The Reserve Bank is squandering billions of taxpayer dollars buying back our own Government bonds from private banks when it does not need to. Now we find that this money-go-round had a real cost—$8 billion and counting, says Positive Money national spokesperson Don Richards.
“And to further rub our noses in it, the main beneficiaries of that $8 billion are the banks and financial speculators who have been announcing huge profits,” says Mr Richards.
“Meanwhile, we are told that there is insufficient money to fund the pay demands of our nurses, sort out our mental health system and fix our failing infrastructure.”
“A bureaucratic bungle of this magnitude would normally elicit calls for heads to roll,” says Mr Richards.
But instead, the issue has been buried in opaque bureaucratic language and neither the public nor most politicians understand what has happened and what alternatives were on the table, he says.
An independent enquiry is the only way to investigate the Reserve Bank’s epic $8 billion-plus loss, says Mr Richards.
“The Government was sold on this faulty scheme by its Reserve Bank and Treasury advisers so it is not credible to have them involved in any evaluation,” he says. But the scale of losses and the likelihood they will get worse means this should not be swept under the carpet.
There were alternatives ready to go which would not have exposed taxpayers to this entirely predictable loss, says Mr Richards. That includes direct financing which was the subject of Positive Money’s recent petition and could have been implemented in moments with a simple overdraft facility.
Richards says the Government does not need to buy back its own bonds from the Reserve Bank as the Reserve Bank could keep them until they matured. This way the Government will be paying interest which it gets back through the Reserve Bank’s profits. The private banks would not touch a cent of taxpayers’ money.
This may sound too good to be true but the practice was confirmed by the Reserve Bank’s former Chief Economist Yuong Ha in the NZ Herald on August 14th 2020 who said, “We create money … which is what central banks do, and have always done, but we then exchange it for assets [government bonds] and those sit on our balance sheet.”
When those bonds matured the Reserve Bank could simply have written them off, says Richards.
The independent and unelected Reserve Bank has decided in its wisdom to take billions out of taxpayers’ pockets and transfer it directly into the pockets of the shareholders of private banks, large institutional investors, and overseas pension funds. This goes against the Reserve Bank’s stated purpose of “enabling economic wellbeing and prosperity for all New Zealanders”.