History of Australia's Central Bank
History of Australia's Central Bank
Origins of the Reserve Bank of Australia
The origins of the Reserve Bank of Australia – the nation’s central bank – can be traced back to the creation of the Commonwealth Bank of Australia in 1911. The Commonwealth Bank was established as a government-owned savings and trading bank. Over subsequent decades it progressively acquired more of the responsibilities of a central bank and these central banking powers were formalised in legislation at the end of the Second World War.
Over time, the organisation's central banking activities developed to the extent that warranted a separate body. This was also important from a governance perspective so that the Commonwealth Bank was not both a regulator and a competitor of other commercial banks. The Reserve Bank Act 1959 separated the commercial activities of the Commonwealth Bank from its central banking functions. The Commonwealth Bank would be renamed the Reserve Bank of Australia and would act as the nation's central bank. The newly created Commonwealth Banking Corporation would operate as a trading bank. The Reserve Bank of Australia commenced operations on 14 January 1960.
(We use the term ‘the Bank’ to refer to both the Reserve Bank of Australia and its predecessor, the original Commonwealth Bank of Australia, to capture the continuity of the nation’s central bank.)
Milestones in the Bank's History
In 1911, legislation established the Commonwealth Bank of Australia through the Commonwealth Bank Act. The Bank opened for business in 1912 under the Bank’s first Governor, Denison Miller. Although established as a commercial bank, it began to develop and evolve central banking activities and functions over time.
With the outbreak of war in 1914, one of the Bank’s first major roles was to implement a War Loan scheme in 1916, to raise funds on behalf of the Commonwealth Government towards the war effort. At the cessation of war, the Bank introduced Peace Loans to assist the Government with repatriation efforts and financial recovery.
In 1920, responsibility for the note issue was transferred from the Treasury to a Notes Board (consisting of four members, appointed by the Government). The Governor of the Bank was ex officio a member. The administration of the note issue was undertaken by the Bank, though the Bank and the Notes Board were formally independent of each other until 1924, when the Commonwealth Bank Act was amended and the Bank was given control over the note issue. From this time until 1945 (when there were major changes to the legislation), the Bank gradually evolved its central banking activities; initially in response to the pressures of the Depression in the early 1930s, and later in regard to WWII, when temporary expansion of its powers under wartime regulations was enacted. These included exchange control and a wide range of controls over the banking system (including authority to determine advance policy and interest rates, and to require private banks to lodge funds with it in special accounts).
The new Commonwealth Bank Act and the Banking Act, both of 1945, formalised the Bank's powers in relation to the administration of monetary and banking policy, and exchange control. Under this 1945, there ceased to be a board, which was replaced by an advisory council of six, comprising entirely officials from the Bank and the Treasury; the legislation specified that the Governor was responsible for managing the Bank. However, legislation in 1951 established a new board (at that time of ten members), including the Governor, Deputy Governor and the Secretary to the Treasury, and maintained the responsibility of the Governor for managing the Bank. With minor variations in the number of members, this has been the structure of the Bank's Board since that time.
By 1959, the Bank had sufficiently developed its central banking functions for these to be separated from its commercial activities. The Commonwealth Bank was preserved as the Reserve Bank of Australia (RBA) in legislation (the Reserve Bank Act 1959), specifically to carry on the central banking functions that had been developing within the Bank over time. The Reserve Bank Act 1959 took effect from 14 January 1960, and established the RBA as Australia’s central bank. At that same time, the commercial and savings banking functions were transferred into a new institution, the Commonwealth Banking Corporation; known today as the Commonwealth Bank of Australia.
For more details, see the Explainer: Origins of the Reserve Bank of Australia.
1910: Legislation is passed by the Australian Government to create a national system of paper currency in Australia.
1911: The Commonwealth Bank of Australia is created as a government-owned trading and savings bank.
1913: The Commonwealth Treasury begins printing the first purpose-designed Australian banknotes.
1914–18: The Commonwealth Bank raises loans for the Australian Government to fund military spending in the First World War and manages resettlement, retraining and housing schemes for returned servicemen.
1920: The responsibility for banknote issue is passed from the Commonwealth Treasury to the new Australian Notes Board. The Board was chaired by the Governor of the Commonwealth Bank and was administered by the Commonwealth Bank.
1924: A Board of Directors is created for the Commonwealth Bank.
1924: The Commonwealth Bank takes full responsibility for the issue of Australia's banknotes from the Treasury and the Australian Notes Board is abolished.
1927: The Commonwealth Savings Bank gains separate legal status, but remains a part of the Commonwealth Bank.
1930: Treasurer EG Theodore tables legislation to create a ‘Central Reserve Bank’ for Australia. The bill passes the House of Representatives but fails to pass the Senate.
1939–45: The Commonwealth Bank raises loans to fund the war effort and closely advises the government on wartime economic policy.
1945: The Commonwealth Bank Act 1945 and Banking Act 1945 are passed, giving a legislative basis to the central banking roles and functions that the Commonwealth Bank had assumed over previous decades.
1953: The Commonwealth Trading Bank is given a separate legal status, leaving the remaining entity – the Commonwealth Bank – as the nation's central bank.
1959: The Reserve Bank Act 1959 is passed, which separates the Commonwealth Bank's central banking functions from its commercial banking activities. The Commonwealth Bank is renamed the Reserve Bank of Australia and is constituted separately from the newly created Commonwealth Banking Corporation.
1960: The Reserve Bank of Australia commences operations as Australia's independent central bank. The Reserve Bank Board, chaired by the Governor of the Reserve Bank, has responsibility for conducting monetary and banking policy so as to best contribute to: stability of the currency; maintenance of full employment; and the economic prosperity and welfare of the people of Australia.
1991: The Commonwealth Banking Corporation is privatised and becomes known as the Commonwealth Bank.
1998: The Reserve Bank's banking supervision function is transferred to the newly created Australian Prudential Regulation Authority (APRA).
1998: The Payments System Board is created with the Governor of the Reserve Bank as Chair. Its responsibility is to determine the Reserve Bank's payments system policy. It exercises this responsibility in a way that will best contribute to controlling risk in the financial system; promoting the efficiency of the payments system; and promoting competition in the market for payment services, consistent with the overall stability of the financial system.