Aiming for Great and Best
for Te Pūtea Matua
Canterbury Employers' Chamber of Commerce in Christchurch
A speech delivered to
On 21 February, 2020
By Adrian Orr, Governor of the Reserve Bank
Introduction
Ngai Tahu Karanga mai
Ngai Tahu Call us
Ngāti Mamoe, Waitaha Mihi mai
Ngāti Mamoe, Waitaha greet us
Ngai Tuahuriri Whakatau mai
Ngai Tū-a-hu-riri Welcome us
Aoraki-matatū tau o te katoa
Mt Cook the Highest Peak the envy of all
Tēnā koutou katoa, welcome everyone.
It's
Thank you for inviting me here again. always good to be in Christchurch. Our board held
a meeting here last year, and I was hosted by the Chamber for a speaking event last year
too. Every time I return I admire the resilience and long-term strategic vision being shown,
and truly sense your well-founded community spirit.
It's now two years since -
I was given the opportunity to lead the team at the Reserve Bank
Te Pūtea Matua. You may also sense my pride in the role and the Bank.
For many people, their understanding of the role of the Reserve Bank is limited to setting the
level of the Official Cash Rate and/or providing notes and coins for New Zealand. However,
our remit and goals are much broader than just those important functions. I will outline some
of these tasks and challenges today.
Shortly after I joined the Bank we outlined our ambitious vision to be a 'Great Team and the
Best Central Bank'.1,2 They say the first step to running a marathon is to tell everyone of your
intention. This is our marathon.
- -
It was apparent that the Bank needed to evolve as do all businesses to be able to meet
new challenges, risks, and opportunities. These challenges ranged across, for example,
record low international interest rates, changing societal expectations of business conduct
and culture, a broader regulatory remit, new and emerging technologies and, of course,
climate change.
1
Reserve Bank Vision.
https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/about/ReserveBank-Vision-Statement.pdf?revision=e45876a4-8538-41f7-8883-8a179d619931&la=en
2
Statement of Intent 2018-2021,
https://www.rbnz.govt.nz//media/ReserveBank/Files/Publications/Statements%20of%20Intent/soi-2018.pdf?revision=7501d6f8-74204f48-b161-cdd10c86698e
Bank's'
The legislation, and core functions and capabilities, were established over 30 years
ago. Over time they have become increasingly stretched to continue to best promote the
prosperity and wellbeing of all New Zealanders.
Good progress has been made over the past two years to modernise our legislation, and
the Bank's
update governance and accountability settings. Of course, there is still much
'dot the i and cross the t' on the important
work to be done to details of these settings and
how they are to be implemented.
As kaitiaki (guardians) of Te Pūtea Matua, we have a unique opportunity to inform the design
and deliver the current and future legislative changes. We are working closely with our New
Zealand Treasury colleagues on this important challenge.
At the same time we have also embarked on getting the Bank into shape to manage this
transformation. We are focused on investing in the capability and capacity of our team and
systems, so as to be a high performing 'Great Team'.
It's a privilege
I want to acknowledge the support, guidance, and expertise of my colleagues.
to work with such a wide range of talented and committed people. It certainly makes my job
a lot easier.
Tāne - telling the Bank's story
Mahuta
We are working for all current and future New Zealanders. Hence it is important for our
-
legitimacy and reputation that a broad cross-section of New Zealanders not just a narrow
-
field of technical experts and regulated institutions are interested in and understand our
don't
activities. Where your central bank fits, what we do, and what we do.
- -
The tagline on our website says that the Reserve Bank Te Pūtea Matua manages
monetary policy to maintain price stability, promotes the maintenance of a sound and
efficient financial system, and supplies New Zealand banknotes and coins.
While accurate, it doesn't exactly foster intrigue or do justice to the
role the Central Bank
plays in New Zealand's
society.
To improve on public awareness and in partnership with northern hapu Te Roroa,3 we
recently chose to tell our story - the story of Te Pūtea Matua - using the Māori legend of
Tāne
Mahuta.4
Tāne
The Reserve Bank has long adopted a role akin to the being the Mahuta of New
Zealand's financial landscape.
