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Can’t Subsidise Our Way Out

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During Estimates, I tabled a graph from the ABS, showing that electricity prices surged by 23% over two years. While the Government used temporary subsidies to mask the pain, those subsidies have now ended, leaving millions of Australians to face the brutal reality of a 16% “catch-up” spike in their bills.

During our exchange, I pointed out that while subsidies briefly brought headline inflation down to 7%, the underlying cost of power never actually fell and that once the relief stopped, the inflationary shock would be incredible.

The RBA admitted that headline inflation would rise as rebates expired, yet they continue to “look through” these costs to focus on their own definitions of underlying inflation.

I discussed with Governor Bullock on how these soaring energy costs are gutting our national productivity. While the Treasurer talks about “strong real wages,” everyday Australians know the truth when they see their grocery bills and insurance premiums.

The RBA believes inflation expectations are “anchored,” yet you can’t anchor a household budget when the lights cost 23% more to keep on.

You cannot subsidise your way out of an energy crisis. You only delay the pain.

During this session, I also asked some questions on Central Bank Digital Currency, quantitative easing, credit creation and funding the deficits., and I thank Governor Bullock for her well informed and honest answers.

– Senate Estimates | October 2025

Transcript

Senator ROBERTS: I have circulated a graph from the Australian Bureau of Statistics. Ms Bullock, I certainly appreciate your direct and concise answers. I think you have talked quite a bit about how the RBA is looking through the energy bill subsidies and impact on headline inflation. What are you seeing in the underlying increases in the price of electricity? As I show in that graph, it has increased 23 per cent in two years. That seems like an incredible shock to the economy. How do you think about that? What is the impact of your management of inflation?  

Ms Bullock: So there are two aspects to that. What you will see from this graph that you have pointed out is that it rises in June 2023. That was the delayed energy price shock that many other countries saw following the Russian invasion of Ukraine. Basically, then, it’s a new price level. The price level has risen, but you haven’t seen inflation because the level has just been the same.  

Senator ROBERTS: Flat?  

Ms Bullock: So there is a step up in the level. There has been a more recent increase, as we’ve seen the default market offers rates come out. Basically, the way we would think about it is that, in a direct sense, if you’ve got a supply shock, you’ve got a new price level. That doesn’t necessarily lead to ongoing inflation and an impact on inflationary expectations. We can afford to say that’s a level shift and we will look through it. The extent to which it has indirect impacts through cost impacts on businesses, that’s where we would watch to see that it wasn’t feeding through into consistent and persistent inflation. So far, it doesn’t seem to be driving persistent inflation, the increase in the price level for energy.  

Senator ROBERTS: What are your thoughts about when the energy bill relief stops?  

Ms Bullock: Well, the energy bill relief, obviously, is government policy. They put it in place to address the cost of living. Your graph shows why—because energy prices rose quite a lot. It has moved the inflation figures around quite a bit. As I’ve discussed in many other contexts, we’ve therefore looked at the underlying inflation to get an idea of the underlying pulse of inflation. That is what we have been focusing on in order to base our interest rate decisions.  

Senator ROBERTS: We saw the government’s economic roundtable was supposedly focused on productivity. What do rising energy costs do to productivity? What is the impact, then, on the standard of living?  

Ms Bullock: I don’t know if there’s a very direct impact of rising energy costs on productivity. There’s a much more fundamental thing about productivity, and that’s dynamism in the economy and dynamism among businesses. What we have been observing for decades is that productivity growth has been declining not only here but overseas. To some extent, at least, the evidence suggests that lack of dynamism in business is part of the reason for that.  

Senator ROBERTS: So the underlying inflation on the electricity index is at 23 per cent. Including subsidies, it has been brought back to seven per cent. Many consumers still have about a 16 per cent increase to catch up with. What will that do to inflation numbers in the future?  

Ms Bullock: Well, headline inflation, as you’ll see from our forecasts, will rise as the energy rebates come off. But the more important thing is what is happening to the underlying pulse of inflation. We are continuing to see that decline.  

Senator ROBERTS: Thank you. I understand that household inflation expectations have a big impact on inflation itself. At the economic roundtable, Treasurer Chalmers said: Real wages are growing at their strongest rate in five years, inflation has a two in front of it and interest rates have been cut three times in the last six months. People are still talking about high grocery bills and inflation in insurance premiums and all kinds of insurance. What does that do to people’s expectations of inflation?  

