The headlines were dramatic: the RBNZ would need to tighten its belt and focus on core functions. Yet beneath this public theatre lies a different reality – and a far more consequential matter.
The budget announcement was political stagecraft. A closer examination of the numbers reveals less of a dramatic cut and a more modest restraint on further expansion. The RBNZ’s new five-year funding agreement allocates $750 million for operating expenses, which is about 4 percent higher than the previous five-year agreement from 2020-2025. When measured against actual historical spending patterns, the “cuts” appear even less draconian.
But, fiscal calculations aside, the RBNZ faces a more fundamental challenge.
Money is not the RBNZ’s main problem. Leadership is.
The abrupt resignation of Governor Adrian Orr in March – three years before his term’s end – has created a leadership vacuum at New Zealand’s central bank.
Following Orr’s departure, his Deputy Governor, Christian Hawkesby was installed as interim Governor for six months, providing a temporary solution while searching for a permanent successor. This interim arrangement expires in October, giving the Government and the RBNZ Board a relatively short window to identify and appoint the right long-term leader.
New Zealand faces its most important central banking decision in decades: who should lead the RBNZ through its necessary rehabilitation? Because rehabilitation is now required.
The next Governor will inherit a troubled institution. Inflation in the Covid years reached 7.3 percent at its peak – more than double the upper limit of the Bank’s 1-3 percent target band. Interest rates were subsequently hiked at record pace, contributing to New Zealand’s worst non-pandemic economic downturn since 1991.
On the regulatory front, the past years were eventful as well. The RBNZ imposed capital requirements on banks that rank among the world’s most stringent and found itself challenged on this decision.
By 2028, New Zealand’s systemically important banks will have to hold 16% Tier-1 and 18% total capital of risk-weighted assets; other banks will need 14% and 16%. The banking sector has warned that these high ratios could restrict lending and raise borrowers’ costs. Finance Minister Willis has asked whether these requirements might harm competition and growth.
Finally, there are concerns about the expertise of the RBNZ’s senior leadership team. While the interim Governor holds a master’s degree in economics, the broader senior leadership has evolved toward diversified expertise, meaning little or no economics expertise. At a central bank.
This ‘diversification’ of expertise has coincided with mission expansion. Under the previous Governor, the RBNZ had ventured into areas like climate change and cultural initiatives while its core functions suffered. Meanwhile, staff numbers have more than doubled since 2018, swelling from 255 to around 660 full-time equivalents.
The search for the next Governor presents a genuine reset opportunity. This chance must not be squandered by appointing a candidate who might feel beholden to existing structures and past decisions. The RBNZ needs fresh leadership untainted by recent controversies – someone who can rebuild trust with stakeholders and refocus the institution on its core functions.
Names mentioned as potential candidates include John McDermott, former RBNZ Assistant Governor and current executive director at Motu Research; Christian Hawkesby, the acting Governor; and external Monetary Policy Committee members Prasanna Gai and Carl Hansen. Among these, McDermott stands out for his strong economics background, including a doctorate from Yale University and significant central banking experience.
But these are all domestic candidates. Bringing in some international experience may well prove valuable. A new Governor who has navigated complex monetary landscapes elsewhere could bring fresh perspectives that reinvigorate the RBNZ.
Whether domestic or international, the ideal candidate should possess impeccable economic credentials and command respect in financial markets through demonstrated expertise. They must exhibit intellectual rigour in policymaking and commit to transparency. Above all, they should embody the principle that central banking is about stability and evidence-based decision-making.
Beyond that, the next Governor’s priority must be re-establishing credibility in the Bank’s core functions. Monetary stability is not merely one objective among many – it is the bedrock on which the RBNZ’s reputation rests. The new leader should make it abundantly clear that controlling inflation within the target band is non-negotiable.
A thorough, evidence-based review of the Bank’s capital requirements is equally urgent. Strong capital buffers matter for financial stability, of course, but they must be properly calibrated to avoid unnecessary harm to credit availability, banking sector competition and economic growth.
The RBNZ’s analytical capabilities need serious strengthening. A renewed emphasis on recruiting and retaining top economic talent would improve the RBNZ’s decision-making capacity and enable it to fulfil its mandate more effectively.
Institutional culture requires significant attention too. The next Governor should foster an environment in which disagreement is welcomed, evidence is paramount, and all decisions are subjected to rigorous scrutiny. When central bankers dismiss challenges to their thinking, they risk intellectual capture and policy error. This should no longer happen at the RBNZ.
What New Zealand needs now is not merely a competent administrator but a central banking leader of the highest calibre. Someone who can restore the RBNZ’s reputation through intellectual leadership, principled decision-making, and professional engagement.
The Government’s announcement of the RBNZ’s budget made headlines over the past week. But it is the choice of Governor that will ultimately determine whether the RBNZ will regain its standing as the world’s best small central bank.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE
But, fiscal calculations aside, the RBNZ faces a more fundamental challenge.
Money is not the RBNZ’s main problem. Leadership is.
The abrupt resignation of Governor Adrian Orr in March – three years before his term’s end – has created a leadership vacuum at New Zealand’s central bank.
