A year after the Citizens Party stopped Treasurer Jim Chalmers from legislating away democratic accountability over the Reserve Bank of Australia (RBA), the International Monetary Fund (IMF) is not happy.

In its latest annual assessment of the Australian economy, the IMF has reiterated that the Treasurer should give up his power to override the RBA in Section 11 of the RBA Act 1959.

“While it has never been invoked, repealing the treasurer’s power to override monetary policy decisions—as also recommended by the RBA review—would further strengthen central bank independence,” the IMF said.

The problem for the IMF is the Treasurer already tried—but a year ago the Citizens Party stopped him.

Bankers’ dictatorship

The power central banks wield over the economy is immense: by raising and lowering interest rates they control the credit that is the lifeblood of the economy, and determine the fate of all borrowers and businesses.

If this power is not subject to democratic accountability, the banking bureaucrats who wield it are effectively economic dictators.

Australia experienced such a bankers’ dictatorship during the Great Depression of the 1930s.

To alleviate the hardship of crushed and starving Australian families at a time of 33 per cent male unemployment, the Labor government directed the government-owned Commonwealth Bank, popularly called the People’s Bank, to issue funds for investment in agriculture and infrastructure that would create jobs.

At the time, Australia was under orders from the Bank of England to do the opposite: impose brutal austerity through wage cuts and budget cuts.

However, the government assumed the bank that it owned would follow its orders. It didn’t.

Commonwealth Bank Governor Sir Robert Gibson considered the bank to be a higher economic power than the government, and openly defied the order, declaring, “I bloody well won’t.”

Amid the political turmoil over the confrontation, the Labor Party split and lost the next election, but the controversy was so great the new conservative government appointed a royal commission to inquire into whether the elected government or the bank should have the ultimate authority over monetary policy.

In its 1937 report, the Royal Commission on Banking found that “the federal Parliament is ultimately responsible for monetary policy, and the government of the day is the executive of Parliament.” It recommended that any dispute between the government and the board of the bank should be discussed, and if the differences couldn’t be reconciled the will of the elected government should prevail.

This is exactly what Prime Minister John Curtin and Treasurer Ben Chifley legislated in the Commonwealth Bank Act 1945, which Prime Minister Robert Menzies retained in Section 11 of the Reserve Bank Act 1959.

In 80 years, this power has never been used!

Citizens Party springs into action

So in 2023, when the panel of “experts” that Treasurer Jim Chalmers had appointed to review the RBA made 50 recommendations, the first of which was to repeal this power that enshrined democratic authority over the financial system, the Citizens Party instantly saw that it was a regressive step to bring back a bankers’ dictatorship, and swung into action to protect it.

The Citizens Party worked with then-Liberal Senator Gerard Rennick, and Greens Senator Nick McKim, who had both questioned why the government didn’t use its powers over the RBA, to push for a Senate inquiry.

The Citizens Party mobilised thousands of people to swamp Parliament with phone calls demanding the other parties support the inquiry; one Senator’s aide commented: “There’s no one like the Citizens Party to melt the phones down!”

The resulting Senate inquiry heard from former federal Treasurers and RBA governors who all opposed repealing Section 11, while Liberal Senator Paul Scarr researched the reasons Section 11 was included in the RBA Act in 1959, which helped persuade his party room to oppose the recommendation (despite shadow Treasurer Angus Taylor initially agreeing).

To pass the bill containing the bulk of his RBA reforms on the last sitting day of 2024, Chalmers first had to drop the repeal of Section 11.

A year later, the IMF is still unhappy that there’s a mechanism by which the democratic will of the Australian people can override orders from international banking powers.