Our roots are our legislation, outlining our purpose and giving us strength (legality and
operational rights) and well-being (resourcing).
The money we print and circulate for New Zealand is the sap that flows through Te Pūtea
Matua, ensuring New Zealanders have a means of exchange, a store of value, and a
currency that is hard to replicate.
- -
Our monetary policy actions keeping consumer price inflation low and stable are to
ensure that our currency retains its store of value.
-
The complex payment and settlement systems we operate which effectively bank the
-
banks and broader financial institutions are our trunk. They in large part allow the money to
flow to the branches of Te Pūtea Matua, which are the financial institutions that have chosen
and are allowed to operate in Aotearoa, New Zealand.
These financial institutions are so important that we need to establish rules and supervision
to ensure they are of appropriate quality and robustness to remain grafted to Te Pūtea
Matua.
Some of the banks are so large that, should they fail, they could bring our whole system
down. For this reason we need to ensure the systemically important banks remain grafted on
and can keep working even if the current owners are gone.
Te Pūtea
These closely interrelated functions enable Matua to protect, nurture and grow
New Zealand's wider financial ecosystem for the greater benefit of all New Zealanders.
Being able to tell a story about our purpose and activities brings several advantages. Our
own team is reminded of how all of our tasks are connected - creating a supportive culture.
We are able to relate the complex story of central banking and financial stability to a broader
audience. We are reminded of our interconnectedness to the wider financial ecosystem of
3
The Bank visited Te Roroa in 2018 for permission to use the visage and story of Tāne Mahuta, the kauri tree.
4
The Journey of Te Pūtea Matua Our Tāne Mahuta, 2018,
https://www.rbnz.govt.nz//media/ReserveBank/Files/the-journey-of-te-putea-matua/The-Journey-of-Te-Putea-Matua-Our-TaneMahuta.pdf?la=en&revision=1506f281-753d-4206-ba0c-dd5f1f556131
New Zealand, as well as other regulator colleagues. And, we are made to think a lot harder
about what makes Te Pūtea Matua unique - we are New Zealand's central bank.
Tāne Te Ao
This is why we support our Mahuta narrative with a broader Māori undertaking
at the Bank. We need to understand and respect our history, and we can gain unique
insights into the New Zealand economy, such as the benefits of longer-term thinking.
Our team work to enable a virtuous circle economic prosperity, environmental sustainability,
financial inclusion, and cultural diversity in Aotearoa, New Zealand. Our Te Ao Māori
strategy is helping inform our policy programmes, broaden our external stakeholder
engagement, and grow our internal cultural capabilities.5
-
Navigating a challenging monetary environment developing our roots
The Government's legislation
review of the Reserve Bank's has been underway for the past
two years. The first leg of this work is completed and is operating well.6 This work
established a dual mandate for monetary policy of low and stable inflation, and contributing
to maximum sustainable employment. The work also established a Monetary Policy
Committee that is responsible for interest rate decisions.