Ms Bullock: Well, all the evidence we have is that inflationary expectations have remained reasonably anchored at around 2½ per cent. That’s what has made it possible, I think, to bring inflation back down toward the target range so that we’re now under three per cent and heading towards 2½ per cent and to maintain a relatively healthy labour market. You couldn’t achieve that without anchored inflation expectations.  

Senator ROBERTS: Thank you. I have a quick question before I go to a separate topic. What does having 4.5 million visa holders, non-citizens, in the country do to demand for houses and to the price of houses?  

Ms Bullock: Well, certainly the more population you have, the more demand for housing you have.  

Senator ROBERTS: It has been six months since the new board arrangements started. How is that working so far?  

Ms Bullock: I think it is working well. The monetary policy board now has more time to focus on monetary policy decisions. The governance board, I think, is adding significant value in helping me. I was the sole accountable authority for the institution. Now the governance board is the accountable authority. My own view is that the people on that board are adding significant value.  

Senator ROBERTS: Thank you. Is there going to be a review of these changes?  

Ms Bullock: The governance board is going to do a report, I think, by the end of the year. It is going to talk about all of the recommendations from the review, where we’re at with meeting them and what our plans are to meet those that we haven’t yet.  

Senator ROBERTS: Thank you. You actually have three boards—the monetary board, the governance board and the payment system board. Have there been any developments coming from the work the Reserve Bank is doing on electronic payment systems, whether that’s some form of central bank digital currency, which I think your predecessor acknowledged was done, or a unified digital currency the banks have been talking about? Is anything happening there in either the domestic market or international settlements?  

Ms Bullock: A few things. We have done some experimentation. Back in 2023—we might have talked about this before—we did a pilot of a central bank digital currency. We asked people to come with use cases and so on. The main headline out of that was that the predominant use cases were not what I would call retail CBDCs. It wasn’t about putting central bank digital currencies in the hands of you and me and using them at shops. It wasn’t about that. It was about wholesale digital currencies—how you can potentially use central bank digital currencies in markets for wholesale assets. We’ve got another experiment going on now which is looking specifically at that issue. If you tokenise assets—you put them on a chain, a ledger—how can you use not only central bank digital currencies but stable coins, tokenised bank deposits and standard payment systems to settle tokenised asset sales. That is the current experiment that is going on. We are working with a number of organisations to do that. That will give us a bit more information about the sorts of issues that might arise in moving towards tokenised asset ledgers.  

Senator ROBERTS: Thank you. During COVID, the Reserve Bank pursued a policy which had the effect of creating money through electronic journal entries and using that to buy securitised mortgages from Australian banks. How many securitised mortgages originating in the Australian property market is the Reserve Bank now holding?  

Dr Kent: We have to take this on notice. I suspect it’s close to none. We don’t accept them as part of our regular operations. Most of them we would have held would have been a result of the term funding facility, which has now rolled off and completed.  

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The Truth About Tokenisation

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I’ve been keeping a very close eye on the Reserve Bank’s moves toward a digital future. During this exchange with Governor Bullock, I pressed for clarity on exactly where they are headed with Central Bank Digital Currencies (CBDC) and the “unified digital currency” the big banks have been whispering about.

I asked about developments in both domestic and international settlements. The Governor admitted that while they ran a pilot back in 2023, the focus has shifted. They aren’t looking at a “retail CBDC” right now, which would be digital cash for everyday shopping. Instead, their focus is firmly on looking at how to settle “tokenised assets.”

Tokenised financial products, also called asset tokens, are a way to turn traditional money-related things into digital versions that live on blockchain technology, the same as that used by Bitcoin and Ethereum. These could include shares, real estate, artworks and precious metals.

Normally these are hard to buy and/or sell quickly, especially in small amounts, and often involve lots of paperwork, middlemen and high minimum investments. Tokenisation changes that by creating a digital token that acts like a certificate of ownership for a piece (or all) of that real thing. The token is recorded on a blockchain, which is theoretically secure.

You would be able to buy a share of a home, business, art or precious metals within minutes, allowing small investments to grow your savings more than bank interest would do.

Note: This technology is not there yet! The RBA is scoping it out – as many institutions are.

I will continue to monitor these experiments to ensure that this doesn’t come at the cost of our financial privacy or sovereignty.

— Senate Estimates

Transcript

Senator ROBERTS: It has been six months since the new board arrangements started. How is that working so far?  

