Money and central banks

A heap of coins
Points of viewA central bank should keep prices stable, and governments should let it do that job without help or hindrance.

I grew up in a country that still remembered what inflation does to savings. I have written about central banks since the financial crisis, first about the European Central Bank and later about New Zealand’s Reserve Bank. My view has not changed. Stable money comes first.

Core beliefs

Price stability comes first

In 1923, hyperinflation erased the savings of Germany’s middle class. Germans have feared inflation ever since, and I think they are right to.

A central bank has one tool that works reliably, the interest rate, and it should aim it at one target. When New Zealand gave its Reserve Bank a dual mandate for price stability and maximum employment, it blurred the bank’s purpose and its accountability. By mid-2022, inflation had reached 7.3 percent.

Read: Germany’s understandable inflation paranoia (Business Spectator, 2012) and How central banking lost its way (Insights, 2022)

Unconventional tools need firm limits

In 2019, before anyone had heard of Covid, Eric Crampton, Robert MacCulloch and I warned that the Reserve Bank was preparing for quantitative easing without clear rules. A central bank that buys government bonds on a large scale starts to look like a second Treasury.

That is what happened. The bank’s Large Scale Asset Purchase programme left taxpayers with losses of about $11 billion.

Read: The Unreserved Bank of New Zealand (report, 2019)

Setting interest rates and policing banks are different jobs

In New Zealand, the central bank also supervises banks, insurers and other financial institutions. Australia moved prudential regulation to a separate agency, APRA, in 1998.

Combining both roles risks conflicts between them and makes each harder to hold to account. When we said so in 2024, the Governor sent the commercial banks a fiery email about our views.

Read: Why NZ Reserve Bank’s role is ripe for review (The Australian, 2024)

Do not blame the central bank for doing its job

The Reserve Bank began raising interest rates in October 2021. It was late, and its earlier money printing had fed inflation. But the depth of the recession that followed was not its doing alone. While the bank was braking, the Government’s tax cuts were pressing the accelerator.

Monetary policy works best when fiscal policy does not fight it.

Read: Monetary Policy Without Mates (research note, 2025) and When central banks get the blame for doing their job (The Australian, 2025)

Europe lost the Bundesbank’s discipline

The euro was sold to Germans as a European version of the Deutschmark. Instead, the European Central Bank grew comfortable with activist policy. When Jens Weidmann stepped down as Bundesbank president in 2021, the ECB lost its most hawkish governor just as inflation expectations were rising.

By 2026, even the Bundesbank was calling for more joint European debt.

Read: The end of the Bundesbank era (Newsroom, 2021)

How I came to this

I came to monetary policy through the euro crisis. From 2010 to 2016, I wrote a weekly column for Business Spectator in Australia, and much of it followed the European Central Bank as it bent its rules to save the currency.

In Wellington, I watched the Reserve Bank drift in a different way. It took on a second mandate and added climate change and cultural projects to its work. Its staff more than doubled, and its core job became harder. I criticised it for that, sometimes sharply.

When the bank later came under attack for doing what it should, I defended it. In 2025, Eric Crampton, Bryce Wilkinson and I argued in Monetary Policy Without Mates that the bank had been right to focus on price stability.

  1. 1923Hyperinflation wipes out the savings of Germany’s middle class.
  2. 2012I explain Germany’s understandable inflation paranoia to Australian readers.
  3. 2019The Reserve Bank’s dual mandate takes effect. The Unreserved Bank of New Zealand argues that unconventional policy needs boundaries.
  4. 2021The Reserve Bank starts raising interest rates. Jens Weidmann leaves the Bundesbank.
  5. 2022Inflation in New Zealand peaks at 7.3 percent.
  6. 2023Parliament restores price stability as the Reserve Bank’s single objective.
  7. 2024Our call for a review of the Reserve Bank’s dual role draws an angry email from the Governor to the banks.
  8. 2025Adrian Orr resigns as Governor. Monetary Policy Without Mates defends the bank’s focus on price stability.

What happened next

In December 2023, Parliament passed the Reserve Bank of New Zealand (Economic Objective) Amendment Act under urgency. Price stability is once again the bank’s only macroeconomic objective.

Adrian Orr resigned in March 2025, three years before his term was due to end. The Government’s announced cut to the bank’s budget turned out to be restraint on further growth rather than a real cut.

The bank still sets interest rates and supervises the banks under one roof. In our 2026 briefing to the incoming government, The New Zealand Initiative recommended signalling a transition to separating the two.

Reports

Cover of The Unreserved Bank of New ZealandThe Unreserved Bank of New Zealand2019 Cover of Monetary Policy Without MatesMonetary Policy Without Mates2025 Cover of Prescription for ProsperityPrescription for Prosperity2026

In my own words

“The real story here is not Reserve Bank failure but policy conflict.”

On launching Monetary Policy Without Mates, September 2025

“Money is not the RBNZ’s main problem. Leadership is.”

Money isn’t the RBNZ’s greatest problem: leadership is, The Australian, 23 April 2025

“Obsessing with inflation is a German pastime because inflation is Germany’s national trauma.”

Germany’s understandable inflation paranoia, Business Spectator, 11 October 2012

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