The Reserve Bank says it will not pay a dividend to the Federal Government this year, as it devotes its biggest profit in four years to topping up a fund designed to ensure financial stability.

The move comes after the Treasurer Joe Hockey announced the Federal Government will give the central bank $8.8 billion for the fund.

RBA Governor Glenn Stevens says the fund had been depleted by large accounting losses due to the high value of the Australian in the previous two financial years.

“The Treasurer has agreed with this course of action and accordingly no dividend will be paid to the Commonwealth from net profits of the bank in 2012/13,” Mr Stevens wrote in the RBA’s annual report, released today.

“The Reserve Bank Reserve Fund therefore stands at $2.5 billion and remains well below its target level.”

The fund has become the centre of a political battle between the Government and Labor in the past day.

Mr Hockey says the former Treasurer Wayne Swan acted against the RBA’s advice and took a $500 million dividend in 2012, effectively depleting the fund.

But Mr Swan has described the dividend as “modest”, and said he would have agreed to top up the fund if a request has been made.

RBA profit lifts as Australian dollar drops

The RBA’s profit for last financial year climbed to $4.3 billion, up from $1.1 billion in the previous financial year.

The result was boosted by a jump in revenue from its securities and foreign exchange assets, which climbed to $3.6 billion from $386 million in the previous year.

This was driven by a fall in the value of the Australian dollar this year, which pushed up the value of the foreign currencies the RBA holds.

The RBA transferred $588 million to its reserve fund during the year, taking the total amount in the fund to $2.5 billion.

Hockey reaffirms government’s agreement with RBA

Mr Hockey and Mr Stevens have also released a statement reaffirming the formal agreement between the government and the RBA.

The statement is customary whenever a new treasury takes office.

The agreement establishes the RBA as independent of government, and sets out the objectives of monetary policy.

“The Reserve Bank’s mandate to uphold financial stability does not equate to a guarantee of solvency for financial institutions, and the Bank does not see its balance sheet as being available to support insolvent institutions,” the statement said.

“However, the Reserve Bank’s central position in the financial system, and its position as the ultimate provider of liquidity to the system, gives it a key role in financial crisis management.”