A concise history of the Reserve Bank of New Zealand
How the Imperial Private Bankers Empire set us up to fail, so they would end up owning us:
The creation of the Reserve Bank of New Zealand (RBNZ) was debated and advanced during the tenure of the United–Reform Coalition Government, with George Forbes as Prime Minister.
Political Context:
Prime Minister: George Forbes (United Party)
Finance Minister: William Downie Stewart (Reform Party, until 1933)
Coalition: United–Reform Coalition (formed in 1931 during the Great Depression)
Key Events:
Otto Niemeyer (Bank of England advisor) visited New Zealand in 1930.
He was dispatched as part of the broader British Imperial response to the Great Depression.
He strongly advised New Zealand to adopt orthodox deflationary policies and warned against unorthodox monetary experimentation.
Reserve Bank Act passed in 1933.
Introduced by Finance Minister William Downie Stewart, under pressure from economic conditions and growing public debate about monetary reform.
RBNZ officially established on 1 April 1934.
At that time, New Zealand’s economy was in deep depression, and many in the public were agitating for monetary reform, including Douglas Credit supporters and other public credit advocates.
What Niemeyer Represented:
Niemeyer was essentially the "bankers’ diplomat" of the day — an emissary from the Bank of England sent to reinforce orthodox gold standard ideology and keep the dominions in line with private central banking and austerity. His visit stirred significant public and political backlash, especially from emerging Labour voices like John A. Lee, who accused him of being a representative of private banker interests rather than of public financial sovereignty.
Summary:
Government in power: United–Reform Coalition
Prime Minister: George Forbes
Finance Minister (leading RBNZ legislation): William Downie Stewart
Niemeyer’s visit: 1930
Reserve Bank Act passed: 1933
RBNZ established: 1934
The Reserve Bank of New Zealand (RBNZ) was originally established in 1934 as a privately owned institution, with private shareholders.
Details:
The Reserve Bank Act 1933 provided for the establishment of the RBNZ as a company with share capital.
Shareholding was open to the public, but with limits — no individual could hold more than a certain percentage of the total shares.
The majority of the shares were taken up by private investors, including commercial banks and wealthy individuals.
The intention, on paper, was to give it a level of independence and prevent direct political control, mirroring the Bank of England model of the time (which was also privately owned until nationalised in 1946).
Nationalisation:
In 1936, just two years after the RBNZ opened its doors, the newly elected First Labour Government, led by Michael Joseph Savage, nationalised the Reserve Bank.
Under the Reserve Bank Amendment Act 1936, the government bought out all private shareholders and brought the bank entirely under public ownership.
This aligned with Labour’s public credit philosophy — that the state should be the master of money, not its servant.
Ownership Summary by Year:
1934: Privately owned (with public shareholding) – United–Reform Coalition in power
1936: Fully nationalised – First Labour Government (Savage)
RBNZ began as a privately owned institution, before being nationalised by Labour as part of a push for public control over monetary policy.
What Happened:
After nationalising the Reserve Bank in 1936, the First Labour Government led by Michael Joseph Savage, and guided by economic thinkers like John A. Lee and Walter Nash, began using the Reserve Bank to issue new money directly into the economy via Treasury, without borrowing from private banks or bond markets.
This approach is often referred to as direct monetary financing or sovereign credit issuance.
How It Worked:
The government used the Reserve Bank to credit Treasury accounts directly for public spending purposes, particularly on infrastructure and employment.
This wasn't "printed money" in the crude sense — it was strategic, planned, and targeted issuance of sovereign credit to stimulate the economy and reduce unemployment.
One of the most famous examples is the state house building programme, funded by Reserve Bank credit extended to Treasury at low or zero interest.
As Walter Nash said in Parliament:
“We have provided the money… by using the Reserve Bank… without increasing the interest burden on the community.”
Key Programmes Financed:
State housing (1937 onward)
Public works and infrastructure
Job creation during the Great Depression recovery
Expansion of social services and welfare
Important Notes:
This period stands out as a rare, real-world example of a developed country using Treasury-directed central bank credit creation — essentially monetary sovereignty in action.
It was not inflationary because it was issued into an economy with slack (high unemployment, low investment).
This approach was politically possible due to Labour’s strong mandate and widespread disillusionment with the depression-era austerity economics pushed by figures like Niemeyer.
