikely to happen and how Orr’s fate as governor of an apolitical entity will, somewhat ironically, be decided by the very political process of the election. Coughlan also writes: “The depoliticisation of central banking has served its purpose over the past three decades of keeping inflation low and stable. Should they wish to maintain their defence of that system, our politicians might wish to consider the ways they mollify the side effects of the Reserve Bank’s actions, primarily New Zealand’s unstable housing market and the looming unemployment shock.” The inflationary environment has made monetary policy very visible and highly political. Infometrics chief forecaster Gareth Kiernan thinks we’re 60% of the way to wage-price spiral induced hyperinflation and “economic Armageddon”.

Is the rubber about to hit the road on open banking? 

The retail banks have also been caught up in the monetary policy fallout, having benefited from the property boom that many lay at the feet of monetary policy decisions. That also took on a political tenor after Monday’s criticism of banking profits by the prime minister. Stuff’s Luke Malpass described them as “vague bank-bashing”. The Herald’s Liam Dann does think bank profits are too high (paywalled) and evaluates three possible solutions. One of them is open banking, which, low and behold, Newshub broke a story about last night. A source has told them the government may make an announcement as early as this week on open banking. Forbes has an explainer on what that is. It’s US-centric but should give you a good idea if you’re unfamiliar. Keep in mind it’s likely to take years to implement.