2020 covid - 19, the labour market and public sector balance sheets | speeches | rba example of that in the figures for june, released last week, when despite employment increasing by a record 210, 000 people, the unemployment rate also rose to 7. 4 per cent, a 21 - year high ( graph 3 ). graph 3 looking forward, one of the keys to returning to a strong labour market is restoring confidence. this starts with people being confident about their own health and the public health response. the global evidence is that without this, people are reluctant to resume their normal activities and firms are reluctant to hire and invest. the other element is people being confident about their own finances and jobs, and businesses being confident about future demand. addressing the health issues will help here, but so too will the policy response on the economic front. public sector balance sheets this brings me to the second issue that i wanted to talk about : the important role that is being played by public sector balance sheets in softening the economic downturn and in providing the best platform for the economy to recover. i will first talk about use of the rba's balance sheet and then about the government's balance sheet. the rba's balance sheet in mid march, the rba announced a comprehensive monetary policy package to keep funding costs low and the supply of credit available, especially to small and medium - sized businesses. as part of this package, we have used our balance sheet : https : / / www. rba. gov. au / speeches / 2020 / sp - gov - 2020 - 07 - 21. html 4 / 13 21 / 07 / 2020 covid - 19, the labour market and public sector balance sheets | speeches | rba to make sure the financial system has plenty of liquidity to address dislocations in the government bond markets to provide low - cost funding to the banking system, so that lenders can support the provision of credit to their customers to reduce funding costs across the whole economy by having a target of around 25 basis points for three - year australian government bond yields. reflecting these various measures, the reserve bank's balance sheet has increased from around $ 180 billon prior to the pandemic to around $ 280 billion today and further increases are expected over coming months ( graph 4 ). graph 4 to date, around $ 25 billion has been advanced under the funding scheme for the banking system, with 66 adis having used the facility ( graph 5 )

the money. in this case, it is this tax that would help finance the extra spending. the message here is that somebody always pays. it certainly is possible for the central bank to change when and how the spending is paid for, but it is not possible to put aside the government's budget constraint permanently. where countries have, in the past, sought to put aside this constraint the result has been high inflation. notwithstanding this historical experience, some prominent mainstream economists, including stanley fischer, a former governor of the bank of israel and vice chair of the us federal reserve, have recently argued that central bank financing of government spending may be appropriate in some circumstances. in particular, they have focused on the situation in which : i. conventional monetary policy options have been exhausted ii. the central bank is falling short of its goals, and crucially iii. public debt is high and the government cannot borrow in financial markets on reasonable terms. they argue that under these particular circumstances, central bank financing may be welfare enhancing, provided that there are strong safeguards to avoid the inflation problem. the main safeguard proposed is that the amount of monetary financing and the conditions under which it is provided, are determined solely by the independent central bank, not by the government. it is envisaged that the central bank provides finance up until the point that its goals for inflation and https : / / www. rba. gov. au / speeches / 2020 / sp - gov - 2020 - 07 - 21. html 8 / 13 21 / 07 / 2020 covid - 19, the labour market and public sector balance sheets | speeches | rba perhaps unemployment are met. importantly, the government would continue to determine how the financing is spent. this idea has attracted a lot of attention recently, although many commentators have pointed out that there are likely to be very significant challenges in maintaining this type of safeguard over time. it is worth repeating that this proposal is only relevant to the situation where high government debt constrains the ability of the government to provide necessary fiscal stimulus financed through the normal channels. clearly, it is not relevant to the situation we face in australia. so i want to make it very clear that monetary financing of fiscal policy is not an option under consideration in australia, nor does it need to be. the australian government is able to finance itself in the bond market, and it can do so on very favourable terms. there is strong demand for government debt and the australian government can borrow for five years at just 0.