Summary:
RBNZ nationalised in 1936 by the First Labour Government
Used to fund government directly via Treasury, bypassing private debt markets
Financed housing, jobs, and infrastructure
Demonstrated the viability of sovereign money issuance in a modern economy
When Did It Change?
The shift away from direct Treasury financing by the Reserve Bank happened gradually from the 1950s, then accelerated in the 1980s, culminating in the Reserve Bank of New Zealand Act 1989, which formalised the change to an independent, inflation-targeting central bank that could no longer fund the government directly.
Timeline of the Shift:
1950s–1970s:
Post-war, governments increasingly relied on bond markets (i.e. borrowing from private banks and investors) rather than Reserve Bank credit.
However, the Reserve Bank still played a supportive role, and public works were sometimes still Reserve Bank-financed via deferred Treasury overdrafts.
The spirit of the First Labour Government’s monetary sovereignty remained, though diluted.
Notably, even National governments occasionally used public credit instruments, but increasingly within the logic of balancing the budget and avoiding “too much” Reserve Bank financing.
1980s:
A radical economic reform programme called “Rogernomics” dismantled state involvement in the economy.
Key Players: Roger Douglas (Finance Minister), Ruth Richardson (later Finance Minister under National), Don Brash (Governor of the RBNZ from 1988)
The Reserve Bank of New Zealand Act 1989 was passed by the Fourth Labour Government, enshrining:
RBNZ independence from the government
A singular focus on inflation control (0–2% target)
A ban on the Reserve Bank lending directly to Treasury (except under emergency, short-term liquidity agreements)
This ended the ability of the New Zealand government to issue new money via the central bank for public purposes. From then on, all deficits had to be funded via borrowing from private capital markets.
How Was It Justified?
The dominant economic theory of the time (monetarism and later neoliberalism) claimed that government money creation caused inflation and that central banks should be “independent technocrats.”
Public credit advocates were smeared as irresponsible or “inflationary.”
This was part of a global campaign, influenced by IMF, World Bank, BIS, and Wall Street ideology — the same forces that guided earlier figures like Niemeyer.
Summary of Sovereignty by Period:
1936–1950s: Strong – Reserve Bank funded Treasury (Public works, housing, jobs)
1960s–70s: Declining – Mix of Reserve Bank and market borrowing (Gradual retreat)
1980s: Dismantled – Shift to private capital market reliance (“Rogernomics” reforms)
Post-1989: Severed – RBNZ banned from direct Treasury finance (Full neoliberal model)
Bottom Line:
The RBNZ went from being a tool of national development to being a private-bank-compliant inflation watchdog, with Treasury neutered as a sovereign money issuer.
The 1989 Act, written by and for the private financial sector, locked in New Zealand’s dependence on private bank-created debt — a legalised surrender of public monetary power.
Even the Old Guard Admitted It: Public Credit Beats Private Debt
Background:
In 1936, after the First Labour Government nationalised the Reserve Bank of New Zealand, it used the newly public institution to issue interest-free credit directly to Treasury to fund the state housing programme. This revolutionary move bypassed the private banks, avoided interest-bearing debt, and directly employed New Zealanders to build homes and infrastructure.
The Jaw-Dropping Admission:
“This places them in a unique position, the houses after erection carry no interest on capital cost, and for instance a thousand pound house can be let for 5s per week and be a financial success. The millennium seems to have arrived and it makes one wonder why we had to struggle in the bog, when there was such an easy way out of our troubles… makes our policy of orthodox finance seem almost prehistoric.”
– George Forbes, former Prime Minister (1930–1935),
confidentially to William Downie Stewart Jr. (ex-Finance Minister),
Cited in: From the Cradle to the Grave: A Biography of Michael Joseph Savage by Barry Gustafson, 1986, pp. 198–199.
Primary Source Details:
Book: From the Cradle to the Grave: A Biography of Michael Joseph Savage
Author: Barry Gustafson
Publisher: Reed Methuen, 1986
Pages: 198–199
Contextual Evidence Supporting Its Authenticity:
Historical Plausibility: The Labour Government did, in fact, finance state housing in the late 1930s with Reserve Bank credit issued at minimal or no interest, bypassing private debt markets — this is well-documented in Hansard and Reserve Bank reports of the time.
