The Reserve Bank of Australia announced in their annual report today that there were going to pay a dividend of $2.6 billion to the Treasury. This effectively means the RBA is paying for a part of the deficit with cash straight from the money printer.
Is this the start of a Zimbabewe-esque era of money printing and hyperinflation? No.
One of the RBA’s main activities is printing banknotes which is unsurprisingly can be very profitable activity. Each year the RBA earns 1 - 2 billion dollars from freshly printed cash, although this number has been falling over time as our payment system shifts online.
The RBA can also end up making money on its stock of foreign assets. The Bank typically holds financial assets denominated in other currencies (such as the US dollar, Euro etc) and whenever the Aussie dollar depreciates these assets become more valuable and the RBA books a profit. Of course if the Australian dollar becomes more valuable they can make an on-paper loss on these assets too.
This profit more than outstrips the RBA’s costs of running. So each year the RBA must decide, in consultation with the Treasurer, how much of these profits should be return to its owner: the Australian government. Over the past two decades the RBA has paid around $2 billion dollars each year back to the Treasury.
Monetisation of course is one of the core tenets of MMT (Modern Monetary Theory). However this aspect of MMT is anything but modern. Money printing and the monetisation that ensues with the resulting profits has long been a feature of how our economy operates, both in theory and in practice.