Little more than a year after I became Governor of the Reserve Bank in 1988, the Reserve Bank of New Zealand Act 1989 was passed. Most people who know anything about the Reserve Bank think that that legislation was about giving the Bank operational independence and requiring it to focus monetary policy on delivering price stability. And of course it was.
But it was about much more than that. Central banks generate seigniorage income – the income arising from the investment of the funds raised by issuing bits of paper (now polymer in New Zealand’s case of course) which everybody accepts as money – and historically the Reserve Bank, like other central banks, used that income to finance its ongoing operations. Any money “left over” after providing – often generously – for the payment of staff wages and salaries, the provision of comfortable offices, and all the rest typically went to the government as a dividend.
In the course of drafting the legislation, the government argued that the Reserve Bank should be subject to more Parliamentary scrutiny about the way in which that seigniorage income was spent, not least because it was the Crown’s backing of the central bank which gave “money” its universal acceptability. At one point, it was suggested that the Governor should seek Parliamentary approval annually for how much of the seigniorage income the Bank could spend.
We argued successfully that requiring the Governor to go cap in hand to the Minister of Finance every year for the money to operate the Bank would run the risk of undermining the operational independence which the legislation was designed to provide, so in the end it was agreed that the Governor and the Minister should negotiate how much the Bank could spend on its operations once every five years.
My first negotiations were with the then Minister of Finance, David Caygill. The Bank’s budget for its operations in the year to June 1990 was $56.7 million (a small reduction on spending in the immediately preceding years), and the Minister said he would allow us to increase that total by just 1% per annum for the following five years. I protested that that was too tough, given that inflation was still running well above that level, and we weren’t even meant to get inflation down to the target of 0 to 2% for another two years. The Minister was adamant, and said that a 1% annual increase was appropriate as the mid-point of the inflation target.
Unfortunately, that already-tough target was not ratified by Parliament before the election in 1990, so that I soon found myself dealing with a new Minister of Finance, Ruth Richardson. Ruth said she was not prepared to agree to any annual increase in the money we could use to fund our operations – $56.7 million per annum was to be the limit for the next five years. She pointed out that she was agreeing to no increases in the budgets for government departments. I pointed out that that was different – those were annual budgets, and what we were talking about for the Bank was a five year budget. Alas, she was adamant.
Suddenly, the Bank was faced with the need to become substantially more efficient, and to look carefully at every cost. One of our biggest costs, of course, was the printing of bank notes, which had traditionally been done by Thomas de la Rue. As was common in other central banks not producing their own bank notes, we had always negotiated a price for that printing with de la Rue, and were confident that we were getting a very competitive price.
But with the new funding constraint, we approached de la Rue and advised them that henceforth we would need to put our note printing out to competitive tender. You can’t do that, we were told, because we (de la Rue) own the copyright on the design of the New Zealand bank notes!
So I decided it might be a good time to change the designs on our notes. And of course, the rest is history. De la Rue won the tender to continue supplying our notes, but without owning the copyright on the notes and at a substantially lower cost per note than we’d previously had to pay.
We conducted an informal survey of public opinion on whether we should keep the Queen on all our notes, some of the notes, or none of the notes. Opinion seemed to be pretty evenly divided, so in the end I decided to keep Her Majesty’s portrait on the $20 note (the most widely used note), and put portraits of great New Zealanders on the other four notes.
Then the challenge was to decide which New Zealanders. It is a universal convention that only the portraits of people who are already dead, or who are the reigning head of state, should appear on a bank note, presumably so that the central bank doesn’t later regret using the portrait of somebody who subsequently does something which causes embarrassment. So the challenge was to identify four dead New Zealanders who were sufficiently distinguished to warrant appearing on our notes.
Early on, I decided there should be one male Pakeha, one female Pakeha, one Maori (of either gender), and one sportsperson, of either gender and any race.
Choosing the male Pakeha was relatively easy – Lord Rutherfurd was, at that time, our only Nobel prize winner. Choosing the female Pakeha was also pretty easy – the $10 note was being issued in 1993, the centenary of New Zealand’s becoming the first country in the world to give women the vote, and Kate Sheppard was the acknowledged leader of the movement to achieve that objective.
I thought choosing a Maori would be difficult – there were a number of contenders, male and female, and I was very conscious of the rivalry between iwi. But in the end, Apirana Ngata was universally acceptable.
The real challenge was finding a dead sportsperson. There were plenty of strong contenders still living, such as Richard Hadlee and Susan Devoy. But they had to be dead. In the end, I decided to ignore the international convention and choose Sir Edmund Hillary. He was not only an extraordinary sportsman of course, he was also a great adventurer, a distinguished emissary for our country in the Indian sub-continent, a generous philanthropist, and probably also a person better known outside New Zealand than any other New Zealander before or since. I’ve never had cause to regret the decision.
Copyright © 2024 Don Brash.