Working Paper Summaries 94/37: Improving the Management of a Central Bank--A Case Study
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund

The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.

Abstract

The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.

This paper examines the fundamental transformation of the management of 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.

Working Paper Summaries (WP/94/1 - WP/94/76)
Author: International Monetary Fund