Ms Bullock: I think it is working well. The monetary policy board now has more time to focus on monetary policy decisions. The governance board, I think, is adding significant value in helping me. I was the sole accountable authority for the institution. Now the governance board is the accountable authority. My own view is that the people on that board are adding significant value.  

Senator ROBERTS: Thank you. Is there going to be a review of these changes?  

Ms Bullock: The governance board is going to do a report, I think, by the end of the year. It is going to talk about all of the recommendations from the review, where we’re at with meeting them and what our plans are to meet those that we haven’t yet.  

Senator ROBERTS: Thank you. You actually have three boards—the monetary board, the governance board and the payment system board. Have there been any developments coming from the work the Reserve Bank is doing on electronic payment systems, whether that’s some form of central bank digital currency, which I think your predecessor acknowledged was done, or a unified digital currency the banks have been talking about? Is anything happening there in either the domestic market or international settlements?  

Ms Bullock: A few things. We have done some experimentation. Back in 2023—we might have talked about this before—we did a pilot of a central bank digital currency. We asked people to come with use cases and so on. The main headline out of that was that the predominant use cases were not what I would call retail CBDCs. It wasn’t about putting central bank digital currencies in the hands of you and me and using them at shops. It wasn’t about that. It was about wholesale digital currencies—how you can potentially use central bank digital currencies in markets for wholesale assets. We’ve got another experiment going on now which is looking specifically at that issue. If you tokenise assets—you put them on a chain, a ledger—how can you use not only central bank digital currencies but stable coins, tokenised bank deposits and standard payment systems to settle tokenised asset sales. That is the current experiment that is going on. We are working with a number of organisations to do that. That will give us a bit more information about the sorts of issues that might arise in moving towards tokenised asset ledgers.  

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Australia Must Boost Gold Reserves Amid BRICS Gold Rush

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It’s no secret that BRICS countries are buying gold at unprecedented rates, which is the main reason gold is appreciating in value so quickly. Speculation suggests BRICS is planning a gold-backed exchange currency to facilitate further movement away from the US dollar as the default currency for settling international trade.

I have asked the Reserve Bank about this on several occasions, highlighting Australia’s puny gold reserves as compared to Russia (a similarly sized economy) and China. Once again, the answer I received indicates the Reserve Bank has its head in the sand on this issue.

Our economy is so closely tied to the United States that a new exchange currency will “free up” a huge amount of US dollars, which will have significant consequences not just for the USA but for major trading partners such as Australia.

Australia must respond to the threat of a new exchange currency by expanding our gold holdings as a hedge against an upheaval in the currency market. One Nation will expand our gold reserves and reduce our exposure to the US dollar—both currency and treasuries.

Transcript

Senator ROBERTS: Okay. Let’s move on to gold. Your most recent balance sheet shows gold and foreign exchange assets at $105 billion. How much of that is in gold, and how much has our gold holding changed? Could you provide the tonnes of gold and the value?

Dr Kent: Our long-term gold holdings are still 80 tonnes, which is around 6,430 bars.

Senator ROBERTS: That’s 6,430 bars.

Dr Kent: Yes. That has not changed since 1997. The value as at September was around $9.7 billion.

Senator ROBERTS: Where is that gold physically located, and has the holding been audited since the 2022 audit?

Dr Kent: I don’t believe it has. Another audit is coming due; I would have to take on notice exactly when. It is almost all held in the facility at the Bank of England.

Senator ROBERTS: Thank you very much; I like your precise answers. Saudi Arabia has just been detected as buying 160 tonnes of gold, and the People’s Bank of China bought 1,600 tonnes of gold over the last three
years. China now holds more than 2,000 tonnes. Russia now holds 2,300 tonnes. This is a large element of the demand inflation in the gold price. Are you concerned that BRICS is up to something that needs gold? Should we be increasing our holdings as a precaution?

Dr Kent: I have no intimate knowledge as to why they are purchasing that gold. I don’t think it has implications for us.

Senator ROBERTS: So you’re not concerned?

Dr Kent: No.

Senator ROBERTS: BRICS have the capacity to pull the rug out from underneath the dollar, and, in my opinion, Australia should mind that risk. What are our current holding of US Treasury notes and currency?

Dr Kent: I will have to get back to you with the precise figure, but it’s an important part of our foreign exchange reserves.

