Central banking in Australia and New Zealand: historical foundations and modern legislative frameworks

We investigate how central banking emerged in Australia and New Zealand and how the economic developments shaped the legislative framework of their central banks. After exploring how a free-banking system operated in Australasia in the nineteenth century and how financial crises were resolved without resort to central banks, we trace their evolution during the course of the twentieth century. We show that the rise of central banking was triggered by the breakup of a common £ sterling currency area and that core institutional structures of both central banks were intimately connected with the establishment of the war economies in World War II. As a result of this war legacy, central banks in Australia and New Zealand were for a long time viewed as pure instruments of government policy. The associated institutional structures were only unwound in the late 1980s in a program of innovative and world leading reforms.