Following Orr’s departure, his Deputy Governor, Christian Hawkesby was installed as interim Governor for six months, providing a temporary solution while searching for a permanent successor. This interim arrangement expires in October, giving the Government and the RBNZ Board a relatively short window to identify and appoint the right long-term leader.
New Zealand faces its most important central banking decision in decades: who should lead the RBNZ through its necessary rehabilitation? Because rehabilitation is now required.
The next Governor will inherit a troubled institution. Inflation in the Covid years reached 7.3 percent at its peak – more than double the upper limit of the Bank’s 1-3 percent target band. Interest rates were subsequently hiked at record pace, contributing to New Zealand’s worst non-pandemic economic downturn since 1991.
On the regulatory front, the past years were eventful as well. The RBNZ imposed capital requirements on banks that rank among the world’s most stringent and found itself challenged on this decision.
By 2028, New Zealand’s systemically important banks will have to hold 16% Tier-1 and 18% total capital of risk-weighted assets; other banks will need 14% and 16%. The banking sector has warned that these high ratios could restrict lending and raise borrowers’ costs. Finance Minister Willis has asked whether these requirements might harm competition and growth.
Finally, there are concerns about the expertise of the RBNZ’s senior leadership team. While the interim Governor holds a master’s degree in economics, the broader senior leadership has evolved toward diversified expertise, meaning little or no economics expertise. At a central bank.
This ‘diversification’ of expertise has coincided with mission expansion. Under the previous Governor, the RBNZ had ventured into areas like climate change and cultural initiatives while its core functions suffered. Meanwhile, staff numbers have more than doubled since 2018, swelling from 255 to around 660 full-time equivalents.
The search for the next Governor presents a genuine reset opportunity. This chance must not be squandered by appointing a candidate who might feel beholden to existing structures and past decisions. The RBNZ needs fresh leadership untainted by recent controversies – someone who can rebuild trust with stakeholders and refocus the institution on its core functions.
Names mentioned as potential candidates include John McDermott, former RBNZ Assistant Governor and current executive director at Motu Research; Christian Hawkesby, the acting Governor; and external Monetary Policy Committee members Prasanna Gai and Carl Hansen. Among these, McDermott stands out for his strong economics background, including a doctorate from Yale University and significant central banking experience.
But these are all domestic candidates. Bringing in some international experience may well prove valuable. A new Governor who has navigated complex monetary landscapes elsewhere could bring fresh perspectives that reinvigorate the RBNZ.
Whether domestic or international, the ideal candidate should possess impeccable economic credentials and command respect in financial markets through demonstrated expertise. They must exhibit intellectual rigour in policymaking and commit to transparency. Above all, they should embody the principle that central banking is about stability and evidence-based decision-making.
Beyond that, the next Governor’s priority must be re-establishing credibility in the Bank’s core functions. Monetary stability is not merely one objective among many – it is the bedrock on which the RBNZ’s reputation rests. The new leader should make it abundantly clear that controlling inflation within the target band is non-negotiable.
A thorough, evidence-based review of the Bank’s capital requirements is equally urgent. Strong capital buffers matter for financial stability, of course, but they must be properly calibrated to avoid unnecessary harm to credit availability, banking sector competition and economic growth.
The RBNZ’s analytical capabilities need serious strengthening. A renewed emphasis on recruiting and retaining top economic talent would improve the RBNZ’s decision-making capacity and enable it to fulfil its mandate more effectively.
Institutional culture requires significant attention too. The next Governor should foster an environment in which disagreement is welcomed, evidence is paramount, and all decisions are subjected to rigorous scrutiny. When central bankers dismiss challenges to their thinking, they risk intellectual capture and policy error. This should no longer happen at the RBNZ.
What New Zealand needs now is not merely a competent administrator but a central banking leader of the highest calibre. Someone who can restore the RBNZ’s reputation through intellectual leadership, principled decision-making, and professional engagement.
The Government’s announcement of the RBNZ’s budget made headlines over the past week. But it is the choice of Governor that will ultimately determine whether the RBNZ will regain its standing as the world’s best small central bank.
Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank. This article was first published HERE
3 comments:
Terribly disappointing that Willis thought she could spin a raise as a cut. Are the voters that dumb Nicola? Did our bloated, off piste RBNZ really need more taxpayer money? If so, what for? Come on National.
How can a staff increase from 255 to 660 odd be justified when the core job has not changed? Getting back to basics would be the first job, which should be initiated now, and not wait until when the new Governor takes over in six months. But as its only taxpayers money, who cares?
The Reserve Bank is a Central Bank, part of a “private banking consortium”. It is NOT governmental.
The Bank for International Settlements (BIS) sits at the top. Headquartered in Basel, Switzerland. It oversees and coordinates central banks globally. It operates in total secrecy immune from international law, even police searches.
Central banks are the “debt engine”. That is their product. Debt is infinite. Money is temporary. Inflation, recessions, bailouts, all engineered by central banks.
What do they control? Their purpose is to enslave nations to compounding interest and make governments servants to debt instead of servants to the people. How?
Every modern currency is born in debt. Central banks don’t “print” money, they loan it into existence at interest. Backed by nothing, central banks fiat currency, which we incorrectly refer to as money, is nothing more than an IOU debt note.
If Central banks cease to create debt, they die, conversely, the more debt they are asked to create, the stronger they become.
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