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Infrastructure Investment Can Address Australia’s Economic Disaster

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Treasurer Jim Chalmers and the Albanese Government have created the worst economic conditions in Australia in 30 years. In an attempt to shift the blame for this mess, the Treasurer has unfairly targeted Reserve Bank Governor, Michelle Bullock. The reality is that the RBA has increased interest rates in response to the government’s policies. While the Treasurer could order the Reserve Bank to lower interest rates, the Government knows that doing this would make Australia’s economy worse. So instead, they trade insults. 

It’s time for Treasurer Chalmers to stop the bullying and focus on solutions. Infrastructure is the key to overcoming this economic disaster. 

In this speech, I outline how One Nation plans to bring down inflation and reduce interest rates.

Transcript

In the last few days Australians have witnessed an unedifying sight: the Treasurer blaming the Reserve Bank for policy outcomes that are firmly the government’s fault. When Treasurer Chalmers was rightly criticised for his misbehaviour the Labor Party rallied the troops, dusting off Labor Party artefact Wayne Swan to defend the Treasurer. This display is why people dislike and distrust politicians. The reality is that high interest rates are the direct result of economic policy under successive Liberal and Labor governments—policy that damaged our manufacturing and farming sectors whilst transferring gross domestic product from real jobs in the private sector to jobs in the government sector. Reserve Bank Governor Bullock’s interest rate strategy is a response to Labor government policy. Labor government policy has decided the RBA’s strategy. 

Instead of bullying the Reserve Bank governor into taking further interest rate rises off the table, Treasurer Chalmers could take action to prevent the need for those rises. Balance the budget and reduce government spending to match your income; Minister Shorten tried to bring the NDIS under control, and you forced him to walk the plank. Stop replacing base load power with net zero wind, solar transmission lines and battery back-up, driving up electricity prices and sending the government into debt. Reduce immigration, which is distorting the housing market and inflating government welfare and infrastructure spending. Stop giving grants and subsidies to foreign multinationals operating solar and wind here, and instead encourage local companies who retain the wealth here. Develop our productive capacity through a national rail loop enabling an Australian steel industry. There’s $100 billion of production, 40,000 real jobs and $25 billion in government revenue just in the Capricornia steel proposal at Queensland’s Abbot Point and the port of Gladstone every year. Treasurer Chalmers should stop bullying and start building, which is exactly what a One Nation government will do. 

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Reserve Bank Governor Shifts Focus to People Rather than Spreadsheets

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Reserve Bank Governor Michelle Bullock was appointed to the position after a 20-year career in the Reserve Bank, including being the recipient of subsidised housing loans despite her substantial salary. Her early comments were reflective of her being “a long time in the public service bubble” and were out of touch with the hardships faced by everyday Australians due to past Reserve Bank policies causing high inflation and interest rates.

Her recent comments, however, appear to be much more in tune with understanding everyday Australians’ concerns.

At Senate Estimates, my questions were aimed firstly at getting updates on less reported projects and secondly, I wanted to know whether the Governor realised her role is about people not spreadsheets.

I found her responses encouraging and look forward to more people-oriented management from the Governor going forward.

Transcript

CHAIR: Thanks. Senator Roberts.  

Senator ROBERTS: Thank you for appearing. I missed you last time because I couldn’t get on the schedule. I want to get a quick update on as many things as possible. Part of the Reserve Bank’s process is to review inflation data and unemployment data. Do you use data from the ABS and, if so, do you use that data exclusively, or do you have other sources for unemployment and inflation data?  

Ms Bullock: We use ABS data obviously for inflation and unemployment. We use a variety of other sources of information, though, because we don’t just focus on the unemployment rate itself; we focus on a variety of measures that the ABS put out. We also focus on things like vacancies and advertisements. There’s information we get from our business liaison program, where we talk to businesses about what they’re doing with their labour forces: are they demanding more labour or not? So we use the ABS data, but we have a wealth of other information that we look at as well.  

Senator ROBERTS: Thank you. Business-to-business payment defaults and business bankruptcies, to the third quarter of 2024, are at a record. I’m sure you know that. Are you watching these metrics? And would these record figures act to reduce the appetite in the Reserve Bank for another interest rate rise?  

Ms Bullock: We do watch the business insolvencies data. My understanding is that they haven’t actually returned to the trend that they were prior to the pandemic. In the pandemic, with low interest rates and government assistance, insolvencies were actually at a record low. They have popped up, but they haven’t popped up to where the trend was going prior to the pandemic. So I think that’s important perspective to put it in. We do look at it and we look at it from a couple of perspectives. We look at it from the perspective of how monetary policy is impacting businesses, but we also look at it from the perspective of financial stability and the potential impact on banks, banks’ arrears and banks’ balance sheets.  

