There were always limits to what the Banking Royal Commission could do in the time available and within the restrictive terms of reference set by Prime Minister Malcolm Turnbull. However, one thing is now crystal clear. The Australian public must be able to avoid using private banks as easily as possible.
The current model where people have little choice as to whether they have a ‘relationship’ with a private bank is old fashioned, out of date and completely unnecessary. Why should Australians be effectively forced to deal with private companies they do not trust?
Furthermore there is a simple solution to the problem that should be an election promise of EVERY political party for the next Federal Election.
MyRBA – 100% Guaranteed Inflation Protected Deposit Accounts at the RBA.
Every Australian should be given the right to open a MyRBA deposit account at the Reserve Bank of Australia. As the Reserve Bank of Australia is the foundation of the Australian monetary system, the RBA cannot fail and thus the contents of their MyRBA account will always be 100% guaranteed.
Your MyRBA account will also pay ‘a ‘CPI adjustment’ on your MyRBA balance at the rate of CPI so that the contents of the account are always protected from the effects of inflation. Furthermore, as recommended by ‘friend of the show’ DarkMatter the ‘CPI adjustment’ will not be taxable income.
Opening your MyRBA account
Opening your MyRBA account will be as easy as completing an On-Line form on the RBA website or by visiting your closest government office (CentreLink, Australia Post etc).
Most people will prefer operating their account using the MyRBA website or a smart phone app but for those that prefer dealing with a human face, Australia Post and some other government offices (e.g. Centrelink) will offer over the counter services.
How do you use your MyRBA account?
Using your MyRBA account will be very simple.
If someone owes you money you will just give them your MyRBA account details and they will transfer the money to your MyRBA account. They don’t need to have a MyRBA account as the RBA is very experienced in handling transfers from the private banks.
If you need to transfer money to another person you will just use the account details they give you. If the person you are transferring money to has a MyRBA account the transaction will be very simple as the RBA will simply debit your account and credit their account.
Shopping with your MyRBA account at the shops or on-line could not be simpler as you will be able to obtain a debit card linked to your MyRBA account and shop exactly as you do now.
What about cash?
As the RBA regulates the payments network the RBA will regulate to allow you to use your debit card at any ATM across Australia to withdraw money from your MyRBA account.
Bu what if I want to earn more interest on my savings?
Your MyRBA account will receive CPI adjustments to maintain the value of your savings.
So if the inflation rate is 2% your MyRBA account will pay 2% in CPI adjustments. This stops your savings shrinking in value due to inflation.
If you want to earn more interest than that on your savings you will need to invest them. Investing your money can earn you more interest but it does involve some risk as not all investments are profitable.
To invest some of the money in your MyRBA account you will need to transfer it to an investment company. That might be a private company that lends money to people who wish to buy a home. They charge the people borrowing the money interest and they will pay some of that interest to you.
If all goes well you may earn more interest than you would earn on your 100% Guaranteed MyRBA account but if the investment company makes some bad loans and the borrowers default you may find you get less interest and may even lose some of your investment. But that risk is why you may earn more interest than the CPI adjustment on your MyRBA account.
The important thing is that you get to choose whether you take any risk with your savings to earn a higher rate of return on your savings.
Will there be any account keeping or transaction fees?
Every Australian should have access to a 100% safe and inflation protected method of saving. There should be no charges for what should be a fundamental and essential public service.
In additional every Australian should be able to transfer their savings to buy goods and services, buy investment products and transfer money to other people at low cost. As far as possible these transfer or ‘transaction’ services should be also free of charge though some charges for excessive usage may be necessary.
What other services will the RBA offer the average Australian?
The RBA will only offer services that support the operation of the MyRBA deposit accounts. The RBA will not offer any loans or mortgages as loans and mortgages inherently involve risk and it is better that those services be offered by companies that specialise in assessing risk and pricing loans accordingly.
Australians who wish to earn more return will simply transfer some of the money in their MyRBA account to companies that engage in the business of lending or by using the money in their MyRBA account to buy shares or other investments.
What about Credit Unions and Community Banks?
Many people avoid the Big 4 Banks by opening deposit accounts at Credit Unions and community banks like Bendigo Bank. They like dealing with smaller organisations and are happy with the service.
While Credit Unions and community banks are popular they are still engaged in lending activities that involve risk and by doing so earn more interest and are able to pay more interest to account holders. So an account at a Credit Union or community bank is not really the same as a 100% guaranteed inflation protected MyRBA account.
But doesn’t the government guarantee deposits at the private banks?
After the GFC the government introduced a guarantee on some deposits held at private banks. This was because savers understood that deposits at private banks are risky and there were growing fears whether some banks might be at risk of collapse. In the months after the GFC, deposits in some of the smaller Australian banks started to move rapidly towards the larger Australian banks.
By introducing 100% guaranteed MyRBA accounts this problem is permanently solved. Anyone who wants 100% safety for some of the money will just put that money in their MyRBA account.
If people want to earn more interest or achieve a higher rate of return by moving some money out of their MyRBA account they will need to accept some risk that they may not get a higher return or may even lose part or all of their investment. Why should the taxpayer provide a guarantee for money that someone is putting at risk in pursuit of a higher return?
So where does the RBA get the ‘CPI adjustment’ that it will pay on the MyRBA account balances?
The RBA will only pay a CPI adjustment to maintain the current value of your savings in your MyRBA account. This will be equal to the current CPI or whatever measure is adopted for this purpose.
The RBA will simply create the money required to do this just as it creates the money when it ‘buys’ a government bond from banks during open market operations. All that is involved is the making of some accounting entries in the RBA accounts.
To make the purpose of the creation clear the accounting entries might be labelled as follows:
Credit Australian Citizen MyRBA account No. 12345 (+ 1% for CPI adjustment)
Debit RBA – Money creation for MyRBA CPI adjustments
The CPI adjustments made by the RBA will not ’embed’ inflation because the factors influencing the rate of inflation are many and varied and there are plenty of ways the RBA and the government can manage inflation if they consider it desirable. One of the most effective ways of reducing inflation due to excessive demand might be to reduce bank lending for house price speculation. Debt driven speculation is one of the most common causes of inflation in an economy.
The last people who should bear the cost of inflation are the millions of Australians with modest savings in their MyRBA accounts.
The Banking Royal Commission has made it clear that our banking system needs reform and lots of it. Sorting out those reforms will take time and we can be sure that the banks will fight reform every step of the way if it reduces the fat profits they have enjoyed in recent years at the expense of the Australian community.
One thing that can be done right now and at relatively low cost is to give every Australian a simple way of saving that is 100% guaranteed and inflation protected.
Most importantly it gives them an option that allows them to easily avoid dealing with the banks at all.
Every Australian should have a right to open a MyRBA accounts immediately.