Reserve Bank of Australia Annual Report – 1990 The Bank's Accounts

Commentary

The Bank's financial statements for 1989/90, together with explanatory notes, are set out in the following pages. The Reserve Bank Act no longer requires a separate set of accounts for Note Issue Department. The single set of accounts is fully comparable with the consolidated statement from 1988/89. Also, as the Reserve Bank Act no longer requires certain unpresented currency notes to be shown separately from Australian Notes on Issue, the balance of $48 million in the “Provision for Notes Not Presented” has been transferred to Australian Notes on Issue. As a separate but related matter, the Bank has determined that $35 million of pre-decimal currency notes have been destroyed and cannot be presented for value; this amount has been credited to profit and loss account. There were no other significant changes to the Bank's accounting arrangements or policies during the year.

Note 2 shows that the Bank's net operating earnings were $1,095 million in 1989/90, compared with $417 million in the previous year. The higher result reflects the fact that there were small net gains from trading in currencies and securities rather than the substantial losses incurred in 1988/89, a turn-around of $520 million. Higher interest returns on foreign securities were the other major factor. Earnings also include the credit of $35 million mentioned above (see Note 1(f)).

Movements in exchange and interest rates during the year reduced the value of the Bank's investments and foreign currency holdings to $199 million below cost. That amount was charged against provisions maintained specifically to cover against the effects of market risks. The Treasurer approved, under section 78 of the Reserve Bank Act, the transfer of $500 million from 1989/90 earnings to bolster these provisions (see Note 5). The Treasurer also approved a transfer of $20 million to the Provision for Building Repairs and Maintenance and $6 million to write off premises.

After these transfers, the Bank's net profit in terms of the Act for 1989/90 was $575 million. This is all payable to the Commonwealth. An interim payment ($300 million) was made in June 1990 and the remainder will be paid in August.

The Bank's balance sheet increased by $0.3 billion to $24.9 billion between June 1989 and June 1990. Significant changes in the components are set out below.

On the liabilities side, capital and reserves fell by $0.5 billion, due to effects on revaluation reserves of the marking down of gold and foreign exchange holdings. Australian currency notes on issue rose by $635 million (5.1 per cent), much less rapidly than in other recent years. Non-callable Deposits of banks continued to fall ($0.5 billion) under agreed arrangements. On the other hand, banks held more funds in fixed deposits (+$0.4 billion). Commonwealth Government balances declined by $0.6 billion. Other liabilities include a substantial end-year accrual ($155 million) for interest which was paid in early July on banks' Non-callable Deposits (see Note 7).

Major changes in assets were confined to gold, foreign exchange and Commonwealth Government securities (CGS). Gold declined by $0.3 billion through valuation effects; foreign exchange holdings rose by $1.8 billion, the net result of income earned ($1.2 billion), net purchases ($0.9 billion) and valuation effects (−$0.3 billion); and CGS fell by $1.3 billion, with a significant part of the change resulting from market operations at the end of the year (see Note 1(c)).