posted on 2017-06-05, 02:02authored byAvram, Katherine J.
This paper presents a detailed analysis of how changes in the supply of reserves are used by the Reserve Bank of Australia to influence interest rates and the Australian money supply. Prior to the financial deregulation of the 1980s the primary methods of implementing monetary policy in Australia were through direct controls over bank lending and interest rates, and through varying the reserve requirements imposed on banks. By varying the reserve requirements, the monetary authorities were able to change the size of the credit multiplier. This method is no longer used. In Australia monetary policy is now implemented by controlling the supply of reserves for clearing purposes. Required reserves are not necessary for the operation of this system.