-
We have now made six Official Cash Rate (OCR) decisions as a committee. We have
managed robust discussion and come to consensus decisions. The nature of these
discussions is published as a 'Record of the Meeting' for all to see. We also won this year's
Central Bank award for transparency in how we operate.7
I am proud to note that consumer price inflation is currently very near the mid-point of the
target range (at 1.9%) and that employment is at, if not slightly above, our current broad
estimate of maximum sustainable employment.8
5
RBNZ Speech - Federation of Māori Authorities (FOMA), Sep, 2019
https://www.rbnz.govt.nz//media/ReserveBank/Files/Publications/Speeches/2019/speech2019-09-27.pdf?revision=75976566-d7b944a0-9d6b-94a876a96a00;
RBNZ Speech - Raising Māori Investment Capability Conference, Feb 2020,
https://www.rbnz.govt.nz/research-and-publications/speeches/2020/speech2020-02-13
6
Monetary Policy Statement, Feb 2020,
https://www.rbnz.govt.nz//media/ReserveBank/Files/Publications/Monetary%20policy%20statements/2020/mpsfeb20.pdf?revision=119
0300f-2716-47e2-a5cf-44bc5daba049&la=en;
Reserve Bank of New Zealand (Monetary Policy) Amendment Bill
http://legislation.govt.nz/bill/government/2018/0079/latest/LMS65426.html?src=qs
7
RBNZ Media Release -
https://www.rbnz.govt.nz/news/2020/02/rbnz-monetary-policy-handbookinternationally-recognised-for-transparency
8
Monetary Policy Statement, Feb 2020,
https://www.rbnz.govt.nz//media/ReserveBank/Files/Publications/Monetary%20policy%20statements/2020/mpsfeb20.pdf?revision=119
0300f-2716-47e2-a5cf-44bc5daba049&la=en
Of course we are forward-looking, given the lags between setting monetary conditions and
then observing the inflation and employment outcomes. Our recent February Monetary
Policy Statement outlined that we intend to keep the OCR at a low level for some time to
come so as to best ensure we continue to deliver our mandate. We have highlighted the
risks associated with our outlook for economic activity, and hence inflation and employment,
in particular noting the evolving disruption that the spread and severity of the COVID-19
virus is causing to international production and spending.
New Zealand's unique
Looking ahead, there remains much for us to learn about labour
market, and how we can best support and meet our employment objective.
Likewise, there is much to learn about operating monetary policy in the current,
unprecedented, low interest rate environment.
We are in a relatively favourable position at present, given our current positive inflation and
employment outcomes, and with the OCR at 1 percent, above many of our OECD central
bank colleagues. But we need to be prepared for the unanticipated.
In partnership with the Treasury, we continue to assess how we can effectively and
efficiently operate monetary policy should interest rates reach zero. You will hear more about
this in weeks to come, but business will continue as usual.
The next leg of the Reserve Bank's legislative review is also well advanced -
refreshing our
broad mandate and our institutional governance arrangements.
The Government's recent decisions on the Bank's future
governance arrangements involves
the Bank's functions other than
a more legally empowered Board that is responsible for all of
those undertaken by the Monetary Policy Committee.9 The Bank will also have a broader
financial stability mandate, better clarifying our regulatory purposes and powers, and
financial crisis management processes.
These are positive changes and we are preparing for the new regime. However, there are
still significant details and important decisions to be made. A final round of public
consultation will occur soon, as we look to establish key aspects of our regulatory perimeter,
crisis management, and enforcement tools.10 I encourage your interest as we need your
insight and support.
9
RBNZ Media Release -
https://www.rbnz.govt.nz/news/2019/12/reserve-bank-welcomes-governmentdecision-on-banks-future-objectives
10
Phase 2 Review -
https://treasury.govt.nz/news-and-events/reviews-consultation/reviewing-reserve-bankact
Of special interest to me, as a CEO, is that there is appropriate arrangements between
governance and management. We are currently working on a framework that includes:
clarity of purpose, a bank-wide 'Risk Appetite Statement', agreed strategies, appropriate
delegations, and measurable goals that will enable a smooth transition.
-
Futureproofing our 'sap' the cash
We are the sole provider of New Zealand banknotes and coins, as well as overseeing all,
and operating some, of the countries payment and settlement systems.11
These roles are increasingly challenging as the dynamics of cash use change, payment
systems technology evolves, and our physical equipment (including vaults) depreciate and
need upgrading.
We are obliged to consider and embrace innovative solutions to ensure that all New
Zealanders' currency and transactional needs are met in an efficient and secure manner.
And, we want to ensure these innovations retain and promote financial inclusion.
'Future of Cash' -
Work is underway to address these challenges with our programme Te
-
Moni Anamata to make sure that New Zealanders, the financial system, and the Reserve
Bank are ready and resilient to changing uses and demands for cash.12
a 'less cash' not 'cashless' society evolving rapidly.
Our work to date has led us to expect
Why not cashless? There are many reasons, in particular cash plays a critical role in
ensuring financial inclusion and enabling business continuity. We have heard loud and clear
that the public insist on cash remaining as a payments option, even though the economics
are evolving.
