mr brash : will the reserve bank choke the recovery? address by dr donald t brash, governor of the reserve bank of new zealand, to the auckland regional chamber of commerce & industry, auckland, on 21 march 2000. * * * introduction ladies and gentlemen, i was invited to give this address after a number of pretty aggressive attacks on the reserve bank, on monetary policy, and on me personally in the auckland media in late january and early february, after the bank increased the official cash rate from 5 per cent to 5. 25 per cent in the middle of january. who does don brash, an unelected bureaucrat whose name appeared on no ballot paper in the last election, think he is, to be making such important decisions? why does don brash refuse to engage publicly with any of the media on the issue? why is new zealand the only oecd country that “ persists in intervention to fuel another self - induced recession ” ( this from the auckland chamber of commerce itself, using the same words after our increase in the official cash rate in january, and again after the further increase last week )? wouldn ’ t life be much better if we simply did away with such intervention, and allowed pure market forces to determine interest rates? hasn ’ t the reserve bank, and the way in which it has run monetary policy under the reserve bank act of 1989, caused new zealand ’ s huge balance of payments deficit, and won ’ t pushing up the official cash rate simply make matters worse? why did the bank increase the official cash rate as the economy was just beginning to emerge from the recession? surely it was inappropriate to tighten policy when the government statistician has shown that inflation in the latest year was below the mid - point of the 0 to 3 per cent inflation target? why does the reserve bank claim the right to be the sole judge of how fast the new zealand economy can grow? isn ’ t it possible that new zealand, like the united states and other developed countries, can now grow faster than before without inflation? these and other questions poured forth – and this despite the fact that january ’ s modest increase of 25 basis points had already been fully priced into financial markets ( as indeed last week ’ s adjustment to the ocr had been also )! some questions based on misunderstanding i welcome the opportunity to respond to these questions this morning. some of them raise important issues, though i think it is fair to say also that others simply reflect misunderstandings.

urged accounting standard setters to develop a single set of high - quality accounting standards. a global set of accounting standards is desirable from the perspective of both investors and regulators since it improves the comparability and transparency on a global basis. this contributes towards sounder investment decisions and thus to a more efficient allocation of resources as well as overall functioning of capital markets. moreover, the financial crisis clearly revealed the shortcomings of different accounting rules on both sides of the atlantic, as differences in rules contributed towards a lower degree of confidence in financial reporting. for all these reasons, the ecb welcomes the ongoing efforts of the accounting standard setters to achieve fully compatible, high - quality accounting standards in a direct response to the g20 request. however, we are concerned to hear that the fasb and the iasb are still far from reaching a consensus on key accounting concepts, such as the classification and measurement of financial instruments. the iasb has confirmed a “ mixed measurement model ” that measures financial instruments both at amortised cost and fair value. in contrast, the us standard setter, the fasb, is determined to move towards a “ full fair value model ”, claiming that only fair value provides decision - useful information to investors. i have already mentioned in my intervention how the financial crisis has blatantly revealed the flaws with this measurement and how in certain circumstances, namely when markets are dislocated, applying full fair value accounting to the financial statements of the banking sector raises financial stability concerns and does not provide decision - useful information to investors. just to re - emphasise, the ecb strongly opposes a full fair value approach. in this context, convergence should not come at the expense of high - quality accounting standards. finally, with regard to recent assertions made by the iasb and fasb that convergence is on track, i would like to highlight that we are not so optimistic. in this regard, putting in place a reconciliation mechanism that simply discloses figures at amortised cost and fair value for each item on the balance sheet would certainly not achieve the aim of convergence. as regards governance, which improvements do you envisage in relation to the elaboration of accounting rules? first, i would like to stress that the ecb fully supports the concept of “ independent accounting standard setting ”. in their april 2009 declaration on strengthening the financial system, when identifying the main areas of concern in the accounting area, the leaders of the g20 never challenged this concept