This is where the interview gets really sticky. The hardest problems any policymaker faces are not the expected challenges, or even the difficult research questions, but events that are truly unexpected.
The Covid-19 Crisis is a classic example of this. The Securency bribery scandal was another.
To test the interviewees’ out of the box thinking the next three questions feature some disaster scenarios that would push the Reserve Bank of Australia well beyond its traditional playbook and require a level of creative thinking for circumstances which there is little historical precedent.
Your answers should be limited only by your imagination.
Suppose a member of the Reserve Bank Board starts leaking confidential information and backgrounding against the consensus position. What would you do?
An improbable scenario, but certainly not impossible. What would you do if a RBA Board member went rogue and started leaking confidential information? Or complaining to journalists about the Board’s deliberations?
It would be a nightmare of a scenario with no clear-cut answers - especially if you didn't know which board member was leaking. Obviously if you knew who the rogue was you could ask them to resign. But what if you didn’t know? Or only vaguely suspected?
Would you deploy a Canary Trap with the Board’s papers? Or maybe go to the Treasurer and ask for a completely clean new slate of board members even with the terrible look that would send to the country? Or perhaps embrace radically transparency and let all board members vent their feelings, if not their confidential data, publicly?
Bonus points if your proposed solution is also able to stop members of the Party Room leaking against the Treasurer too.
What would your response be to an outbreak of hostilities in the Taiwanese Strait?
A true nightmare scenario although I am not sure it could be classified as highly unlikely. Let's keep the specifics vague (none of us are armchair Generals here) but what would your response be to hostilities with one of our major trading partners? Even if it didn't result in out-right war it would almost certainly end our trading relationship with the export bans being enacted not to mention the collapse of the East Asia trade network. Would you try and prop up Australian dollar from its inevitable crash? Or coordinate with other (friendly) central banks to manage the decline?
Bonus points if you can convince me that this will never happen
It’s a period of financial stress and the CEO of one of the Major Banks calls you and discloses there is a high probability of them being insolvent in the next 4 weeks. What would you do?
Let's be honest if one of the Big Four Banks is a month away from bankruptcy some massive regulatory and macroprudential policy mistakes have already been made. But let bygones be bygones and consider the scenario where one pillar of the Australian financial system is on the brink of ruin.
While this would not fall strictly under the remit of the Reserve Bank it would play a critical role in coordinating the response with Treasury and APRA and surely take a leading role in negotiating the inevitable bail-out of the bank in question.
This question allows candidates to demonstrate not just their economics but their grasp of how the broader Australian regulatory system fits together. Who would you call first? How deeply would you get involved in the bailout? Would you push for an equity stake? How would you manage the resulting issues of competition and political interference that might result?
Bonus points if your plan results in less than 5 Royal Commissions by the time it is completed.
What would you do if a substantial fraction of Australians started transacting and/or borrowing in another currency?
All of the RBA’s power is essentially derived from it’s role as the only supplier of the Australian dollar. But what if the economy it managed started to drift towards another currency? Whether it was some digital cryptocurrency that took off or merely Australian households started borrowing in another currency? This would pose a large risk to the RBA’s ability to manage the money supply, payments system and financial stability within the Australian economy.
This is a pretty unlikely outcome, but it’s consequences could be profound if it occurred and a good candidate should be able to unpack why it might occur, what it would mean and how they might head it off.
Bonus points if you promise to shutdown the energy-burning, terrorism-enabling, speculative bubble that is Bitcoin in Australia.
As Governor what metrics would you want me to use when considering whether to re-appoint you to a second term?
Let’s be honest many, if not most, of these questions have been trying to pin down what each candidate would do as the single most power public servant in the country. The RBA Governor has broad power with limited oversight, and establishing specific metrics for what defines success and failure in the role (and subsequently holding them to it) would represent a profound improvement over the current process.
Bonus points if you agree to have these specific metrics made public as part of the Statement on the Conduct of Monetary Policy.