1203AFE Lecture Notes - Lecture 2: Consumer Protection, Hong Kong Monetary Authority, Settlement Risk
30 May 2018
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Week 2 Money, Bank and Finance Lecture Notes
Topic 2: Monetary Authorities
Financial Contagion
• Financial contagion is the spillover effects from a crisis in one market that influence
other markets due to the interconnections that exist between them
• First highlighted in Asian currency crisis in 1997-1998
• 2008 GFC asset, currency and liquidity shocks
The Origins and Role of Central Banking Authorities
• Central banking has a long history that stretched back as far as the 17th Century
• A central bank regulates a atios oey supply ad fiaial istitutios
• The central bank aims to maintain a stable economic environment and effective
payments system
The Functions of Central Banks
• The functions performed by central banks include:
o Developing and implementing monetary policy
o Issuing currency
o Providing banking services for the government
o Overseeing the operations of the financial system
o Facilitating the payments system
Austalias Moetay Authoities
• In Australia, the role of monetary authority is split among three independent
agencies:
o The Reserve Bank of Australia (RBA)
o The Australian Prudential Regulation Authority (APRA)
o The Australian Securities and investment commission (ASIC)
find more resources at oneclass.com
find more resources at oneclass.com
History of the RBA
• The history of the RBA is characterized by several important events:
o The establishment of the commonwealth Bank of Australia (CBA) in 1911
o The sepaatios of the CBAs oeial opeatios ad etal akig
duties in the 1950s
o This separation led to the formal establishment of the RBA in 1959
o The responsibilities of the RBA were adjusted in light of the reports of the
Campbell Committee (1979) and the Wallis Committee (1996)
Functions and Responsibilities of the RBA
• Section 10(2) [the charter] of the RBA Act sets out the primary statutory
responsibilities of the RBA:
o Maintenance of a stable currency
o Maintenance of full employment
o Maintenance of the prosperity and welfare of the people of Australia
Primary Functions of the RBA
• The determination and implementation of the monetary policy
• Issuing Australian currency notes
• Overseeing the payments system
• Atig as the goeets ake
• Issuing and providing the market for treasury securities
• Maagig fiaial syste liuidity ad the goeets holdig of foeig
exchange
The payments system
• The payments system is used to settle millions of transactions each day
• The RBA has three roles in the Australian Payment system:
o Promoting the efficiency and stability of the payments system
o Providing the facilities for the settlement of transactions
o Acting in the payment system as the bank of the Australian government
• A payets syste efes to aageets hih allos SSUs ad DSUs to
transfer funds between each other.
• It is comprised of:
o i. Payment instruments
▪ Cash, cheques and electronic transfers
▪ Payments are divided into cash and non-cash, paper and non-paper
and low-value (batch) and high-value (RTGS)
o ii. Payment orders- results from a transaction and orders the transfer of fund
fo the daes aout to the depositos aout
o iii. Payment clearing- the verification of sufficient funds (APCA, Austraclear
for CGS, ASX system [CHESS] for equities)
o iv. Settlement- the Exchange of value that completed a transaction the actual
amounts between ADIs
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Week 2 money, bank and finance lecture notes. The functions of central banks: the functions performed by central banks include, developing and implementing monetary policy. Issuing currency: providing banking services for the government, overseeing the operations of the financial system, facilitating the payments system. In australia, the role of monetary authority is split among three independent agencies: the reserve bank of australia (rba, the australian prudential regulation authority (apra, the australian securities and investment commission (asic) Campbell committee (1979) and the wallis committee (1996) Primary functions of the rba: the determination and implementation of the monetary policy. Issuing australian currency notes: overseeing the payments system, a(cid:272)ti(cid:374)g as the go(cid:448)e(cid:396)(cid:374)(cid:373)e(cid:374)t(cid:859)s (cid:271)a(cid:374)ke(cid:396, ma(cid:374)agi(cid:374)g fi(cid:374)a(cid:374)(cid:272)ial syste(cid:373) li(cid:395)uidity a(cid:374)d the go(cid:448)e(cid:396)(cid:374)(cid:373)e(cid:374)t(cid:859)s holdi(cid:374)g of fo(cid:396)eig(cid:374) Issuing and providing the market for treasury securities exchange. 9am the next day: this delay exposes the receiving institution to settlement risk, but the netting process means this risk is relatively small in the retail payment system.
