Sweeping change to rock the RBA

Deputy government Guy Debelle has resigned from the RBA. Picture: John Feder/The Australian

The next governor of the Reserve Bank will now come from outside the bank and trigger the most sweeping changes seen inside the RBA in its 62 years of existence.

The shock departure of the RBA’s deputy-governor Guy Debelle both raises those questions and at the same time makes their delivery all-but inevitable.

There are two very separate aspects to his departure to join Andrew ‘Twiggy’ Forrest in his enthusiastic pursuit of the still mythical and elusive so-called green hydrogen unicorn.

The first is exactly that: Debelle’s decision to leap into the private sector and the hoped-for green energy future – joining somebody with a lot and I mean a lot of money to spend and an enthusiastic willingness to spend it, like Forrest has so often demonstrated.

The second was his departure from the RBA and from what might normally have been expected to have been a seamless succession to the top job when current governor Philip Lowe’s term ended in late 2023, or after any extension like those of both of his two immediate predecessors. That was the basic choice for Debelle: stay at the RBA and commit to spending somewhere between the next nine and twelve years of his life as deputy and then, best case, as governor.

Or grab exactly the chance to indulge his own twin enthusiasms for financial markets and climate change at the point of their multi-trillion dollar intersection - and presumably, although well remunerated at the RBA, with optional financial upside that would be, let’s say, extremely appealing.

On that basis, the decision for him would have been pretty much a no-brainer. But Debelle’s departure also both poses the question, and irresistibly accelerates the delivery, of fundamental change to the closed-ship internal governance that has prevailed at the RBA for the 62 years of its existence.

Reserve Bank deputy governor Guy Debelle has resigned from the RBA. Picture: John Feder/The Australian.

With one solitary exception – Paul Keating’s switch of Bernie Fraser from head of Treasury to RBA governor in 1989 – every governor has come from within the bank.

Indeed, with only one further exception – John Howard’s leap-frogging selection of Bob Johnston, added to the Fraser appointment, deputy governors have seamlessly succeeded governors.

Lowe succeeded Glenn Stevens, who had succeeded Ian Macfarlane, who had succeeded Fraser.

Then add on the fact, that in the 62 years of the RBA, Debelle is the first deputy-governor – or indeed governor – to resign to go to work in the private sector.

Now I suggest the primary drive was the choice I outlined above: that Debelle was ‘pulled’ by Forrest and what he would see as an exciting, intellectually challenging future. But just as clearly, change is almost certainly going to sweep through the RBA, as it has swept through every other institution – and Debelle’s departure both signals that and will effectively deliver it.

That is to say, simply, that the next governor will all-but certainly not come from within the bank. And indeed, with Debelle gone, just can’t.

There are worthy contenders among the next tier of assistant governors to step up to deputy-governor; but the idea of any of them then becoming governor as early as late-2023 is far too premature. There will be an inquiry into the entirety of the RBA, whichever side wins in May – the first ever, again, in 62 years, apart from the broader Wallis inquiry into the financial system, which saw prudential regulation spun out to a separate new entity APRA, but left untouched and intact the core RBA and its closed shop dynamic.

The RBA stands alone now among its global central bank peers of ‘breeding its own’. The Bank of England and the Fed have always had more porous boundaries with The City and Wall St, and indeed politics.

Times really are (about to be) a-changing downunder.