Comparative Analysis: RBA and CBSL Monetary Policy Roles

This report provides a comparative analysis of the Reserve Bank of Australia (RBA) and the Central Bank of Sri Lanka (CBSL), focusing on their roles in monetary policy, financial stability, and payment systems. The report explores the RBA's responsibilities, including monetary policy implementation, handling of the Australian dollar, ensuring financial system stability, and managing payment methods. It also details the CBSL's objectives of maintaining economic and price stability and supporting resource creation. The report further examines the conduct of monetary policy, including the roles of the Australian Prudential Regulation Authority (APRA) and the use of macro and micro prudential policies by the CBSL. The issuance and distribution of secure banknotes by both banks, along with their approaches to payment systems, including Australia's RITS and the CBSL's efforts, are also discussed. This analysis highlights the similarities and differences in their approaches to maintaining economic stability and efficient financial systems.

The role of the Reserve Bank of Australia (RBA)
As the central bank of Australia, the RBA is solely in charge of the country’s monetary policy
implementation, distributing and handling the Australian dollar, ensure the financial system’s
stability, maintain an efficient and safe payment method, and through Exchange Settlement
Accounts (ESAs), it is the banker for commercial banks which allows the RBA to control interest
rates. The campaign of the RBA started in 1959 under the Reserve bank act.
The role of the Central Bank of Sri Lanka (CBSL)
The CBSL maintains economic and price stability as well as financial price stability while
supporting and advancing the creation of useful resources in the country. And in the case
where a commercial bank is undergoing a supply shortage, the central bank takes care of the
economy’s funds. Through the years, it was seen that the central bank best works when it stays
independent from the fiscal policy of the government and is not affected by political matters.
The CBSL was established by the Monetary Law Act in 1949.
Conduct of Monetary Policy
Stability of the financial system
For the main purpose of promoting financial stability, the Australian Prudential Regulation
Authority (APRA) provides cost-effective guidance to financial institutions as this policy
framework affects both the RBA and the APRA. Even though it is the bank’s obligation to
increase financial stability, it does not mean that the financial institutions viability is certified
and this results in the institutions’ balance sheets not being available. However, the bank and
the Council of Financial Regulators (CFA) continue to carry on the status as the system's primary
source of liquidity.
The CBSL uses macro and micro prudential policy to control the stability of the financial system.
Macro prudential policy entails keeping an eye on the entire
financial system while using precautionary measures to reduce systemic risks and shield the
essential financial services needed for conducting economic activity from
disturbance.Microprudential policy is where risks are reduced and financial institutions are
improved to maintain integrity through the use of prudential measures and regulation and
managing of those institutions.
The CBSL uses macro and micro prudential policy to control the stability of the financial system.
Macro prudential policy entails keeping an eye on the entire financial system while using

Issue and distribution of secure and reliable banknotes
The RBA has the authority to issue or cancel banknotes which ensures secure and efficient
methods of payment and store of value. Once the RBA distributes banknotes to financial
institutions, the quality of the banknotes is maintained in the circulation process and all
banknotes which are in bad condition are removed from circulation. Counterfeiting methods
are also studied and researched upon in order to improve technology and security.
The Monetary Law Act grants the CBSL the authority to issue Sri Lanka's banknotes and coins
and the primary factor determining the issuance of money is the transaction need for every
denomination. Higher the denomination currency, higher the chances of detecting counterfeits.
Better quality of banknotes is also ensured by applying a clean note policy.
Australia was among the first countries in the world to make efficiency of
payment systems a statutory objective of the central bank. In pursuit of this
mandate, the Reserve Bank has encouraged a reduction in cheque-clearing
times and the take-up of direct debits as a means of bill payment, and taken a
number of steps to improve the competitiveness and efficiency of card systems.
The Bank's powers in relation to the payments system are set out in a number
of statutes, including the Reserve Bank Act, the Payment Systems (Regulation)
Act 1998 and the Payment Systems and Netting Act 1998. Under
the Corporations Act 2001, the Bank, through the Payments System Board, has
responsibility for determining financial stability standards for licensed clearing
and settlement facilities and assessing facilities' compliance with those
standards. Australia's high-value real-time gross settlement system – the
Reserve Bank Information and Transfer System (RITS). The Fast Settlement
Service of RITS settles obligations arising from individual payments exchanged
on the New Payments Platform in real time on a 24/7 basis. A separate area of
the Bank assesses RITS against international standards for such infrastructure
on an annual basis.