Senator ROBERTS: Thank you. Suicide Prevention Australia’s community tracker, also to the third quarter of 2024, shows a huge rise in the number of calls to help services, in suicidal behaviour and in clinical presentations. This is an independent and accurate barometer of how everyday Australians are doing. Are you aware of that tracker?  

Ms Bullock: Yes, I am. In fact I have regular meetings with various organisations—for example, Beyond Blue. They talk to us a lot about this sort of data. We also talk to ACOSS regularly, we talk to other charities in our business liaison program and we hear a lot about the fact that charities are seeing people come in who they haven’t seen before. So this is obviously an indication that they’re stressed. So, yes, we do keep in touch with that stuff. 

Senator ROBERTS: Can you update me on the state of the central bank digital currency, please? The last word we had was I think when Mr Debelle was deputy governor. I understand you’re developing a standard, not an actual currency itself? Is that correct?  

Ms Bullock: We’ve done a couple of things. We ran a pilot program with a real claim on the central bank last year. 

Senator ROBERTS: Is that what’s known as a ‘sandbox’?  

Ms Bullock: It was sort of like a sandbox, if you like. We had a number of different use cases. Various businesses came in with their use cases to use the central bank digital currency. From that information, what we took away was that probably the most fruitful piece of research we could continue with was the use of a central bank digital currency in a wholesale sense. By that I mean there’s a lot of discussion about putting assets on the ledger—for example, having a distributed ledger of financial assets—and then you could have a central bank digital currency which is used to make settlements of those financial instruments, or they might be physical instruments, physical assets. That’s the most fruitful work and that’s where we’re going at the moment. We’re in the process of standing up a project that looks at how a central bank currency could be used in the atomic settlement of assets. That’s where we’re going at the moment.  

Senator ROBERTS: So you’re not developing a standard?  

Ms Bullock: No. Basically, we’re looking at what the business case might look for. We’re not so interested in the technology and we’re not so interested in standards. What we’re interested in is: is there a business for this?  

Senator ROBERTS: Would that allow other parties, including each of the banks, to develop their own cryptocurrency?  

Ms Bullock: The banks themselves can develop what some people call ‘stable coins’, and some banks have developed stable coins. Central bank digital currency, if it were to be developed, would be something that everyone could potentially use—not literally every Australian, because, if we’re focusing on business, then it might be that some businesses can use it. Individual banks can, in theory, at the moment—and some of them have experimented with it—develop stable coins, which are effectively cryptocurrency. CHAIR: It’s your last question, Senator Roberts.  

Senator ROBERTS: This would not exclude existing cryptocurrencies, such as bitcoin?  

Ms Bullock: No. The central bank digital currencies would not have a relationship with bitcoin, no.  

Senator ROBERTS: But it wouldn’t exclude bitcoin?  

Ms Bullock: What do you mean by ‘exclude bitcoin’?  

Senator ROBERTS: To sideline them or remove them.  

Ms Bullock: No, bitcoin would continue to exist, but central bank digital currencies offer a different business proposition than bitcoin. Bitcoin has particular uses; central bank digital currencies would not be encroaching on that space, I suspect. 

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Stagnant Wages, Skyrocketing Energy Costs and Record Business Failures

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Real wages have gone backwards, erasing a decade of pay rises since this government took office. This data is up to March, so it doesn’t reflect the current inflation rise.  So, if Australians feel they’re working harder and getting less, it’s because they are. 

Net zero policies are driving up electricity prices, which in turn affect the entire economy. Every sector—whether farming, manufacturing, or retail—uses power, and rising energy costs inevitably get passed on. In the March quarter, business bankruptcies reached record levels, with the construction sector hit particularly hard. Housing construction is declining, yet the government continues to bring in more immigrants. 

This government has clearly failed in its economic management—there is no trust left.

Transcript

The Reserve Bank has just announced the inflation rate for May as four per cent, which is above the expected rate of 3.8 per cent. What’s even worse is that the underlying inflation rate, which had been trending downward, has now increased to 4.4 per cent. Inflation is surging, and it’s entirely the fault of the Albanese Labor government. Today we heard Finance Minister Gallagher again bragging about this government’s track record on protecting wages. The data does not support that statement. 