Over coming months we need to make decisions on our safe keeping and distribution of
cash. This will require legislative and industry collaboration to support the wider public good.
Another important milestone will soon be reached. This is a full replacement of our Payment
and Settlement Systems. This is the sharp end of a multiyear project that looks to renew
New Zealand's
inter-bank settlement system and central securities depository.13
11
Reserve Bank - What We Do - https://www.rbnz.govt.nz/about-us/what-we-do
12
Reserve Bank Future of Cash - https://www.rbnz.govt.nz/notes-and-coins/future-of-cash
13
Reserve Bank Payments System Replacement -
https://www.rbnz.govt.nz/markets-andpayments/payments-system-replacement
The Reserve Bank has both an oversight and operational role in the payment system in New Zealand. The
operational activities of the payment system include the provision of currency and a range of payment and
settlement services.
The Bank also has an important role to play in supporting the financial sector's cyber
resilience. Cyber-attacks globally are rapidly evolving and highly contagious. Our role as the
central bank means we can promote and enable the sharing of financial industry information
and coordinate responses to improve system resilience.
Our work ahead in the near-term is to embed industry guidelines, standards, and practices in
the financial sector so we can best work together in the interests of all New Zealanders.
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Raising industry standards Growing our 'branches'
The branches of Te Pūtea Matua are the regulated financial institutions that have chosen to
do business in New Zealand, and have been registered consistent with our rules and
expectations.14 This includes 26 registered banks and more than a hundred insurers and
non-bank deposit takers.
New Zealand's -
To sustain financial stability, it is important that people customers, service
-
providers and regulators are able and willing to identify, price, allocate, and manage their
financial risks appropriately.
This is both difficult to say and ensure. It requires sound conduct and culture by all financial
to 'do the right thing' or face consequences, and
institution participants, self-discipline
transparency so that good behaviours are evident and rewarded, and bad practices driven
out.
Institutions can and will fail for a host of reasons. Likewise, people will make mistakes,
operate on limited or misunderstood information, and act in their short-term interests rather
than their long-term wellbeing.
We as the 'prudential' regulator, supervisor, and enforcement agency of New Zealand's
financial system have a critical role to play. We are looking to lift our game as the challenge
becomes more complex with time.15
14
Register of banks -https://www.rbnz.govt.nz/regulation-and-supervision/banks/register;
Register of non-bank-deposit takers -
https://www.rbnz.govt.nz/regulation-and-supervision/non-bank-deposittakers/register; and
Register of licensed insurers - https://www.rbnz.govt.nz/regulation-and-supervision/insurers/licensing/register
15
Media release - Relationship Charter
https://www.rbnz.govt.nz/news/2018/12/reserve-bank-aims-for-bestregulatory-relationships
We have signalled that we have more regulatory and supervisory work to do in the insurance
sector, as well as completing a long list of multi-year projects amongst the banking and
broader deposit taking sector.16
The insurance sector is that part of the ecosystem that society relies heavily on to both
mitigate risks, and/or transfer the risk-burden to those best able to manage it. However, our
most recent analysis revealed ongoing challenges related to the solvency and customer-
service focus of some sectors of the insurance industry.17 We need to enable appropriate
insurance cover to be available and delivered in New Zealand, and ensure that insurance
providers' have the ability to meet customer requirements in the event of adverse shocks.18
We'll be focusing our efforts this year to address these issues as part of our review of
New
Zealand's
Insurance Act.19
Another key challenge for the Bank will be calibrating a more intensive supervision and
enforcement regime, as well as increasing the capability and capacity of our team to
-
undertake this work. Our focus on building our resources in Auckland where a significant
-
number of our regulated institutions have their head office reflects our intention to lift our
oversight.
