This week the Senate held hearings into the proposed changes to the way the RBA works. The original review was led by three Technocrats included a recommendation to remove the overrule power. This power specifically, section 11 of the Reserve Bank Act 1959 enables the federal treasurer to “overrule” an action taken by the Reserve Bank in extreme situations, via a clear and determined process, and even though no Australian government had used it in the more than 60 years it is important. It’s supposed to be a democratic fail-safe.
The Technocrats recommended the overrule power should be removed from the act. Their reasoning was that there was a risk that the federal treasurer, and by extension the federal government, might abuse that power. But what if the RBA abuses their power? The proposed change was not supported by the bulk of those who appeared in the Senate hearings, so today we look at the evidence provided.
At the heart of the issue is this. How accountable should the RBA be? And if there is no democratic override from the section 11 power, what happens if the Economists at the RBA set monetary policy in a way that badly impacts ordinary people, bearing in mind that another recommendation was to strike safeguarding the “welfare of all Australians” from their objectives. The focus will be on inflation and employment, only.
Central bankers are not infallible, sometimes makes mistakes, and frankly are already not accountable for their decisions, right or wrong. It’s a question of democracy.
So standing back, it seems it was the Technocrats and Economists who wanted to remove the section 11 power, but those with real lived experience, from both the Central Bank, and Government, as well as many respected observers, all agree.
Democracy would be sacrificed, and the Central Bank would be even less accountable if the power was removed. In other words, it is a question of democracy. And more broadly the idea of unelected Central Banks, being able to impose monetary policy decisions without question should terrify us all.
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