Foreign reserves management policy
The current statutory framework for managing and using New Zealand’s foreign exchange intervention reserves is set out in sections 16–24 of the Reserve Bank of New Zealand Act (“the RBNZ Act”).
This framework is changing, as part of a deep and wide-ranging review of the governing legislation of the Reserve Bank (“The Reserve Bank Act Review”).
The Reserve Bank Act Review has considered:
- the objectives for New Zealand’s foreign exchange intervention reserves
- stakeholders’ roles and responsibilities in relation to the foreign exchange intervention reserves (stakeholders include the Reserve Bank, the Minister of Finance, the Treasury, and the New Zealand public)
- coordination and cooperation arrangements across stakeholders
- transparency and accountability arrangements that support good practices for reserve management.
Our policy and approach for managing and using the foreign exchange reserves will evolve and adapt to the Review’s outcomes. We will publish more details on our foreign reserves management and coordination policy on this page in due course.
Meanwhile, more information about the Review can be found on the RBNZ Act Review page on the Treasury’s website.
Ministerial directions on the foreign reserves
From time to time, the Minister of Finance may direct us to deal in the market for foreign exchange to affect the exchange rate or exchange rate trends, within prescribed guidelines.
Previous ministerial directions have tended to be issued to allow us to intervene to address the risk of illiquidity or dysfunction in the market for the New Zealand dollar (“NZD”). By being ready to buy and sell NZD, we help to support a resilient and well-functioning market. The confidence this can deliver encourages market participants to continue to price in NZD amongst themselves and for their customers, even in times of market stress.
These directions are available below.
We may also choose to intervene in the market for NZD using our own powers under the RBNZ Act, without the need for a ministerial direction. These kind of interventions might be to support the implementation of monetary policy, or to advance our economic objectives.
Directions can be temporarily withheld
Because ministerial directions to deal in foreign exchange can contain market-sensitive information, it may be necessary for us to temporarily withhold that information to meet the direction, or otherwise use the foreign reserves to carry out our statutory purposes and activities.
For this reason, we do not publish all ministerial directions immediately. The dates below refer to when the material was provided to the Minister of Finance and Cabinet, rather than the date of public release.
Previous ministerial directions
2020 Memorandum to the Governor of the Reserve Bank of New Zealand: Direction to the Reserve Bank to intervene in the foreign exchange market under section 17 of the Reserve Bank of New Zealand Act (revoked) (PDF 1.6MB):
- In March 2020, the Minister for Finance directed us to transact in the market for foreign exchange if necessary to address problems in market function. The direction was issued because we were concerned there could be foreign exchange market dysfunction as a result of the Covid-19 outbreak and the risk it presented to the global economy. The 2020 ministerial direction revoked a previous 2004 ministerial direction (see below).
- In December 2020, the Minister of Finance revoked the March 2020 ministerial direction (above), because the risks that the direction addressed were no longer in evidence. More information on that decision is available in ‘Reviewing the Section 17 Foreign Exchange Direction’ (PDF 2MB).
2004 Memorandum to the Governor of the Reserve Bank of New Zealand: Reconfirmation of Direction to the Reserve Bank to intervene in the foreign exchange market under section 17 of the Reserve Bank of New Zealand Act (revoked) (PDF 78KB):
- In March 2004, the Minister of Finance directed us to transact in the market for foreign exchange if necessary to prevent or resolve market dysfunction. See supporting information relating to this 2004 direction in our information releases page.
Agreements with foreign official institutions
We have bilateral credit lines in place with several foreign official institutions to enhance the liquidity of our foreign reserves portfolio, to underpin the function of the foreign exchange market, and to support domestic financial stability.
These credit lines are liquidity facilities that allow us to readily access foreign currency, even in times of severe market stress. This lends confidence that the needs of the domestic market for foreign currency liquidity can be met, and that cross-border transactions between New Zealand and foreign businesses can settle, even when ordinary sources of foreign currency liquidity might be impaired.
We have credit lines in place with:
- the United States Federal Reserve, allowing us to borrow US dollars (USD) in exchange for NZD
- the Bank for International Settlements, allowing us to borrow USD on a collateralised basis
- the Hong Kong Monetary Authority, allowing us to borrow USD in exchange for US Government securities
- the People’s Bank of China, allowing us to borrow renminbi (RMB) in exchange for NZD.
More information on the credit line with the US Federal Reserve is available on our news release page.
Credit line with the People’s Bank of China
In August 2020, we signed an agreement with The People's Bank of China (PBOC) to renew and extend a reciprocal NZD/renminbi (RMB) currency swap line.
First agreed in 2011, the swap line aims to promote bilateral trade and direct investment between the two countries and support domestic financial stability, should market conditions need it.
The maximum value of the swap line is RMB 25 billion. It has a five-year maturity which may be extended if both parties agree.