Front Matter Page

Monetary and Exchange Affairs Department

Table of Contents

• Summary

• I. Introduction

• II. Organizational Transformation at the RBNZ

  • 1. Historical background

  • 2. Pressures for change

  • 3. Opening moves

  • 4. The “Middle Game”

  • 5. Culmination

  • 6. Effectiveness and efficiency achievements

  • 7. Special factors?

• III. Applying Business Management Concepts

  • 1. Reorientation of the Institution

  • 2. Management mechanisms

  • 3. Internal impacts

• IV. Conclusions

• References

• Appendix I. Statutory Accountability of the RBNZ

• Appendix II. Output Accounting

• Appendix III. RBNZ Income and Expenditure

• Appendix IV. Trends in RBNZ Operating Expenses, 1990-94

• Charts

  • 1. RBNZ 1988 Organization Chart

  • 2. RBNZ 1991/1992 Organization Chart

  • 3. Relationships Between Functions and Departments—1992

  • 4. RBNZ Total Staff Numbers—1988-92

  • 5. RBNZ Operating Expenses—Five Year Summary

  • 6. RBNZ Line Managers 1988: What Happened?

  • 7. RBNZ Line Managers 1991: Where from?

Summary

This paper examines the fundamental transformation of the management of the the Reserve Bank of New Zealand (RBNZ) from 1988 to 1993. As part of New Zealand’s economic and public sector reform, its central bank moved from vague and multiple objectives, subservience to the Government of the day, and limited external scrutiny to a single explicit objective, operating autonomy, and tight accountability. Internally, new management concepts were systematically applied. Startling efficiency gains were achieved, without significant changes in functions: for example, staff numbers and real operating costs fell 43 percent. At the same time, effectiveness was maintained or improved. Culturally, the RBNZ made an often painful shift toward a “business management” approach.

The first section of the paper comments briefly on the increasing accountability pressures facing central banks and the need for a response. It notes that little information is currently available on the operating costs of central banks.

The second section describes the RBNZ’s organizational transformation and analyzes the key features of the reform. It outlines the historical starting point, the external environment of radical reform, how business management concepts were applied over a five-year period, the efficiency gains achieved, and evidence of enhanced effectiveness. The section also considers the role special factors may have played. It notes that the mechanisms employed by the RBNZ were neither new nor unusual and that they would be available to other central banks. The reductions in operating costs represented real efficiency gains, and, apart from motivation, no major special factors operated.

A third section attempts to analyze the organizational transformation process at the RBNZ. It identifies and describes the business concepts applied at the RBNZ under three headings: how the institution was reoriented, the management mechanisms used, and the internal impact of change. The successes achieved and the limitations encountered in the application of business concepts are briefly outlined.

Finally, the paper concludes that the RBNZ achieved major efficiency gains without a loss of effectiveness by applying business management concepts. The RBNZ’s experience suggests that business management concepts can, with minor limitations, be successfully applied in central banks to increase efficiency. However, doing so challenges many historical central banking practices, and has a substantial internal impact.