December 2019

Australian Economy The spines of some old books on a shelf.
Photo: Reserve Bank of Australia

Being Unreserved: About the Reserve Bank Archives

Virginia MacDonald and Jacqui Dwyer

The Reserve Bank of Australia has a unique and rich archives. In addition to records about the nation’s central bank, the archives contain records about Australia’s economic, financial and social history over almost two centuries. The extent of the collection reflects the Bank’s lineage, with its predecessor (the original Commonwealth Bank of Australia) having absorbed banks with a colonial history. Consequently, the Bank’s archival collection spans convict banking records through to information about contemporary episodes in Australia’s history. This article explains why the archives exist, how they are managed and plans to make them more accessible to the public.

Global Economy A map of the world.
Photo: John M Lund Photography Inc – Getty Images

How Do Global Financial Conditions Affect Australia?

David Jacobs

Australia is closely integrated with global capital markets. This integration has been of benefit to the economy, but also means that Australian financial conditions are influenced by developments abroad. The flexible exchange rate regime partially insulates the economy from global financial conditions. In particular, that flexibility means that monetary policy in Australia does not need to move in lock step with policies of the major central banks. However, to meet its objectives for employment and growth, the Reserve Bank can choose to offset pressure on the exchange rate from shifts in foreign monetary policies. Indeed, for much of the past decade or so, forces underpinning the structural decline in global risk-free rates have placed downward pressure on interest rates offshore and in Australia. International investors’ willingness to take risk also has an important bearing on domestic financial conditions.

financial stability, capital, markets, monetary policy
Payments Rolled-up banknotes, coins and desktop calculator are sitting on a desk.
Photo: Parinda Yatha – Getty Images

A Cost-benefit Analysis of Polymer Banknotes

Max Wakefield, Luc Delaney and Richard Finlay

Australia was the first country to issue a full series of polymer banknotes, completed over 1992–96. After 25 years, issuance of the second generation of polymer banknotes is well advanced. It seems appropriate, therefore, to revisit the financial savings resulting from the switch to polymer. Employing a cost-benefit analysis framework, we find that the switch to polymer has resulted in net savings of close to $1 billion over the past 25 years in inflation-adjusted terms. This does not take account of the benefits of reduced counterfeiting, which have also been substantial and were the original motivation for switching to polymer. We also discuss cost savings arising from outsourcing banknote distribution to the private sector, as well as seigniorage income which accrues from banknotes on issue and which ultimately flows to the Australian Government as non-tax revenue in the form of the dividend payment from the Reserve Bank.

banknotes, counterfeit, security features, modelling
Global Economy The illuminated evening skyline of Hong Kong with rice fields in the foreground.
Photo: Photographer is my life – Getty Images

Long-term Growth in China

Ivan Roberts and Brendan Russell

Slowing trend growth in China, and the risks around this trajectory, are relevant to the future economic prospects of its major trading partners, including Australia. This article provides a long-term perspective on growth in China, beginning with a review of historical trends. It then examines the drivers of growth since reforms were introduced in the late 1970s and how these drivers are affecting the growth outlook. The article concludes that a range of structural headwinds will constrain growth in the coming decade, posing challenges for policymakers.

china, trade
Global Economy An early evening view of a Japanese city with Mount Fuji in the background.
Photo: yongyuan – Getty Images

Potential Growth in Advanced Economies

Ivailo Arsov and Benjamin Watson

Potential growth is the rate of growth that an economy can sustain over the medium term without generating excess inflation. Potential growth has declined in the advanced economies in recent decades due to lower growth in the labour force, capital stock and productivity. Current projections and long-term growth expectations suggest that the low rates of potential growth in advanced economies will persist for some time.

international, forecasting, labour market
Financial Stability Banknotes of many countries overlay and form a kind of carpet.
Photo: jayk7 – Getty Images

The Nature of Australian Banks' Offshore Funding

Kellie Bellrose and David Norman

Australian banks access large and deep foreign funding markets to supplement their domestic funding. Looking at the major banks’ worldwide operations, such offshore funding accounts for about one-third of their assets. This funding is raised in a variety of ways, across several countries and by various entities within the banking groups. While offshore funding can create vulnerabilities, these are appropriately mitigated by various factors. It would nonetheless be desirable for banks to continue to lengthen the maturity of their offshore debt securities.

funding composition, banking, bonds
Global Economy An A-shaped illumniated building dominates the skyline of a city at night.
Photo: ispyfriend – Getty Images

Conditions in China's Corporate Sector

Joel Bowman

Revenue and profit growth have slowed in China’s corporate sector in recent years, alongside a broader moderation in China’s economic momentum. The slowdown has been most severe for labour-intensive private companies, particularly export-oriented manufacturing firms. The government has responded by announcing a range of measures aimed at easing financial conditions faced by the private sector. Earlier efforts by the Chinese authorities to reduce risks in China’s financial system appear to have been successful in stabilising leverage in the state-owned sector, but the financial position of private sector firms is more fragile, and risks remain elevated in the real estate industry.

china, business
Finance Financial numbers flash on an outside display with pedestrians and traffic going past.
Photo: Nikada – Getty Images

Developments in Foreign Exchange and Over-the-counter Derivatives Markets

Julie Guo, Dushan Ranasinghe and Zhan Zhang

Global activity in foreign exchange (FX) and over-the-counter (OTC) derivatives markets increased over the three years to April 2019. Continuing a trend observed over prior years, growth in turnover of foreign exchange derivatives outpaced growth in spot market activity. Trading between dealers and other financial institutions accounted for a larger share of market activity than trading between FX dealers.
The Australian dollar remained the fifth most traded currency globally, although the volume of FX trading activity in the Australian market was little changed. Over the past three years, the growth of global and Australian OTC derivatives markets has been driven by interest rate derivatives.

forex, markets, derivatives

The graphs in the Bulletin were generated using Mathematica.

ISSN 1837-7211 (Online)