fact that some money market participants did not have access to the cash market and borrowed in other short - term markets. at the same time, banks were often reluctant to lend large volumes of reserves in money markets until late in the day, once they were confident in their capacity to meet their own liquidity needs. graph 5 australian money market spreads spread to ois ; 3 month bps bps fx * * bbsw repo * −50 −100 −50 −100 * rba omo repos used prior to 2020, private market hqla repos used from 2020. * * implied aud rate based on covered interest parity. sources : apra ; asx ; bloomberg ; rba ; tullett prebon ; us federal reserve. having moved away from scarce reserves after the onset of the pandemic, banks appear to have adapted their operations to an environment of higher reserves, simplifying their liquidity management and facilitating smoother daily payment processes. [ 9 ] in other words, the underlying demand for reserves is likely to have increased compared with pre - pandemic days. it is difficult to accurately estimate underlying demand in any system, but small errors of estimation would be more problematic in a system of scarce reserves, since they can lead to considerable volatility in cash and other money markets ( without very active responses from the central bank ). another issue is that a scarce reserves system is not resilient in the face of a sharp rise in the demand for liquidity in the banking system during occasions of considerable financial market stress. the rba may be faced with such a scenario in the future and need to provide a large increase in reserves. this occurred at the onset of the pandemic when the rba met all reasonable demands for liquidity from participants at our omos, much like the way in which our full allotment auctions work currently. reserves also increased with the rba ’ s purchases of bonds to address the dysfunction in government bond markets at the time. in short, scarce reserves systems are ill - suited to environments where demand for reserves is volatile and difficult to estimate accurately and where supply may change substantially depending on the need for the central bank to use balance sheet policies. for all these reasons, no other advanced economy central bank has indicated a return to a scarce reserves system. option 3 : ample reserves with full allotment omo – a new approach the third option, which the board has endorsed, is an ample reserves

recessions in 2001 and 2008 / 9, the economic downturns in australia around those times were relatively mild. it has been 20 years since the australian economy experienced a year of negative growth. this represents the longest period of uninterrupted growth in australia ’ s economic history, and one for which there are few precedents among the developed economies. why have the paths of the two economies diverged? i don ’ t think i can provide an exhaustive or conclusive answer to this question, but there are a couple of factors that have clearly played significant roles. first, both the 2001 and 2008 / 9 recessions in the united states were to a large degree the consequence of financial misadventure. the former was heavily influenced by the collapse of the “ tech ” bubble, and the latter by the collapse of the sub - prime housing bubble. australia was not affected nearly as seriously by either of these events. the tech bubble largely missed australia. in fact, in the late 1990s australia was constantly being berated for bis central bankers ’ speeches being an old - world economy in that it did not have a home - grown information technology industry. as it turns out, being a heavy user of technology, but not a manufacturer of it, was an advantage. the australian economy was not distorted by the tech bubble that built in the late 1990s, and it did not weaken as much as the us economy when the price of tech stocks collapsed in 2001. the mildness of the 2001 economic slowdown in australia meant that the reserve bank was able to normalise interest rates relatively quickly thereafter. in the event, this helped australia avoid the worst of the excesses in housing markets that subsequently built up in many other countries. the housing market was most “ frothy ” for australia as a whole around 2002 – 2003, and it cooled noticeably in 2004 as interest rates rose. while there were subsequent price increases in particular cities, the speculative element in the market had subsided considerably in most states by the time the global financial crisis hit in 2008. aside from increasing interest rates, the reserve bank also warned repeatedly around that time about the danger of excessive increases in house prices and borrowing, which may have, at the margin, curtailed some speculative activity. it was also helpful that the australian prudential regulation authority ( apra ), the prudential supervisor, pressed the banks to maintain relatively high lending standards. while there was some sub - prime lending activity in australia, it was on