Reserve Bank of Australia Annual Report – 1985 The Bank's Services

The Bank's services to the community are provided substantially through its branches. The main services are cash supplies, including currency issues, registry facilities for Commonwealth loans and banking facilities to the Commonwealth and several State Governments. The Bank's branches also perform an important liaison function with the financial and business communities. This helps keep local communities informed about the Bank and its policies and provides valuable ‘feedback’ to the Bank.

Technical improvements introduced at branches in 1984/85 included:

• new cheque processing equipment installed at Darwin Branch, following establishment of a branch of the Australian Clearing House at Darwin; and
• high-speed currency verification, counting and sorting machines in operation in Adelaide and Perth branches (similar machines are operating at Sydney, Melbourne and Brisbane branches). These machines process and authenticate used notes and sort out and destroy unfit notes. They are of considerable assistance in the Bank's continuing programme to improve the general standard of notes in circulation.

Banking Operations

The Bank is the principal banker to the Commonwealth Government, the governments of four of the States and the Northern Territory. Other customers include Australian banks, overseas central banks and international organisations, clients of the Bank's Rural Credits Department and authorised dealers in the short term money market.

In its capacity as banker to government, the Bank's branches paid approximately 81 million cheques during 1984/85 – about 15 per cent less than in the previous year. Most of these cheques were regular welfare payments made by the Commonwealth Government. The reduction in volume reflects the Government's decision to credit welfare payments, where possible, directly to beneficiaries' accounts with banks and other financial institutions.

During the year, banks changed the arrangements for the exchange of payment information held on magnetic tapes. Prior to December 1984, the banking system's Central Magnetic Tape Exchange facility processed these tapes and returned the relevant payment information to the individual banks. Under new arrangements, referred to as the Direct Entry System, each bank processes the tapes lodged by its own customers. Entries to accounts at other banks are then made, either by bilateral exchange of processed tapes between banks or by passing vouchers through the inter-bank clearing system. The Bank is a participant in the Direct Entry System.

The Bank also joined the Austraclear system in 1984/85. This system handles computerised dealings in money market securities between members. The Bank's participation enables its customers to use the system.

Note Issue and Cash Operations

The community's demand for currency rose further in 1984/85. The value of notes onissue at me end of June 1985 was $8,234 million, 13.8 per cent higher than a year earlier; in 1983/84 the rise was 12.8 per cent. Demand for the $100 note (first issued in March 1984) continued to grow strongly and, at the end of June, $50 and $100 notes together accounted for 61 per cent of the value of notes in circulation.

The $1 coin, first issued in May 1984, obtained community acceptance. A total of 194 million $1 coins were on issue at the end of June 1985 compared with 96 million $1 notes on issue when the new coin was introduced. About 53 per cent of the $1 notes have since been withdrawn from circulation. Adequate supplies of $1 coins are now available. In the early stages of the changeover, demand had exceeded mintings; this resulted in heavier demand for other denominations of coin, in particular, the 50 cent piece. While withdrawal of $1 notes has not led to a significant increase in the demand for $2 notes, there has been a substantial reduction in the public's holdings of 20 cent coins since the introduction of the $1 coin.

Coin is produced by the Royal Australian Mint and distributed by the Bank. During the year, the Bank issued to banks 2,586 million coins of all denominations, about 11 per cent lower than in the previous year. Coin returned by banks totalled 2,302 million pieces, about 6 per cent lower than in the previous year. The resulting net issue of 284 million pieces was 38 per cent lower than in 1983/84.

Processing and wrapping coin for re-issue continues to be a costly service. The Bank now charges banks for wrapping all coins except $1 coins.

About 460 million Australian notes were produced at the Bank's Note Printing Branch at Craigieburn, Victoria, compared with 430 million pieces the previous year. Some 30 million items of other security printing were also produced there.

The Bank maintained a keen interest in technological developments which may improve the security and production of currency notes.

Commonwealth Government Securities

The Bank plays an important role in the market for Commonwealth Government securities. The Registries of Inscribed Stock at each Australian branch handle the issue and redemption of Australian Savings Bonds, Treasury bonds and Treasury notes. They maintain the records of registered owners of stock, make interest payments and provide facilities for holders to transfer and exchange their securities. All these services will extend to Treasury indexed bonds following their introduction, expected early in 1985/86.

At end June 1985, the face value of Commonwealth Government securities on issue at all Australian Registries was $44,624 million.

