The Federal Government will be paid a substantially lower dividend from the Reserve Bank due to the value of its foreign assets being hurt by the resurgent Australian dollar over the past year.
In its annual report released this afternoon, the RBA said it would send a lighter $1.28 billion to Treasury in 2016/17 compared to $3.22 billion in the previous year.
Announcing an accounting loss of $897 million — down from $2.88 billion — RBA governor Philip Lowe blamed valuation losses on holdings of foreign assets caused by the appreciation of the Australian dollar.
Dr Lowe also pointed to the impact of low interest rates around the world and in Australia where the cash rate stands at an historic low of 1.5 per cent.
The annual report says underlying earnings at the RBA was $1 billion, with $300 million earned from capital gains.
In the annual report's forward, Dr Lowe reasserts the central bank's conservative approach to a still uncertain global economy.
"The Reserve Bank board is committed to having a strong balance sheet so that it can effectively perform its operations under a wide range of scenarios," Dr Lowe says.
"As the balance sheet has grown over recent times, there has been an increase in the share of the bank's assets that have relatively low market risk."
Consultancy expenditure higher than at height of GFC
The annual report also reveals the Reserve Bank's spending on external consultancies was $987,388 in 2016/17 — up from $61,000 in 2009/10 at the height of the global financial crisis.
However, the report says about half of the spending was for an external review of the RBA's operations and to advise on the upgrade of Australian banknotes, with the new $5 note issued late last year.
The Reserve Bank will unveil a new $10 banknote next week.
The RBA says at the end of June there were 1.5 billion banknotes in circulation, worth $73.6 billion.
A new banknote distribution centre in Craigieburn in outer Melbourne was completed to deal with the growth of paper money in circulation, the report says.
But Dr Lowe notes the rise of the cashless society and the potential impact on traditional transactions.
"While cash is being used less in day-to-day transactions, the value of banknotes on issue relative to GDP [gross domestic product] is at its highest in more than five decades, reflecting its ongoing use as a store of value," Dr Lowe says in the report.
As governor, Dr Lowe is the highest paid of the Reserve Bank's 47 executives with a package of $930,662 comprising a base wage of $802,222 with $128,440 in employer superannuation.
Follow Peter Ryan on Twitter: @peter_f_ryan
