The always impressive Richard Lindell at the ABC has pulled together a fascinating segment on the RBA Board's decision-making processes. I have previously written about this at great length here and here.
To be clear, I am a big fan of the RBA’s capabilities. Between my Goldman Sachs and Cambridge University days I worked there for a short time, and you could not find better people anywhere. They have the best economic horsepower going around, no doubt. But Lindell does raise many legitimate questions, which I would quickly summarise as follows:
1) Why doesn't the RBA have an independent Chairman (as opposed to the current situation where the Governor is effectively CEO and Chairman—a situation that would be frowned upon in any listed company)?
2) Why doesn't the RBA have professional economists on its Board like peer central banks in the UK, US and Europe?
3) Why are capital markets moving billions of dollars worth of money around on the basis of the writings of key journalists who are presumed to possess "inside information" about the conduct of monetary policy (note that the interbank futures contracts are listed on the SFE and therefore formally regulated by ASIC)?
4) Is the RBA executive pre-judging the Board's independent decision-making processes when it leaks information about its recommendations to the Board, as it is clearly accepted to do, prior to Board meetings?
5) In today's highly interconnected world, aren't there many better ways for the RBA to communicate to all market participants at the same time?
6) Is there really anything gained from an “expectations smoothing” perspective by having the RBA's management leak this information a few days prior to Board meetings (ie, surely participants are not going to be affected by waiting)?
7) And does anyone really believe that the RBA gets an edge having businessmen sit on its Board who purportedly give the RBA good insights when the RBA's senior management has the opportunity to interact with these same people any day of the week (ie, why do they also have to sit on the Board)?
Sadly for taxpayers, these questions will remain unanswered until either the RBA pro-actively reforms itself, which I think would be a smart (and simple) thing for it to do, or politicians eventually get around to doing it for them, which they inevitably will one day.
Well worth a viewing. (See also Stephen Kirchner's take here).
