Question Number: 170
PDR Number: SBE170
Date Submitted: 17/11/2022
Department or Body: Reserve Bank of Australia
1. In the period leading up to 2004, almost the entirety of the RBA’s gold holdings were on loan. When these loans matured – and were not rolled over into new loans – the RBA negotiated with borrowers to deliver that gold to the RBA’s allocated account at the Bank of England.
2. The RBA is confident that the Bank of England (BoE) has not refined the gold held in the RBA’s account with the BoE into new gold bars. The BoE operates as a gold custodian. Customer gold is held on an allocated basis, meaning that the customer retains the title to specific gold bars held in the BoE’s vaults. Any transfer in ownership of that gold is on the instruction of the customer. The BoE has confirmed that it has not refined any gold which it holds on behalf of the RBA during the time period in question (from 2015 onwards). 3. Developments affecting Australia’s exchange rate and interest rates that are already in the public domain are discussed by the RBA at various forums involving other central banks, including those facilitated by the Bank for International Settlements. No private or marketsensitive information is discussed in these forums. These discussions are helpful in understanding international developments and how they may affect the Australian economy and financial markets. As such, they indirectly contribute to how the RBA considers its policy settings. 4. When the RBA conducted quantitative easing, it did so by purchasing bonds issued by federal and state governments in the secondary market. This increased the price and lowered the yields of those government bonds. However, quantitative easing did not provide a subsidy to private banks. While commercial banks sold some of their government bond holdings to the RBA, banks typically hedge their bond holdings using financial market instruments such as interest rate swaps or futures contracts. They hedge so that changes in Error! Unknown document property name.Error! Unknown document property name. 2 bond yields do not result in large swings in their profits. As such, any gain that banks may have made on selling bonds at a higher price than otherwise (because of the RBA’s purchases) would have been offset by equal and opposite losses on their hedging instruments. One of the benefits of quantitative easing is that federal and state governments were able to issue bonds in the primary market at a higher price/lower yield than they otherwise would have been able to do. However, the primary motivation for conducting quantitative easing was to not to provide a benefit to federal and state governments per se, but was to lower the general level of interest rates in Australia and thereby boost economic growth. A side-effect was to provide a benefit to funding for federal and state governments. The RBA recently conducted a review of the bond purchase program, which drew some key lessons; see Review of the Bond Purchase Program.