The god of the forest has left the building. Reserve Bank governor Adrian Orr has stepped down, abandoning his position as the most powerful figure in New Zealand’s financial system in much the same manner as he conducted it: controversial, disruptive and disinclined to explain himself.
Orr’s resignation came with three years left to run on his second five-year term. Before his appointment, he was chief executive of the NZ Super Fund, delivering staggering returns and arguably creating more value for the public than any other figure in our modern history. His critics say his monetary policy during Covid inflicted more damage on the economy than anyone since Robert Muldoon and Roger Douglas. You win some, you lose some.
Central bank independence is the jewel in the crown of neoliberal economic policy. The theory is that politicians cannot be trusted with the monetary cycle, so financial stability must be outsourced to an apolitical technocrat.
Although funded by the government, Reserve Bank governors do not take direction on how to spend their budgets. In many ways, the position is more powerful than the Prime Minister, who needs support from cabinet, caucus, coalition partners, and – last and perhaps least – is accountable to voters. The RBNZ rules alone, serene and primal.
And that was part of the problem. The bank’s independence is contingent on its political neutrality, but under Orr’s leadership, it expanded its remit to include climate change and adoption of a te ao Māori framework around the bank’s role and purpose. In a 2022 speech, Orr declared that the bank was the Tāne Mahuta of the financial system: the money it printed was the sap flowing through the economy; the payments and settlements system was the trunk, and so on.
Matauranga Māori became a kind of state religion across much of the government during the Jacinda Ardern years. But it was unusual to see such a senior figure make such a public declaration of faith – especially to an audience as conservative as the finance sector.
There’s a case for both cultural inclusion and treating climate as a financial problem, but these shifts occurred alongside the Labour government advancing polarising policies around carbon reduction and co-governance, so there was a perception on the right that Orr was defecting from the apolitical nature of his institution, building his own parallel progressive government that wasn’t accountable to voters.
He was also at the centre of a ferocious argument about regulation of the financial system. When banks fail, they often take the rest of the economy down with them, so governments will generally bail them out. This creates a perverse incentive for banks to take large risks, privatise the gains and let taxpayers socialise the losses when the crash comes.
The Oz effect
New Zealand is unusually vulnerable here: our large banks are Australian; they repatriate their profits but most of their balance sheets sit here. In the event of a crash, the Australian government is unlikely to bail out New Zealand’s financial system. So, under Orr, the RBNZ increased the amount of capital the banks need to hold to safeguard against potential losses: enough to withstand a one-in-200-year financial crisis. The banks say this is unreasonable – most international regulations stress-test for a one-in-100-year crisis – and they argue Orr’s requirements keep interest rates high and are a drag on economic growth.
A 2024 Commerce Commission report pointed out the lack of competition in our banking sector, suggesting the regulatory barriers for entry were too high. And this reportedly brought Orr into conflict with Finance Minister Nicola Willis, who is determined to grow competition across our economy, especially in the banking sector.
Then there was the Covid pandemic response. Orr maintained that he moved quickly to lower interest rates in the early stages of the pandemic, raise them during the inflationary period, then lower them again when the economy slowed. He says his bank’s stimulus response was in line with that of other central banks around the world and dismissed his critics as having the benefit of hindsight.
Those critics reply that then-finance minister Grant Robertson spent a lot more money relative to the size of our economy than other governments; that Orr should have moderated his measures to account for this; that many central banks across the OECD moved before ours did and that Orr’s claims to the contrary when testifying before Parliament’s finance and expenditure committee bordered on misleading Parliament. As for hindsight, his critics reply that the Reserve Bank is lavishly funded and granted enormous power to exercise foresight. The consequences of its failure to do so over the past five years have been catastrophic, and Orr’s apparent inability to admit any mistakes did not bode well for future crises.
Reasons unexplained
We do not know why the governor resigned without an explanation a day before his organisation was due to host an international research conference, but most bets are on a combination of factors: a fight over budgets, the level of regulation, tensions over perceived politicisation of the bank heightened by the election of a right-wing government, the bitterness of the post-Covid era and the bank’s performance over those years.
But Orr and his disappearance is also an avatar of a global phenomenon. The last 20 years have seen government institutions around the world shift to the left, and this has correlated with both an increased cost of government and a general decline in state capacity.
We’re living in a moment of backlash against bureaucracy, most visibly in the US, but the Starmer government in the UK has promised a radical reform of Whitehall, Xi Jinping is on a crusade against pointless meetings and paper-pushers in Beijing and Argentina’s Javier Milei ripped up the organisational chart of his federal government, shouting “Afuera!” (“Out”), as he destroyed half of his ministries.
Perhaps it’s appropriate for New Zealand’s most prominent representative of our own repoliticised technocracy to simply vanish?