According to the Australia Institute, real wages of everyday Australians have fallen from $52,900 to $52,080 since this government came to power. That figure has been calculated to March this year, so it doesn’t take into account what is now rising inflation. If everyday Australians feel like they’re working harder and going backwards, it’s because you are. The inflation spike was entirely predictable. Net zero measures continue to force up electricity prices, which cascade throughout our entire economy. Every business, from farming to manufacturing to retailing, uses power. Any increase in power has to be passed on, and this is what we’re now seeing. 

One Nation calls on the government to abandon the insane net zero transition before the economy falls apart entirely, catastrophically. In the March quarter, business bankruptcies were at record levels. Bankruptcies in the building sector were especially high. Housing construction is not rising; it’s falling. Yet this government continues to bring in more new-arrival immigrants, which is inherently inflationary. The economy as a whole is just barely staying out of recession, with GDP growth at 0.2 per cent, a figure that shows the destruction that net zero is causing to our entire economy. I hope the Reserve Bank holds its nerve and doesn’t raise interest rates. If it raises rates, everyday Australians will be doing it even tougher. What a mess. This government is not fit to govern—no trust. 

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2023 Year in Review: Reserve Bank of Australia

Very few in the media acknowledge the Reserve Bank creating $500 billion out of thin air is a major cause of inflation.

I was laughed at when I first challenged RBA Governor Phillip Lowe, then he had to admit I was right.

RBA creates inflation by printing money out of thin air
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Reserve Bank Rate Decision

Why does the Reserve Bank want to send everyone broke?

The RBA will make its interest rate decision shortly.

In this video from the last interest rate decision, I explain how crazy their plan is and how it’s a problem they created.

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Reserve Bank Uses “Blunt Tool” on Inflation

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The new Governor of the Reserve Bank is not ruling out raising the cash rate again to further control inflation. She refers to these measures as part of a tightening phase.

The Reserve Bank is unwinding the massive expansionary monetary policy it took during the COVID response which created $500 billion out of thin air. Meanwhile the States and the Federal ALP are spending money like it is play money.

This spending acts against the Reserve Bank’s rate rises. This is why I say this Government is hitting the brake and the accelerator at the same time.

The high rate of immigration is expanding the economy and that also acts against the dampening effect of rate rises. The pain and stress of mortgage rate hikes can be attributed to the costly COVID response and to immigration. That is all on Prime Minister Albanese and Treasurer Chalmers.

One Nation will reduce immigration to reduce rents and take the heat of the property market, removing the need for further rate rises.

Transcript

Senator ROBERTS: Congratulations on your appointment.

Ms Bullock: Thank you, Senator.

Senator ROBERTS: How does it feel being in a highly complex job which is affecting so many people’s lives and livelihoods?

Ms Bullock: I do feel a great deal of responsibility, Senator.

Senator ROBERTS: Thank you. Inflation has gone from 7.8 per cent, peak, to 5.4 per cent. In your speech yesterday you went on record to say the Reserve Bank will not hesitate to raise rates again if it looks like inflation is not coming under control. Is inflation coming under control? I’m guessing from your comments so far that you’re wary and there are signs that it’s not.

Ms Bullock: I’d say what I said earlier, which is that we got an important piece of information yesterday. We need to take that away, analyse it and figure out what it means for our forecast going forward. That’s no different to the comment we’ve been making to date, which is that we are—’wary’ is a good word. We’re looking at some of the more persistent parts of inflation and asking ourselves: are there signs that those might be coming down in the future? So, yes, we are wary. We don’t know if the job is done yet, and we’ve made that very clear. Even though we haven’t raised interest rates since our last interest rate rise in June, we’ve made it very clear that we might need to go again. We had not ruled that out, and we’re in the same position now.

Senator ROBERTS: When debating the need for a rate rise, is the effect on mortgage affordability, especially mortgage stress, taken into account? If so, what measure do you use, and what is that measure telling you about how hard life is getting for mortgagees?