We will also continue to engage with banks and other deposit takers on their risk-assurance
processes and, if necessary, work with banks to strengthen these controls and
commitments. We are proud of our long and thorough consultation process and, final
decision making on the appropriate level of capital banks should hold, to ensure they are
sound in the New Zealand environment.20 We must now ensure that these requirements are
achieved on ongoing basis. Given the fundamental importance of accurate capital and
liquidity calculations, the Reserve Bank expects directors to continue to focus on these as
part of their attestation process.
16
Reserve Bank Statement of Intent 2019-22,
https://www.rbnz.govt.nz//media/ReserveBank/Files/Publications/Statements%20of%20Intent/soi-2019.pdf?revision=c2dfbe83-e6aa4bd2-9923-a3240a40d0ce
17
Reserve Bank Bulletin, An overview of the life insurance sector in New Zealand Vol. 83, No. 1, January 2020,
https://www.rbnz.govt.nz/media/ReserveBank/Files/Publications/Bulletins/2020/rbb2020-8301.pdf?revision=ae2e8917-076f-45ec-9d48-b65135bb74d5
18
Reserve Bank Financial Stability Report, Nov 2019,
https://www.rbnz.govt.nz//media/ReserveBank/Files/Publications/Financial%20stability%20reports/2019/fsr-nov2019.pdf?revision=f6f207b0-9248-46a2-91bb-79519010b566
19
Review of the Insurance Prudential Supervision Act 2010
https://www.rbnz.govt.nz/regulation-andsupervision/insurers/consultations-and-policy-development-for-insurers/active-policy-development/reviewof-the-insurance-prudential-supervision-act-2010
20
RBNZ Media release - Capital Review announcement
https://www.rbnz.govt.nz/news/2019/12/higherbank-capital-means-safer-banking-system-for-all-new-zealanders
Equally, we have our own work to do to ensure that the information we release is accessible,
relevant, and easy to understand.
We've made good progress in some areas.
An example of this is the financial strength
New Zealand's banking
Dashboard providing more meaningful information about business
and its relative risks.21 But, we need to take a broader approach, working with other
agencies, to improve financial literacy and improve participation and inclusion in New
Zealand's financial system.
A key area we are advancing is the relevance and effectiveness of the Council of Financial
Regulators (CoFR).22
This cross-agency forum is committed to developing a collective view on longer-term
priorities for our financial system and deliver collaborative solutions. We have a list of seven
priorities that includes climate change, financial inclusion, conduct and governance and
FinTech.23
Amongst the issues we are working collaboratively on at COFR is the economic risks
imposed by climate change. Climate change will continue to have a significant effect on
Zealand's economy and financial
New system.24 Our overarching objective is to contribute
to the Government's objective of a sustainable, productive and inclusive economy, and to
facilitate, where possible, a smooth transition to a low carbon economy.
Climate change presents the banking and insurance sectors with immediate and critical
challenges. For this reason we are involved in many different pieces of climate-related work
- group 'The Sustainable
from assisting our Treasury colleagues, to working with industry
Finance Forum'
on sustainable finance initiatives, to helping our domestic agencies finalise
proposals to enhance New Zealand's reporting and disclosure framework.25
central bank
We are also part of the 'Global Network for Greening the Financial System',
which provides us with access to the latest policy thinking and guidance for central banks
and regulators around the world.
21
Bank Financial Strength Dashboard - https://bankdashboard.rbnz.govt.nz/summary
22
RBNZ Media Release - COFR Terms of Reference,
https://www.rbnz.govt.nz/regulation-andsupervision/banks/relationships/council-of-financial-regulators-terms-of-reference
23
RBNZ Media Release - COFR Work Priorities -
https://www.rbnz.govt.nz/news/2019/11/council-of-financialregulators-sets-work-priorities-for-2020
24
RBNZ Climate Change - https://www.rbnz.govt.nz/financial-stability/climate-change
25
RBNZ Financial Stability Report,
https://www.rbnz.govt.nz/financial-stability/financial-stability-report/fsrnovember-2018/the-impact-of-climate-change-on-new-zealands-financial-system
The investment implications of climate change is also a topic that we are looking at and
contributing to policy and regulatory discussions on. We will look for more opportunities to
further support sustainability through our own investments.26
Building a modern fit for purpose central bank
As is evident from this long list of 'to dos', for us to continue to be successful we need to
grow our capability and capacity, and improve on what we do. There are real operational,
and New Zealand's financial
legal, financial, and reputational risks to the Bank, landscape, if
we don't make the appropriate investments in a timely manner. The direct and opportunity
-
costs of falling behind on investment are significant witness the cost of bank failures, and
financial volatility and uncertainty, in recent history and ongoing today in some countries.
