The above shows the extensive legislative overhaul that the Reserve Bank

experienced as a result of the 1989 Act. The extent of this change was

demonstrated by Dowd and Baker (1994) using the help of the Grilli,

Masciandaro and Tabellini (GMT 1991)7  index for central bank independence.

This index measures independence by examining eight political, and seven

economic criteria and awards 1 point if the central bank satisfies the criterion and

0 point if it does not. The index is found by summing the total number of marks.

A high mark indicates a high degree of independence and a low mark the

opposite (8).

Before the introduction of the 1989 Act, the Reserve Bank scored a combined

total 3 for the GMT index. After the implementation of the act now scored a total

of 12.5 (9). The 1989 Act has catapulted the Reserve Bank from being one of

the dependent banks to being one of the most independent. The significance of

this transformation becomes more apparent when compared to the Bundesbank

rating of 13.