Forbes and Stewart’s Opposition: Both were staunch defenders of "sound finance" during the Depression and would logically be both horrified and secretly impressed by the effectiveness of Labour’s unorthodox policy.
No Scholarly Dispute: The quote is not challenged in academic literature or by Gustafson’s peers, suggesting it’s based on credible private correspondence, interviews, or Cabinet papers that Gustafson accessed as part of his research.
Use by Reform Advocates: The quote has been widely used by public credit and monetary reform researchers like those from the New Zealand Social Credit Association, and referenced in Monetary Reform journal publications and submissions to Parliament, without being rebutted by official historians or Gustafson himself.
So, How Much Proof Is There?
High — based on:
Appearance in a respected political biography by a university professor and party historian (Gustafson)
Internal consistency with verified historical events (RBNZ credit for housing)
Lack of credible dispute or retraction
Repeated citation by credible authors and monetary reformers over decades
What This Means:
Forbes, a staunch defender of Depression-era "orthodox" finance, privately admitted Labour’s use of Reserve Bank credit had succeeded — where his government’s private-bank borrowing had failed.
The houses were built using New Zealand labour, New Zealand materials, and New Zealand credit — not foreign or commercial bank loans.
Labour’s sovereign credit approach delivered full employment, affordable housing, and economic recovery without inflation or foreign debt dependency.
Why It Matters Today:
Today’s councils and governments are again drowning in interest-bearing debt — from the same private banking sector whose model failed us in the past.
The tools that rebuilt New Zealand in the 1930s still exist — but they’ve been legally locked away by the 1989 Reserve Bank Act and neoliberal ideology.
This historic quote proves that monetary sovereignty works, and even its opponents knew it.
1954 Labour Party manifesto stated "Labour will take immediate and effective to ensure that the state will become the sole authority for the issuance of credit and currency. The public credit will be used to the fullest extent compatible with the public good"
In July 1962 the leader of the Labour Party, the Rt. Hon. W. Nash, made a lengthy statement in which he said;
“Consistent with the needs of a sound economy, the State should create and use credit at the cost of issue for purposes of approved capital development. We are satisfied that the use of Reserve Bank Credit, within the limits set out is not only justified, but has already contributed much towards the Nation’s economic well-being.”
Excerpts from the book - CRISIS - by New Zealand Reserve Bank Governor - Alan Bollard - published September 2010.
*Pg 19-20 - “Banking practices differ around the world, but we ensure ours meet international standards. These are set by a somewhat shadowy group called the Basel Committee on Banking Supervision. Comprised of representatives of large countries( not including New Zealand ), the group meets in Switzerland at the Bank of International Settlements (BIS).”
*pg 98 - Agreed convention at the Bank of International Settlements means that what is said in the room stays in the room.
Enough With the Debt Spiral:
It’s time to unlock our public bank, reclaim our monetary power, and issue credit in the public interest — not for private profit.
Call to Action:
Join the movement to restore Treasury-issued, interest-free sovereign credit for housing, infrastructure, and climate resilience.
#PublicCreditNZ
Uniting People's Credit Movement NZ
Where should I look in the Reserve Bank Act 1989 to find RBNZ banned from direct Treasury finance?
As I understand it, in a sovereign state where the State has the monopoly on the issuance of its own currency, money is "made" by the State spending it into existence. The NZ government also licences Banks to create money through lending on mortgages. To maintain that license the Banks have to maintain a level of private deposits to protect against the borrowers failure to re-pay but that is a relatively small proportion of the total debt (I think it stands about 14% at the moment). With a monopoly (as the NZ State has) money is literally created as a line of credit in the governments accounts. The national debt is the difference between what has been issued and what has been taken back through taxation. The limiting factor on the growth of the money supply is inflation: too much money for too few goods and services means prices rise. The fear of inflationary pressure by over-supply of money led to the Labour government re-instating independent control of the supply although I suspect private banks might have had a hand in that because they have been the primary beneficiaries. It was also a gross misinterpretation of the causes of inflation in the 1970's. While supply chains were constrained by import controls the primary cause of inflation was the oil price shocks. 400% increase in oil prices will lead to inflation that, like the COVID supply chain problems, monetary policy can't fix. Whatever the driver of inflation and recession, the fiscal strait jacket we currently operate with is by choice and we need to make a different choice. However, that is so politically difficult that neither major party will make it.