The Primary Responsibilities of the Reserve Bank of Australia - Case Study Example

The primary responsibilities of the Reserve Bank of Australia Student’s Name Institution Affiliation Primary responsibilities of the Reserve Bank of Australia The Reserve Bank of Australia is like one of the central banks that exist in any given country. It is said to be the bank of the government. The government uses it to control the economy to take the direction that it wants it to go. Due to the good role that the RBA has been playing in the Australian economy we have significant improvements making Australia be one of the developed nations in the world in various sectors. Over time to time, the government has been making policies that have been executed through the bank to ensure the improvement of the economy. The way the Reserve Bank of Australia has been made, it has been given their major roles in maintaining in the economy (Kim, 2008). This functions are as follows; ensuring that the Australian currency is stable, and it competes favorably in currency market, it makes sure that there is full employment to the Australian economy, and finally, it has been given the mandate of ensuring that the Australian economy has prospered while taking consideration of the welfare of the Australian people. However, of importance to the RBA is ensuring that the Australian economy has been kept stable and constantly grow by creating a stimulus economy. While undertaking this function, it is the responsibility of the Bank to ensure that there is no overheating or any case of runaway inflation within the economy which led to the creation of the great depression that occurred in the early years of the 20th century. To ensure that control is in place there are mechanisms that the bank employees to ensure everything has been kept on track. One of this is the use of cash rate (Gregory & Hunter, 1995). The cash rate is the interest that the central banks in a country allow financial institutions are allowed to charge one another in the case of borrowing money. Through this interest rate, the RBA being the central bank in Austria can influence the rate at which lenders are going to avail credit to the public. In the real situation, the RBA has no direct control over the banks and other financial institution lending rates, but in the real sense, it does this indirectly by fixing the cash rate. Through the varied fixation of the cash rate, it is possible for the RBA to control the public interest rate. By varying the cash rate, also the RBA controls the affordability of credit in the market. The affordability of the credit in the market, in the long run, will determine the extent to which the economy will be stimulated. When credit is made cheaper, several people will access the credit, and they will be able to start a business with the economy which will make the economy to succeed (Siklos, 2002). On the other hand, when the credit is made expensive, the economy will slow up its growth something that will affect the citizens in the long run. Availability of credit in the economy, in the long run, will affect almost every sector of the economy as most of the citizens depend on credit to ensure that they succeed in the economy. By undertaking the above controls, then the RBA can be said to be undertaking Monetary Policy and Prudential Supervision Roles which can be said to be ensuring that the monetary policies within the country are taking the right direction according to the prevailing conditions in the market both locally and internationally (Hossain, 2009). As discussed above, when RBA is in charge of ensuring that currency is stable it means that it ensures that its supply within the market is in the right quantity at any particular time. This ensures that the Australian currency that is in the international market is going to compete favourably so that it gives both the importers and exporters the fair chance of getting good profits that are directly proportional to the cost of production within the country. Also, on the other hand, the bank is charged with ensuring that the right quantity reserves are kept to ensure that the currency does not lose value due to the demand of buying other foreign currencies (Kim, 2008). Actually, the policies that are being laid by the RBA have a direct impact on the banking system, as it is the major bank that fixes that base rate at which they can be able to lend them. To ensure that businesses are performing according to expectations, it is prudent that the government has control over the monetary policies. If the market is left to specific individuals to learn it, then it is possible that they can exploit the public by hiking the interest rates. But with the control then the government can completely control the monetary system within the country (Hossain, 2009). When comparing the roles of RBA and that of The Bank of England, they are almost similar. The roles of The Bank of England are outlined below. It ensures that there is monetary stability with England. This takes two major directions. One of them is ensuring that inflation within the country is at the level that the government targets. This can be influenced using the supply of money to the market and also in ensuring that the interest is kept at the level that will be able to influence the different levels of the economy and inflation within the desired levels. Also, the bank can adjust the interest rates within the banks according to the prevailing economic conditions in the country (Hossain, 2009). Another major role of the Bank of England is Asset purchase facility. This is used to facilitate the buying of "high-quality assets financed by the issue of Treasury bills and the DMO's cash management operations.” This is used to improve the liquidity of the market credit. All this will ensure the quantity of trade done in the market is increased which will lead to better performance of the market (Linklater, 1992). On the other hand, when comparing the RBA with the Federal Reserve Bank, the roles are almost similar, but they are somehow differentiated. In the US, FRB acts as the central bank. And it undertakes activities to ensure that the government interests are felt within the economy. Some of the roles of this bank are as listed below. It is conducting monetary policy throughout the nation through the influence of money and the credit conditions that will prevail in the economy with the aim of ensuring stable prices and full employment within the economy. The bank is in charge of supervising the banking sector and other financial institutions in the quest to ensure that sound practices are being undertaken within them. This will lead to a vibrant financial system and protection of consumer rights in the process of receiving services (Mishkin, 2001). Financial system stability and all the risks that may rise in the market are contained not to destabilise the whole economy. Lastly, it is in charge of providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation's payments systems (Moen, 2003, pg. 12). The above account has indicated that when taking a comparison of the other two banks of England and US, the financial system of Australia is fairly performing. The other systems are doing much better that that of the Bank of Australia. The way they have been able to manage the economy in their various countries compared to the Australian economy we can say the other two have been a success to a given extent. The power and legislation that has been done to the other two are such that they are given more power to influence the economy as compared to the Reserve Bank of Austria. References Gregory, R. G., & Hunter, B. (1995). The macro economy and the growth of ghettos and urban poverty in Australia (No. 325). Centre for Economic Policy Research, Research School of Economics, Australian National University. Hossain, A. A. (2009). Central banking and monetary policy in the Asia-Pacific. Edward Elgar Publishing. Kim, S. J. (2008). The reaction of the Australian financial markets to the interest rate news from the Reserve Bank of Australia and the US Fed.Research in International Business and Finance, 22(3), 378-395. Linklater, J. (1992). Inside the Bank: The Role of the Reserve Bank of Australia in the Economic, Banking, and Financial Systems. Allen & Unwin. Moen, J. R., & Tallman, E. W. (2003). New York and the politics of central banks, 1781 to the Federal Reserve Act. Mishkin, F. S. (2001). The transmission mechanism and the role of asset prices in monetary policy (No. w8617). National bureau of economic research. Siklos, P. L. (2002). The changing face of central banking: Evolutionary trends since World War II. Cambridge University Press. Read More