During the year the Government announced some important changes to the terms on which Commonwealth Government securities are issued. Bearer securities, which were an option for issues prior to 2 July 1984, are not available for issues after that date. All Commonwealth Government securities are now issued as inscribed stock only. Also in July 1984, a variation was made to the terms of issue for Australian Savings Bonds. To reduce the extent of early redemption, the initial period, during which a penalty interest rate applies, was extended from three to six months. The margin between the penalty rate and the full interest rate entitlement was also widened. In September 1984, the Government removed the longstanding ‘30/20’ rule which encouraged life offices and some superannuation funds to hold certain proportions of their assets in Commonwealth and other public securities.

Stock transfer facilities provided by Registries are a vital link in the secondary market for Treasury notes and bonds. During 1984/85, there was a substantial increase in the volume of bonds bought and sold in the market. Total recorded sales were $80 billion, an increase of 49 per cent over 1983/84. Arrangements made during the year greatly improved the speed of stock transfers between Registries. It was also possible to streamline the processing of bids lodged at branches for tenders of bonds and Treasury notes. This allowed an earlier announcement of bond tender results.

A rediscount facility is available at the Bank to all holders of Treasury notes due to mature within 90 days. The Bank purchases these securities at a discount rate which is available on enquiry. Treasury notes re-discounted are normally within a few days of maturity.

A special purchasing facility is also provided at each branch for small parcels of bonds. The Bank is willing to buy bonds up to $25,000 face value from each seller on a day, at market-related prices. This facility is much used. Bonds aggregating $11.7 million were bought under these arrangements during the year. The Bank makes a charge of 25 cents per $100 face value for this service.

Development of a new computerised system for the Registries is nearing completion. Installation is expected to commence in 1985/86.

Rural Credits

Seasonal conditions were favourable for most rural industries during 1984/85 but commodity prices on international markets remained generally depressed. Export proceeds in terms of Australian currency were boosted in the second half of the year by the decline in the Australian dollar.

A number of marketing boards and rural co-operatives which had previously borrowed from the Rural Credits Department were able to obtain all or some of their borrowing requirements from other financial institutions. On the other hand, some customers needed finance to market production at or near record levels.

Rural credits advances outstanding peaked at $347 million in July 1984, compared with a March peak of $406 million during the preceding year. The decline in the number of borrowers caused a change in the seasonal pattern of advances. At the time of the traditional peak level of advances in February/March, advances were less than half of their level a year earlier. In contrast, growth in the September and June quarters was strong relative to the total for the year.

Interest rates on advances by the Department were within the range 14.25 per cent to 16.00 per cent at the start of the year. In line with market movements over the year, rural credits rates were first lowered in two steps of half a percentage point then raised progressively in the six months from late December. At the end of June 1985, interest rates were in the range 17.25 per cent to 19.00 per cent.

Research Grants

Requests for grants from the Rural Credits Development Fund for promotion of primary production, including agricultural and pastoral activities, fishing and forestry, again exceeded available resources. Sixty grants totalling $2.4 million were approved from the Fund in 1984/85 for projects to be undertaken over the next three years. This included a grant of $348,000 to assist research into the application of electronics to the management of animal production. Other notable projects for which grants were approved related to research on the genetic control of the sheep blowfly, biological control of bracken fern, and development of the date palm, cashew nut and Tasmanian scallop industries.

The Bank also makes grants from its Economic and Financial Research Fund for post-graduate research into economic and financial topics relevant to the Australian economy. During the year, $225,000 was allocated for this purpose from the Fund.

Information Services

The extensive changes which have been taking place in the Australian financial system have led to heavy demands by the community for additional information. The Bank has responded in several ways:

• since May, it has provided with its daily estimate of the ‘Money Market Cash Position’ an indication of the Bank's dealing intentions in the money market. It also publishes figures for forthcoming maturities of Commonwealth Government securities and daily volumes and prices of bond transactions by reporting dealers, and provides a weekly summary of its domestic market operations and details of major factors likely to influence the availability of funds in the market over the period immediately ahead; and
• it has also increased its commentaries on issues of monetary policy. These are provided largely through public addresses by senior officers and special articles in the Bank's monthly Bulletin. The range of statistical information provided in the Bank's Bulletin was also expanded in 1984/85.

Other material issued during the year included a paper describing the Bank's operations in domestic money and securities markets; three papers on aspects of banking supervision; the annual Company Finance and Financial Flows supplements to the Bank's Bulletin; and a number of Discussion Papers outlining economic research carried out in the Bank's Research Department.

The Bank continued its regular meetings with representatives of financial groups. Efforts to reach a wider audience also continued. Senior officers visited tertiary institutions and groups of school teachers and students visited the Bank's offices for talks on basic monetary economics.