Ms Bullock: We do understand that there is a distribution—let me step back for one moment. Higher interest rates and monetary policy work through a number of channels. The one that gets the most attention is what we call the cash flow channel, which is the impact on people who have debt. That gets a lot of attention, particularly in Australia, because, as Chris already mentioned, most of the debt of households and businesses is variable rate debt or very short fixed-rate debt. That’s why that channel gets the most attention, but there are other channels. In fact, Chris gave a speech on that fairly recently. One is the intertemporal channel, which basically means: as interest rates go up, people are incentivised to save rather than to spend, and in fact we are observing that. We are still seeing people in aggregate save, and there’s an incentive even for mortgage holders to save. Their interest rates have gone up, so, for them, there’s an incentive now to try and put even more away into their offset and redraw accounts if they can. That’s the other way that it works. Another channel is the exchange rate channel. The way that works is: as interest rates rise, the exchange rate—if everyone else wasn’t raising their interest rates the exchange rate would rise, but at the moment it means that it hasn’t fallen very much. It has been reasonably stable over the last year. We’re not getting inflation through that particular channel. There are other channels as well.

Senator ROBERTS: Do you measure the stress?

Ms Bullock: No. We can’t very precisely say: particular channels contribute X to inflation. We can’t do it that way. But they’re all the channels that we’re watching and trying to understand how they might impact.

Senator ROBERTS: How do you assess whether or not people are under mortgage stress? Ms Bullock: We don’t do individual mortgage stress assessments. What we can observe is data we get from the banks on hardship calls that they’ve got, arrears rates and those sorts of things. We can observe those at aggregate level. The feedback we’re getting at the moment, from the banks and from the data we see, is that that has risen but it’s still at very low levels.

CHAIR: Last question.

Senator ROBERTS: Surely the inflation that’s still hitting Australians has something to do with the Reserve Bank creating $500 billion out of thin air—or, as Dr Debelle said, electronic journal entries—over COVID. Have you thought about that? Your predecessor admitted it was a cause of the inflation problem, creating that $500 billion out of thin air.

Ms Bullock: Basically, you’re referring to the massive expansionary monetary policy that we undertook during the pandemic?

Senator ROBERTS: Yes.

Ms Bullock: I think my response would be that, at the time, we were facing a very, very dire economic situation, and the appropriate response at the time was to run a very expansionary monetary policy. We have now unwound that and we’re in a tightening phase, so, yes, the purpose of the expansionary monetary policy was in fact to encourage demand and encourage growth. That was very much the intention. To the extent that we look back and now say, ‘Well, demand is too strong,’ we are now in a tightening phase to wind that back. But I wouldn’t say it was the sole reason for the increase in inflation. You might remember that there were very big supply chain issues as well, and when constrained supply meets high demand, you get inflation.

Senator ROBERTS: Building on that, you have a very blunt tool to attack inflation, don’t you? Because the cash rate for the entire country is a very blunt tool to try to bring down inflation.

Ms Bullock: Yes, it’s a blunt tool.

Senator ROBERTS: Thank you.

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RBA’s Ties to US Dollars Leaves Australia Exposed

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The BRICS member states are abandoning the United States’ dollar and other nations are seeking to join the BRICS bloc, which accounts for 25% of world trade and is expected to grow to 50% by 2030. The US dollar is now just 58% of all world trade. As the world moves away from the US dollar its value may fall.

Our Reserve Bank holds AU$35 billion in foreign reserves and half of that is in US treasuries securities. I asked the Governor whether the RBA had modeled the probability of that fall on Australia’s US holdings and whether they intended to invest in more US treasuries. The governor expects Australia’s economy to grow and foreign holdings to increase — as part of risk management however they are looking at other currency markets in line with the RBA’s key bench marks, but without speculating on any future currency fluctuations.

The BRICS group of major emerging economies — Brazil, Russia, India, China (the four founding members of the bloc) and South Africa is holding its 15th heads of state and government summit in Johannesburg on 22nd August. Founded as an informal club in 2009, it was initially created as a platform to challenge a world order dominated by the US and its allies with a focus on economic cooperation and increasing multilateral trade and development. As many as 23 countries have now formally applied to join the group and many more are said to be interested.

With more countries investing in and accumulating greater gold reserves and widespread reports that the BRICS alliance is working on creating a new gold-backed trading currency, I asked the Governor if Australia is planning to increase our gold reserves.

The answer was no. “We’ve got our gold reserves and we haven’t bought and sold for a long time, and we have no intention of changing that.”

