PO Box 18-907, New Brighton,Christchurch   Phone/Fax: 0064 7 829 5157   

Email: nzdp.inc@xtra.co.nz     Website: www.democrats.org.nz

The Clerk

Finance & Expenditure Committee

Parliament Buildings

WELLINGTON

 Monday 14 August 2006

 Submission on the Reserve Bank of New Zealand Amendment Bill

 “The Reserve Bank is wholly government owned and is constituted under its own statute (with) clearly defined objectives and with a high degree of autonomy as to how it achieves those objectives. The intention is to ensure the Bank isn’t deflected from carrying out the tasks set for it through parliamentary and democratic process.”

- RBNZ Statement of Intent 2004-2007

 Democrats for social credit members are extremely concerned at the potential for this new amendment to the Reserve Bank Act to eliminate the little economic sovereignty left to us in this country.

 Proposals to cede so much monetary policy surveillance to “prescribed Australian authorities” threatens the “high degree of autonomy” now vested in our Reserve Bank. For our part, we fear the closure of a window of opportunity still available under public finance legislation whish allows the Government to borrow from any source. For instance, should the Labour-led Government acknowledge its heritage and decide to arrange lines of credit with the RBNZ for essential capital works, mandated by statute, it is highly unlikely that the Australian dominated trans-Tasman authorities will jeopardise the credit-ratings of the systemic banks by reducing their share of “bonds issued by government (which) have near-zero default risk…” (Financial Stability Report, 2005). There is no economic law which says that the viability of private financial institutions is the responsibility of the taxpayer.

Auckland economist, Prof. Tim Hazledine, wrote in an article back in 1997 (NZ Herald, 21 August): “In policy research as in everything else the value of an answer depends on whether it answers the right question”.

 We have chosen to pose four questions:

 1.         As long as 85% of our systemic banks are Australian dominated, the question of prudential supervision is a vexing one. We appreciate RBNZ Governor, Dr Alan Bollard’s concern as to the consequences should a bank fail, whether the cause arises here or across the Tasman. With Australian foreign policy closely aligned to that of the United States Government, any move to protect the $US against the rise of the Euro could lead to nervousness in financial circles. In this event, whose financial goals would have precedence? What happens to the price stability basis of the Policy Targets Agreement?

 2.         What would be the outcome if, like the American Federal Reserve, the Australian Reserve Bank were to be privatised? Who would appoint their Board? Would our RBNZ have to follow suit?

 3.         What if the “parent” banks of the “big four” were in turn made subservient to larger global entities?

 4.         Would the enactment of this Bill increase the level of New Zealand’s financial colonialism? Are recent moves to downplay the place of the Treaty of Waitangi in legislation preparatory to committing ourselves to some irreversible contract?

 In conclusion, we believe that our dependence on the Australianised banks (BNZ, Westpac etc) must be reversed. To borrow a phrase from economist John Maynard Keynes, we should initiate a “crowding out effect” by encouraging more custom for our domestic banks (such as KiwiBank, TSB, Credit Unions and SBS). And the Reserve Bank should once again become the Government’s bank. We recommend these solutions to the problems which have given rise to this Bill.

 Democrats for social credit wish to make a verbal presentation in support of this submission.

Stephnie de Ruyter                                         John Pemberton

Leader                                                             Deputy Leader