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Context: central bank, monetary policy, reserve requirements, Australia

The Reserve Bank of Australia (RBA) is Australia's central bank. Established in 1959 by the Reserve Bank Act, the bank now assumes the central bank role from the Commonwealth Bank (at the time a government-owned bank, but has since been privatised). Additional powers were given to it by the Banking Act 1959 and the Financial Corporations Act 1974.

The object of the Bank is stated in the Reserve Bank Act (as amended), subsection 10(2):

It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank under this Act and any other Act, other than the Payment Systems (Regulation) Act 1998 and the Payment Systems and Netting Act 1998, are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:
(a) the stability of the currency of Australia;
(b) the maintenance of full employment in Australia; and
(c) the economic prosperity and welfare of the people of Australia.

Until the early 1980s, the banking industry in Australia was heavily regulated by the Reserve Bank. Over this time, the Bank has set various reserve requirements that trading and commercial banks in Australia must comply to retain the banking licence.

Since the 1980s, however, banking supervision has been heavily deregulated. Maintenance of adequate capital and liquidity has now been largely the responsibility of the banks themselves. The RBA now attempts to manage the risks that are inherent in the financial system, to ensure that should shocks to the financial system occur, they would not significiantly destabilise the entire system.

Other central bank roles of the RBA include:

  • Monetary policy, involving the use of open market operations in the market of Commonwealth Government securities to set its target cash rate.
  • Payments systems. The RBA is responsible for maintaining and improving the efficiency of the payments system, including notes and coins, cheques, credit cards and ATMs.