Defined Terms and Documents    

Attachment 'C'  -  Reserve Bank of Australia - Our Role

The Reserve Bank of Australia is Australia’s central bank. It conducts monetary policy, works to maintain a strong financial system and issues the nation’s currency. As well as being a policy-making body, the Reserve Bank provides selected banking and registry services to a range of Australian government agencies and to a number of overseas central banks and official institutions. It also manages Australia's gold and foreign exchange reserves.

The role and functions of the Reserve Bank are underpinned by various pieces of legislation. The Bank is a statutory authority, established by an Act of Parliament, the Reserve Bank Act 1959 as amended, which gives it specific powers and obligations. In terms of the Act, there are two Boards:
*         Reserve Bank Board; and
*         Payments System Board.

The Reserve Bank Board’s obligations with respect to monetary policy are laid out in Sections 10(2) and 11(1) of the Act. Section 10(2) of the Act, which is often referred to as the Bank’s ‘charter’, says:

‘It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank ... are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:

  1. the stability of the currency of Australia;

  2. the maintenance of full employment in Australia; and

  3. the economic prosperity and welfare of the people of Australia.’

Section 11(1) of the Reserve Bank Act 1959 covers the need for the Reserve Bank to inform the Government of the Reserve Bank's monetary and banking policy and to consult with Government over any "Differences of opinion with Government on questions of policy":

(1)  The Government is to be informed of the Bank's policy as follows:

                     (a)  the Reserve Bank Board is to inform the Government, from time to time, of the Bank's monetary and banking policy;

                     (b)  the Payments System Board is to inform the Government, from time to time, of the Bank's payments system policy.

The ‘charter’ of the Payments System Board is defined in section 10B(3) of the Act as follows:

‘It is the duty of the Payments System Board to ensure, within the limits of its powers, that:

(a)    the Bank’s payments system policy is directed to the greatest advantage of the people of Australia; and

(b)    the powers of the Bank under the Payment Systems (Regulation) Act 1998 and the Payment Systems and Netting Act 1998 are exercised in a way that, in the Board's opinion, will best contribute to:
 

  1. controlling risk in the financial system;

  2. promoting the efficiency of payments system; and

  3. promoting competition in the market for payment services, consistent with the overall stability of the financial system; and

(c)    the powers and functions of the Bank under Part 7.3 of the Corporations Act 2001 are exercised in a way that, in the Board's opinion, will best contribute to the overall stability of the financial system.’

"The Payments System Board’s responsibilities stem from the Financial System Inquiry (1997), Final Report, March. The Inquiry found that, while earlier deregulation had improved competition and efficiency in Australia’s payments system, further gains were possible. To that end, it recommended the establishment of the Payments System Board at the Reserve Bank with the responsibility and powers to promote greater competition, efficiency and stability in the payments system. The Government accepted those recommendations and established the Payments System Board in 1998. The Board’s responsibilities are set out in the Reserve Bank Act 1959. The Act requires the Board to determine the Bank’s payments system policy so as to best contribute to: controlling risk in the financial system; promoting the efficiency of the payments system; and promoting competition in the market for payment services, consistent with the overall stability of the financial system.

At the time the Board was established, the Government also provided the Reserve Bank with specific powers to regulate payment systems in order to implement the Board’s policies. The most relevant powers in the context of the reforms to the debit card systems are those set out in the Payment Systems (Regulation) Act 1998.  Under this Act, the Bank has the power to designate payment systems and to set standards and access regimes in designated systems. The Act also sets out the matters that the Bank must take into account when using these powers, including the desirability of payment systems: being financially safe for use by participants, efficient and competitive; and not materially causing or contributing to increased risk to the financial system."

 

 

d)         "The Payment Systems (Regulation) Act 1998 also gives the RBA extensive powers to gather information from payment system participants and operators."

e)         The Government's intent was that the RBA would treat these powers as 'reserve powers', to be exercised if other means of promoting efficiency, competition and stability proved ineffective. Accordingly, the Government built considerable flexibility into the new regulatory regime.  Under this co-regulatory approach, the private sector continues to operate its payment systems and may enter into cooperative arrangements, which may be authorised by the ACCC under the Competition and Consumer Act 2010.  However, if the RBA believes that there may be benefits in exercising its formal powers in a system that it oversees to improve access, efficiency or safety, it may, as a first step, invoke its powers to designate that system.  It may then decide, in the public interest, to set an Access Regime or impose Standards for that system. In doing so, the RBA is required to take into account the interests of all those potentially affected, including existing operators and participants. Full public consultation is required and the RBA's decision-making processes are subject to judicial review.

See:

*    Parliamentary Bestowed Mandate

*    Australia's Principal Regulator of the Payments System

*    Some facts about the Reserve Bank of Australia 

*    Extensive Powers of the RBA

*    Monetary Policy

*    Payments System Board

*    Some facts about the Reserve Bank of Australia