Blog #8

            What is monetary policy? How has Australia’s Central Bank reacted to the global financial crisis? Is this at odds with the bank’s goal of reducing inflation? Why are Australian interest rates higher than US interest rates? How have the export shares of mining (coal and metal ores & minerals), education, and tourism changed between 2000 and 2007? List and explain two significant differences between the Australian Central Bank and the US Federal Reserve System. What does the US consulate do? How did the speaker characterize current US-Australia relations? Why was the US-Australia FTA significant? Did it have any specific impact on the winemaking industry? Explain.

        

Monetary policy is one of the many responsibilities that the Reserve Bank of Australia has.  According to the course packet, monetary policy aims to achieve a strong economy that has low unemployment rates, stable currency and a controllable rate of growth.  Among others are they’re responsibility for the payment and financial system stability and efficiency, issuing Australia’s currency notes and managing foreign exchange rates.  At the RBA, the senior economic that spoke with our class was Richard Finlay. At the moment, there is a contractionary monetary policy going on in Australia because they have seen 3% inflation in the last year.  The RBA is trying to control inflation by increasing interest rates which is why Australia’s interest rates are higher than the US’s.  Just this year, there has been a 14% appreciation against the US dollar and exchange rates do matter, according to the email that Nesiba sent us with an article attached.  Especially because the United States is still in an economic recession that affected them much more than the worldwide recession affected Australia, the US has had to keep the interest rate at nearly zero.  The hope is that low interest rates will increase consumption, increase consumer confidence and consumer spending.  With Australia being “the first G20 country to increase interest rates in the second half of 2009 in response to emerging inflation risks,” they have faired better than the US.

According to the graphs present in Finlay’s presentation, the export of mining has been enormous.  In the course packet it says that Australian export volumes have grown at a 2.5% annual rate over the last decade.  Though tourism has dropped slightly in the last decade, mining has more than made up for it by exports nearly tripling.  This indicates the growing ties to India and China in particular who are buying a huge amount of the resources coming out of Australia.  During the years between 2000 and 2007, education has seen an increase in overseas enrollment and is now beginning to offshore whole universities.

The major differences that Finlay shared between the Australian Central Bank and the US Federal Reserve System is that the Australian’s are very practical, they focus more on short term goals and are less esoteric.  The board is made up of less academics and the staff is fairly young.  Also, unlike the board for the Fed, which only has internal members and presidents of the regional branches, the Australian system consists of 9 members and 6 of them are external members representing industries such as mining. 

The political/economic officer at the US Consulate spoke to our group regarding anything we had questions over.  At the beginning I thought it was going to be a really formal speech, as the speaker, Chris Corkey was behind a lecture with the Australian flag and the American flag beside him…. Slightly intimidating.  The United States Consulate first and foremost aids in the assistance of American citizens.  If citizens find themselves in emergency situations the consulate is there to get them a new passport, find medical assistance, issuing visa’s and other services.  They provide a connection the United States in Australia and they work as the eyes and ears for the US government.  Chris kept reinforcing the fact that the United States constantly refers to Australia as being its best friend and ally.  They have no better relationship than with Australia.  This is relevant on several fronts.  Australia provides resources, such as iron ore and coal to the United States, but more importantly, Australia has fought with the United States in every major war since WWII.  Also aiding in this strong relationship is the Free Trade Agreement that was initiated in 2005.  This allows free trade to flow between the countries. This agreement has the potential to give the US a huge increase in exports andlower prices for US goods in Australia. Especially in the industry of wine, the FTA has been seen in the increased exportation and sales of Australian wines.  This includes the “coveted” Yellowtail, the mass produced Australia wine found for around $4-$6.  The US received around 70% of all Australian wine exports from Yellowtail according to the course packet article.


  (Curtesy of the Reserve Bank of Australia)


  Examples of Australia's currency

The interesting metal sculpture outside the RBA