Who Should Regulate the Bank Interchange Fee - The RBA or the ACCC?

Since 1959 the Reserve Bank of Australia has occupied dual statutory functions in: (1) the central bank role of the setting and conduct of monetary policy, including ancillary roles of banknote provision and banking services to the Federal government; and (2) the regulation of the payments system. The case for RBA regulatory control of the payments system (including the bank interchange fee) was always based on its relation to the first function – its ability to promote stability and control risk in the financial system through a secondary role of promoting efficiency and competition in the payments system.

Yet there has never been a strong case for these two distinct functions – monetary policy, and regulating the payments system – to be contained within the same agency. It is a holdover from a more protectionist era. Indeed, economic theory suggests these are distinct functions should be separated because they draw upon distinct theory, specialization, and experience: the monetary policy function drawing on monetary economics and macroeconomics, and the payments function drawing on theory of competition and industrial organization. 

Read the Davidson and Potts report (opens in a new window)