Transcript

Senator Roberts: I have a question about the Reserve Bank’s reserves. Let me get to it by giving some background. At the BRICS meeting in Cape Town on 2 and 3 June, 13 nations will formally apply to join BRICS, which is currently Brazil, Russia, India, China, South Africa—and Saudi Arabia, with an each-way bet. Candidate nations include Mexico, Argentina, the United Arab Emirates, Egypt, Indonesia and Iran. BRICS is now the world’s largest trading bloc, accounting for 25 per cent of world trade which is expected to grow to 50 per cent by 2030. And it’s big in oil.

BRICS member states are abandoning the US dollar in favour of using their own currency or the Chinese renminbi in an environment where other countries, including Australia, are doing the same thing. Pakistan is now buying Russian oil and renminbi. The US dollar is now denominating just 58 per cent of all world trade. The United States has printed $10 trillion over the last seven years, doubling their M2 money supply. That increase has been absorbed in part by an increase in international trade.  As the world moves away from the US dollar the value of the US dollar may fall. The Reserve Bank holds United States treasuries and dollars. Have you modelled the effect on your balance sheet from that probable fall in the value of US holdings.

Mr Lowe: Not as a result of these other global changes you’ve talked about. We spend a lot of time and part of our risk management processes looking at volatility in currencies, because currencies move around all the time, don’t they? That affects the value of those assets on our balance sheet, so we model that from a risk-management perspective. Despite the developments you’re talking about, most countries still hold the bulk of their foreign reserves in US dollars. There’s diversification going on, which is good, but the US dollar is going to remain the dominant currency for some time.

Senator Roberts: What is the value of Reserve Bank holdings of US dollar and US treasuries in Australian dollars?

Mr Lowe: Our total foreign reserves at the moment I think are the equivalent of U$35 billion. What’s the share, Brad?

Dr Jones: I think it’s 55 per cent.

Mr Lowe: Roughly half of that $35 billion is allocated to US dollars, and then we have holdings of yen, Korean won, euros and rmb.

Senator Roberts: What about treasuries?

Mr Lowe: When we hold US dollars we invest it in US Treasury securities. We don’t invest in bank deposits or any other securities. We invest in US government securities.

Senator Roberts: What’s the reverse holding of Australian government currency and bonds held by the US government or their agencies?

Mr Lowe: We don’t have data on that.

Senator Roberts: Could you get that on notice?

Mr Lowe: No.

Senator Roberts: You don’t have it?

Mr Lowe: We don’t have data on specific holdings of other countries.

Dr Jones: If I understood your question correctly, Senator, the US holds euros and yen, from recollection, but not in large quantities.

Senator Roberts: While that arrangement helps with international stability across holdings, it is a method for backdoor quantitative easing. Does the Reserve Bank expect to increase your holding of US treasuries in the next 12 months?

Mr Lowe: We’ve just done an exercise where we were looking at how much of our balance sheet should be held in foreign assets. We said we’ve got $35 billion at the moment. As the size of the economy grows you would expect that to gradually increase. But, no, nothing dramatic. As the economy grows and the nominal value of the Australian economy gets bigger, then you would expect a bigger portfolio in US dollars and foreign currency.

Senator Roberts: The Reserve Bank has a mission to anticipate movements in major trading partners and in world markets. As it affects your provisioning and portfolio, does the Reserve Bank anticipate being affected by any out of the ordinary moves in financial markets in connection with the US economy or the US dollar over forward estimates?

Mr Lowe: We’ve recently been focused on the US debt limit issues in the US. If an agreement had not been reached there, that would have had implications for currency markets and economies around the world. So that’s one thing that we’ve looked at carefully. It looks like that has been resolved, thankfully. And, just as part of our general risk management exercise, we’re looking at developments in other economies and their implications for currency markets in own economy.

Dr Jones: As a general rule though, the way the bank has operated its reserves has changed quite a bit over the last, say, 25 years, and now the bank effectively sets key benchmarks and sticks to them. There are not big discretionary decisions going on every day. There’s wild speculation going on at the Reserve Bank, I can assure you, about the future value of exchange rates.

Senator Roberts: I wasn’t implying that. Worldwide purchases of US treasuries by central banks has fallen $600 billion in 2022 as compared to a baseline year of 2013. That’s just arbitrary—2013. Purchases of gold have increased $300 billion. So something is going on that Australia would be prudent to hedge against. Is the Reserve Bank increasing its gold reserves as an each way bet against BRICS introducing a gold brick currency of some form?

Mr Lowe: No, we’re not. We’ve got our gold reserves. We haven’t bought and sold for a long time and we have no intention of changing that at the moment.

Senator Roberts: Thank you, Governor.

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