Glenn Stevens: Brief history of the Reserve Bank of Australia
Address by Mr Glenn Stevens, Governor of the Reserve Bank of Australia, to the Reserve
Bank of Australia's 50th Anniversary Gala Dinner, Sydney, 8 February 2010.
* * *
Treasurer, Shadow Treasurer, former Prime Ministers, former Treasurers, distinguished
guests, ladies and gentlemen, colleagues and friends, welcome.
I welcome former Reserve Bank Governors Bob Johnston, Bernie Fraser and Ian
Macfarlane; former Deputy Governors; and current and past members of the Reserve Bank
Board and the Payments System Board.
I welcome also the Governors, Deputy Governors and other representatives of 30 central
banks from the Asia-Pacific region and around the world; our colleagues from the Bank for
International Settlements; and past and present friends and colleagues from the public and
private sectors. It is a very great pleasure indeed to welcome you all to Sydney and to this
occasion.
Fifty years ago, the Reserve Bank of Australia commenced operations as Australia's central
bank. That occasion, though, was the end of a long journey.
The history of the RBA actually began much earlier. Not many people realise that the RBA is,
by a different name, in fact the entity that opened its doors for business in Melbourne on 15
July 1912, as the Commonwealth Bank of Australia. Conceived as a publicly owned
commercial bank that would compete with the private banks, but act in a more stable fashion,
the Commonwealth Bank quickly became a significant force in the banking landscape.
The story of how central banking evolved in Australia in the 20th century is told in the
monograph prepared specially for this occasion by Professor Selwyn Cornish of the
Australian National University. The early part of the story is bound up with the history of the
young Federation, itself dating only from 1901. At that time, Australia had no central bank.
Notes issued by private banks circulated, and reserve balances were held in sterling
accounts in London.
The financial system serving the Australian colonies had been notoriously unstable during
the 1890s. After a speculative property boom rivalling anything we have seen in recent times,
the ensuing collapse saw more than half of the deposit-taking institutions close their doors.
With Federation, the new Federal Parliament gained constitutional power over currency and
banking matters. The Australian Labor Party's platform included a pledge to establish a
"Commonwealth Bank" to be "a bank of issue, deposit, exchange and reserve". When the
ALP won office in 1910, the Government duly brought forward a bill to establish the new
Bank. Indeed, Prime Minister Andrew Fisher opened the first savings account.
Initially, the functions were limited to commercial ones. Over many years, the Commonwealth
Bank slowly acquired central banking functions. As with many central banks, war financing
brought the Bank to prominence in the 1914-18 conflict. The note issue, initially a function of
the Treasury, was transferred to the Bank in the 1920s.
In the 1920s and early 1930s, further legislative attempts were made to strengthen the
Commonwealth's role as central bank. At least one Federal Treasurer (Theodore) made the
case for a pure "central reserve bank".
But major progress was not made until an inquiry after the Great Depression outlined the
intellectual foundations for the conduct of the modern central bank. The 1937 Royal
Commission's findings led in due course to major legislative change, culminating in the
Commonwealth Bank being given explicit macroeconomic policy goals in the 1945 Act.
The charter given to the Commonwealth Bank in that Act obliged it to conduct policies as to
best contribute to:
a. the stability of the currency of Australia;
b. the maintenance of full employment in Australia; and
c. the economic prosperity and welfare of the people of Australia.
They are the same words that are set in stone in the foyer at 65 Martin Place today.
The same legislation, I might add, abolished the Bank's Board, in favour of a system that
effectively made the Governor the sole decision-maker. The Board was re-instituted in 1951
and today's Board in fact is the continuation of that Board, with the same mix of internal and
external members.
Yet the Commonwealth Bank was still also a commercial bank. Various arguments were
made, including by the Governor of the day, as to why it was acceptable, even desirable, for
the central bank both to regulate, and to compete with, the private banks. But by the late
1950s, the opposition of the private banks was intense, and our position as poacher and
gamekeeper was no longer tenable.
And so, at least 30 years after the discussion began about the merits of having a separate
institution dedicated solely to central banking, the Reserve Bank of Australia was established
to continue the central banking activities, while the commercial functions were placed in the
Commonwealth Banking Corporation. Interestingly enough, whereas in the 1930s the Labor
Party was inclined to move ahead with developing central banking and the conservative
parties had resisted it, in 1959 it was a conservative government that introduced legislation to
create the Reserve Bank and the Labor opposition voted against it. So, both parties have
been on both sides of this debate! And no-one could say that Australia rushed into the
decision.
The Reserve Bank opened for business on 14 January 1960. It had the same policy charter
as the Commonwealth Bank had had, and an almost identical Board, including the Governor,
who had been appointed to the post in 1949, and was eventually to retire in 1968 after a
tenure of almost 19 years - longer even than Alan Greenspan. I confidently predict that this
record will never be equalled in Australia.
While the early leaders of the RBA sought to make it a distinctive institution, they also
stressed the continuity of the central banking functions that had carried over from the
Commonwealth Bank. One legacy of that history is that we not only have some old silver
teapots carrying the CBA inscription, we also hold many of the very valuable archives of the
early Commonwealth Bank. Some items from those archives - which date back to the
convict era - are being shown this year for the first time in a modest display in our Currency
Museum at head office.
Over 50 years, the RBA has been present at, and part of, some of the great ups and downs
of the Australian economy and the financial system. It has engaged in many arguments
about public policy within its sphere of responsibility and competence. It won some of those
arguments, and lost others. It has had its share of critics, and still does. Through all that it
sought to call things as it saw them, even if it tended to put its views a little obliquely at times.
It has always had a Board a majority of whose members have been drawn from outside the
organisation, from commerce, academia and the broader community. A part-time Board with
the decision-making power over monetary policy is unusual among central banks - I can
think of no other major country with that structure. Yet that broader representation has given
the Bank a degree of legitimacy that we might otherwise have struggled to achieve in
Australian society. And I can say that in the 140 or so meetings of the Board in which I have
participated, the members have always carefully set aside sectional and personal interest to
act in the national interest.
There are still some with us - even some here tonight - who were present at the creation in
1960. They and others worked hard over the years to establish and nurture a culture and an
institution. Many others here have had a connection with the Bank in some way - political
leaders, professional colleagues in government, counterparts in the financial sector, or
colleagues from abroad. All of you have played a part in creating an institution.
Some of you won't have agreed with things we have said or done at one time or another! But
you nonetheless sustained support for the Bank as an institution and for the arrangements
under which we operate. Whatever success we may have had over the years owes a lot to
the support and trust that the financial sector, the political leadership and our community -
whom we serve - have been prepared to give us, even on occasions when they didn't agree
with us. We have also benefited greatly from the support of our international colleagues.
Thank you for that support. We shall continue to do our utmost to be worthy of it. Thank you
all for coming to be part of this celebration. Please enjoy your evening.