Central Bank

Question 1

What is Central Bank

Answer 1

Central Bank is a financial institution that serves as a back bone of the countries policy. Its primary responsibility is controlling money supply, managing currency, regulating commercial bank, often overseeing monetary policy.
Central Bank has a crucial role in maintaining price stability, economic growth and the overall stability of the financel system

Question 2

1. Establishment

Answer 2

The Reserve Bank of Australia was established through the act of Australia Parliament. Before that, it was handled by the Commonwealth Bank of Australia.

Question 3

2. Independence

Answer 3

RBA operates independently of the government to make monetary policy without political interference. Its independence is crucial for its ability to focus long term economic stability

Question 4

3. Monetary policy

Answer 4

RBA is responsible in formulating and implementing the monetary policy. Its main objective is to target 2-3 percent inflation rate over medium term. To achieve this, it set a official cash rate, which influences the interest rate throughout the economy

For example: if the RBA observes the inflation rate rising above its target. It will increase the official cash rate which raises the interest rate. Making the businesses or individual borrowing less money. Which will help to curb the inflationary pressures

Question 5

Currency issurance

Answer 5

RBA is an exclusice issuer of the countries banknotes and coins. It manages the designs, production and distribution of the physical currency and ensures its integrity and security

History: in 1966 RBA was responsible as exclusive issuer to design, product, and distribute Australian Dollar. Before that it was Australian Pound

Question 6

Banking regulation

Answer 6

Although banking watchdogs often is overseen by Australian Prudential Regulation Authority. RBA collaborates with APRA to manages addresses systemic risk in financial system and contribute to economic stability

For example: if the bank do risky things such as lending recklessly to the people cannot afford to repay. The RBA and APRA will step in and ensures the bank do the right thing

History: In the fincial crisis 2008, the APRA plays a crucial role in supervising and regulation banks to ensure their stability. APRA implemented stress test, increased capital requirements and closely monitored financial health of the banks to prevents banking crisis in Australia

Question 7

Economic research

Answer 7

RBA conducts extensive research and analysis to gain deeper understanding of the domestic and global economic especially in the realms of monetary policy

For example: RBA has a look at things like how many people have jobs, how much the spending and whether prices go up or down. This helps them to decide what to do with the interest rate.

Question 8

Financial Market operations

Answer 8

RBA manages Australia’s foreign exchange reserves and conduct operations in financial market to implement monetary policy effectively. The operation can include the buying or selling of the financial assets to influence the money supply and interest rate.

For example: During financial crisis, RBA might buy government bond and lend money to the banks to keep the financial system from falling apart. This helps to keep our money safe and helps economy stable.

Question 9

Governance

Answer 9

RBA is governed by a board, which led by Governor of the reserved bank, as its CEO. It consists of the member within the bank and external members appointed by the goverment. It plays a crucial role in decision making processes which included those related to interest rate and monetary policy.