At the very least we must meet international regulatory standards, which are viewed as a
license to operate internationally. We have had this made clear to us from the International
Monetary Fund, the Financial Action Task Force, and the Bank for International Settlements,
amongst others. We need to enable New Zealand businesses on the international stage,
and minimise the chance of organised criminal and terrorists groups trying to exploit New
Zealand's financial system.27
We also want to enable New Zealand's leadership role in our own region of the world while
managing financial risks. A good example is our growing role in the Pacific.
New Zealand is a relatively small economy by global standards, but we are an important part
of a region of many, much smaller, Pacific economies. Our Pacific neighbours depend
heavily on remittances from people working and living in New Zealand and Australia. The
-
average cost of remittance is 10 12 percent. This is higher than the global average cost of
7 percent and the UN's sustainable development goal of 3% globally.28
As such, it is
important that we gain confidence in the efficient working of this market with a view to seeing
this price come down.
Many firms and/or individuals struggle to get the necessary bank accounts in New Zealand
to be able to lower this cost, with this challenge exacerbated by international requirements
established to counter money laundering and the financing of terrorism. This combination of
circumstances has prompted us to work closely with the Reserve Bank of Australia, our
26
RBNZ Media Release -
https://www.rbnz.govt.nz/news/2019/09/reserve-bank-confirms-green-bondinvestment
27
AML / CFT -
https://www.rbnz.govt.nz/regulation-and-supervision/anti-money-laundering/guidance-andpublications
28
The World Bank https://remittanceprices.worldbank.org/en
nations'
respective Foreign Affairs agencies, and with other Pacific central banks and
international agencies to find a solution. A key part of any solution is getting the region's
-
retail banks to work with us. Success will take a collective effort as the returns to any one
party do not justify the effort alone. The Bank is proud to be providing capability and
leadership.29
There are also significant one-off operational risks and costs if we continue to try and make
Digital
do with outdated technology that is not effective, efficient, or safe. 'cloud-based'
operations are now benchmark tools for people to operate effectively and manage risks. We
must remain on the frontier of technology development and risk mitigation. Likewise the safe
storage and distribution of cash in New Zealand should be a basic hygiene issue for us, not
something we risk through underinvestment.
Finally, and perhaps most importantly, we need to be able to attract and retain the
appropriate talent that can lead the Bank into the future. Our people capability and capacity
continues to rise, as does our diversity and inclusion. These features should be self-
reinforcing.
Clarity of purpose and appropriate resource and equipment are key to ensuring we are an
attractive workplace. In addition we are also embracing our unique cultural history through
our Te Ao Māori strategy, as well as ensuring we are open-minded and unbiased in our
employment strategies, to gain access to the best skills and capabilities available to ensure
we continue to succeed.
Realising our vision 'Great Team, Best Central Bank'
In summary, I have stated our drive to be a Great Team and Best Central Bank. To monitor
our progress we need people to understand what we are doing and why, and be encouraged
and enabled to provide constructive advice. This is why we are deliberately revamping our
engagement capability. All marathon runners need encouragement and direction.
I am confident the work the Bank has embarked on is necessary, timely, appropriately
ambitious, and challenging. We have a strong belief in the long-term benefit of our work for
all New Zealanders, and given the tools and resources necessary to do the job, I am also
confident we will succeed.
Meitaki ma'ata
Tēnā koutou, tēnā koutou, tēnā koutou katoa
29
RBNZ Media Release - Joint Statement from South Pacific Governor's Meeting
https://www.rbnz.govt.nz/news/2018/11/joint-statement-from-the-south-pacific-governors-meeting