Australia - Banking and securities

The Reserve Bank of Australia, the central bank, reconstituted in 1960, functions as a banker's bank and financial agent of the federal and some state governments, issuing notes, controlling interest and discount rates, mobilizing Australia's international reserves, and administering exchange controls and government loans. It was formerly connected with the Commonwealth Trading Bank-a general bank-the Commonwealth Savings Bank, and the Commonwealth Development Bank. The banking system has undergone progressive privatization and foreign investment since the deregulation of financial markets in the 1980s under the Wallis Inquiry into the Australian financial system of 1981. In 1996, the government privatized the Commonwealth Banks in the Reserve Bank Act, separating the Commonwealth Banks from the Reserve Bank. Rural credits, mortgage banking, and industrial financing are now administered wholly by private-owned banks. Fifty banks operate in Australia, 35 of which are foreign-owned; the largest banks include National Australia Bank, ANZ, Commonwealth Bank, and Westpac. The Australian Prudential Regulation Authority (APRA) regulates the banks and other financial institutions.

The Australian currency has floated freely since 1983, and was allowed to fall dramatically from 1984 to 1987. The Reserve Bank pointed to an expected upturn in economic activity in 1997 and anticipated a continuation of low inflation. It also indicated that firming economic growth, together with the uncertainties surrounding wage outcomes, made changes to monetary policy settings unlikely. Interest rate cuts were not on the bank's policy agenda, as it waited to see the impact of reductions made in late 1996. From 1996 to 2000, the Australian dollar fell by almost 30% against the US dollar; losing 12% in the first half of 2000 alone. The Reserve Bank increased interest rates a number of times in order to stave off inflation, but the introduction of the 10% GST in July threatened to raise inflation despite monetary policies. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $85.3 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $258.7 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 5.06%.

The Australian stock market is where equity (shares), units in listed trusts, options, government bonds, and other fixed-interest securities are traded. It is operated on a national basis by the Australian Stock Exchange (ASX), which is responsible for the day-to-day running and surveillance of stock market trading. The ASX was established on 1 April 1987, with the passage of the Australian National Guarantee Fund Act through the Commonwealth Parliament. This Act converted the six former capital city Stock Exchanges into state subsidiaries of the ASX.

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