What is the Reserve Bank of New Zealand?

The Reserve Bank of New Zealand is the name of the central bank of New Zealand. Its primary purpose is to maintain the stability of New Zealand's financial system. Adrian Orr is the current Governor of New Zealand’s Reserve Bank.

Key Takeaways

  • The Reserve Bank of New Zealand is New Zealand’s central bank.
  • The Reserve Bank manages monetary policy, regulates the financial sector, and issues the country’s currency, the New Zealand dollar.
  • The New Zealand dollar plays an outsized role in foreign exchange markets relative to the size and importance of the country’s economy.  

Understanding the Reserve Bank of New Zealand

The Reserve Bank of New Zealand is responsible for maintaining monetary policy, meeting the currency needs of the public, and providing support services for other banks in the country, in addition to maintaining the stability of the nation's financial system.

In 2007, New Zealand's government decided to expand the role of the Reserve Bank by increasing its regulatory oversight to include not only banks but also building societies, credit unions, insurance companies and finance companies. About $30 billion worth of transactions are settled through the bank’s payment and settlement systems every day.

The Reserve Bank of New Zealand was established in 1934 after the passage of the Reserve Bank Act of 1933. Unlike the United States Federal Reserve, the Reserve Bank of New Zealand does not have any private owners. Even though it is not a department of the government, the reserve bank is entirely owned by the New Zealand government and the additional revenue it makes goes into Crown accounts.

Responsibilities of the Reserve Bank of New Zealand

The Reserve Bank derives its powers not only from the Reserve Bank Act of 1933 but also from The Non-bank Deposit Takers Act of 2013, Insurance (Prudential Supervision) Act of 2010 and the Anti-Money Laundering and Countering Financing Terrorism Act of 2009. 

The Bank conducts monetary policy for New Zealand to promote price stability and maximum employment in New Zealand's economy. To manage monetary policy it sets the official Overnight Cash Rate of interest on cash lending to banks, engages in domestic market operations by buying and selling government bonds, and pursues quantitative easing during times of financial stress and low interest rates. 

In addition to developing monetary, regulatory, and financial policies the Reserve Bank also has a few other responsibilities.

One of the primary responsibilities of the Reserve Bank of New Zealand is issuing the country’s currency, which is the New Zealand Dollar (NZD). The NZD, also known as the Kiwi or Kiwi dollar, is one of the most highly traded currencies in the world, representing around 2% of global currency trading volume, an outsized share compared to the size of the country’s economy. It was introduced in 1967, at a rate of two dollars to one pound. Initially, the New Zealand dollar was pegged to the US dollar at a rate of 1.43 USD: 1 NZD. In 1985, the New Zealand dollar was floated. The NZD is notably susceptible to swings in dairy commodity prices, as New Zealand is a top dairy exporter.

Additionally, the Reserve Bank of New Zealand is responsible for regulating banks, insurers, and non-bank deposit takers such as credit unions. As of May 2020, there are 27 registered banks that it supervises. The bank is also responsible for overseeing and operating payment systems within the country.