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Greening the Reseve Bank « Previous | |Next »
December 18, 2009

The Reserve Bank of Australia is an independent institution in control of monetary policy. Currently it's monetary strategy is one of raising interest rates to shape economic growth to prevent inflation whilst reducing unemployment. It's primary focus is low inflation and, like the Treasury, it is GDP growth, reducing unemployment and raising productivity. It is not facilitating shifting the Australian economy to a low carbon one.

Carbon reduction is a distraction, or side issue. You can see this from this recent Monetary Policy in Open Economies conference---not one of the papers dealt with monetary policy and carbon reduction! Not one! Nor did any of the Research Discussion papers in 2009. Similarly with its statement on monetary policy in November:

The global economy is growing again after contracting sharply late last year and in the early part of 2009. here has been some recovery in world trade and most of the major economies now look to be expanding. The risk aversion that was so evident earlier in the year, particularly in financial markets, has abated and confidence is gradually returning.Asia is at the forefront of the global recovery. The region’s financial systems have not experienced the same dislocation as elsewhere, and the economies are benefiting from a recovery in domestic demand, underpinned by stimulatory settings of both monetary and fiscal policy. Growth in China and India has been particularly strong.

There is no mention of the UN conference at Copenhagen where all nation states are grappling with issue of economic growth and reducing greenhouse gas emissions; or even the effects on the economy of Australia's attempt to introduce an emissions trading scheme

The monetary policy statement goes on to say:

Economic conditions in Australia have also been stronger than expected. In contrast to other developed economies, the Australian economy is estimated to have expanded, albeit modestly, over the first half of the year and recent data suggest that this expansion has continued into the second half. Confidence has improved and spending has been supported by stimulatory settings for both monetary and fiscal policy. The Australian economy has also benefited from the strong bounce-back in Asia, particularly in China, with export volumes remaining broadly unchanged during a period in which global trade fell markedly.

The inference? The economic mandarins (monetarists?), who are concerned with stable money supply and low inflation, are basically out of touch with the long term transformation of the Australian economy. Do the understand the tragedy of the global commons? Doesn't Australia need to invest in home-grown energy to accelerate the development of green technology whilst boosting the economy and reducing unemployment? What if the Reserve Bank's monetary policy is used to push for less sustainable patterns of growth?

The statement on monetary policy ends thus:

Conditions in the global and Australian economies are significantly better than was expected when the Board lowered the cash rate to 3 per cent earlier in the year. The Australian economy is operating with less spare capacity than earlier thought likely, and the outlook for the next few years has improved. Given this assessment, the Board has judged it prudent to lessen the degree of monetary stimulus that was put in place when the outlook appeared much weaker, increasing the cash rate by 25 basis points at both its October and November meetings. The cash rate remains at a low level, and a further gradual lessening of monetary stimulus is likely to be required over time if the economy evolves broadly as expected. The Board will continue to monitor developments closely and set monetary policy so as to promote sustainable growth in the Australian economy and keep inflation consistent with the medium-term target.

If the aim of monetary policy is to promote sustainable growth in the Australian economy --the Reserve Bank's own goals--then shouldn't 'sustainable growth' include cutting greenhouse gas emissions? Or is the Reserve Bank's assumption that if climate change is real, then we should let pure markets operate to solve it, even though climate change has shown how spectacularly impure markets can be. It is the market failure par excellence.

If high unemployment is to high price to achieve low inflation, then so is a heated up world.

| Posted by Gary Sauer-Thompson at 11:58 AM | | Comments (5)


Had a look at the Board of the Reserve Bank?

Full of big business types, and I mean BIG, they form a majority of the Board.
Some of the companies represented:
Origin Energy
Coca-Cola Amatil
Bluescope Steel
James Hardie

Plus Warwick McCibbin who has been vocal against the ETS.

the RBA's task is to keep the economy so that big capital can make big profits?

5 of the 9 members of the board are active directors of the companies listed above [and others].
In the list above we see: retail, agriculture, pharmacuetical [sort of] heavy industry, energy and transport.
It is feasible that coincidentally on a particular day or two these 5 persons could be involved in board level fundamental economic decisions relating to those industries and their particular self interests and then meet for a Board meeting having taken off one set of hats [directing the interests of big business] and donning a different hat [directing the interest of Australia re you outline in paragraph 1] as they sit down.
I think that is neither possible nor likely.
I suppose my short answer to your question is :

Lets go one step further.
Lets look at Mr. Kraehe.
He is CEO of Bluescope Steel.
So who sits around the table when they have their board meeting?
Persons whose past and present business associations include:
TXU Energy
Origin Energy
Macquarie Bank
Woodside Petroleum
National Bank
News Corp Ltd
Alumina Ltd

Now I dunno what they talk about but I would guess there is often an explicit and implicit concern with future maximisation of profits.

And sometime after such a meeting Mr.Kraehe goes off to attend a Board meeting of the RBA.

Now that is a brief list of the associations of just one of the Board members of the RBA.

many of the above companies are known for their denial of climate change and they been deeply opposed to, and fought against, an emissions trading scheme.

One inference is that the Reserve Bank is not acting in terms of Australia's national interest on climate change. It is acting against it.