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The Reserve Bank of New Zealand

The Reserve Bank of New Zealand

The Reserve Bank of New Zealand is New Zealand's central bank and has three main functions. As set in the Reserve Bank of New Zealand Act 1989, these are:

* operating monetary policy to maintain price stability;
* promoting the maintenance of a sound and efficient financial system; and
* meeting the currency needs of the public.

At the most basic level, the Reserve Bank ensures that people can buy and sell goods and services using money, instead of having to barter. Part of this involves providing currency. Cash is physically issued to the public by commercial banks, but they in turn must buy their cash from the Reserve Bank.

The Reserve Bank also ensures that money retains its buying power. The Bank guards against inflation or deflation by adjusting short-term interest rates to match demand in the economy to economic capacity. This process is known as `monetary policy'.

Money retaining its value - also known as price stability - protects the value of people's incomes and savings. Monetary policy, in itself, can't generate faster sustainable economic growth, but, by delivering price stability, it helps set a predictable background environment against which businesses and households can make the most effective decisions and by that contribute to maximising sustainable economic growth for New Zealand.

Monetary policy aimed at price stability also helps reduce boom-bust business cycles. When the economy falters inflationary pressures fall and interest rates can be lowered, which encourages the economy and employment to grow again. Conversely, the Reserve Bank increases interest rates when the economy risks getting over-heated.

Another duty is to screen and, where appropriate, register banks and to supervise the banking system. In addition, banks hold accounts with the Reserve Bank that they use to make payments to each other, on behalf of their customers. The Reserve Bank also oversees and operates in financial markets, with the objective of maintaining market stability and confidence.

The Reserve Bank manages the country's foreign exchange reserves, offers registry and depository services, and provides the secretariat for the Overseas Investment Commission. When the Government wants to borrow in New Zealand dollars, the Reserve Bank raises the funds on behalf of the Treasury, by selling bonds and Treasury bills.

The Reserve Bank employs just under 200 staff.

Right: The Reserve Bank's offices, No. 2 The Terrace, Wellington

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