Sveriges Riksbank
Encyclopedia
Sveriges Riksbank, or simply Riksbanken, is the central bank
of Sweden
and the world's oldest central bank. It is sometimes called the Swedish National Bank or the Bank of Sweden (not to be confused with Swedbank
, a normal bank).
(also known as the Bank of Palmstruch), which was founded by Johan Palmstruch
in 1656. Although the bank was private, it was the King who chose its management: in a letter to Palmstruch he gave permission to its operations according to stated regulations.
However, Stockholms Banco, the world's oldest note-issuing bank collapsed as a result of the issuing of too many notes without the necessary collateral. Palmstruch, who was considered responsible for the bank's losses, was condemned to death, but later received clemency. On 17 September 1668, the privilege of Palmstruch to operate a bank, was transferred to the Riksens Ständers Bank (translation: Bank of the Estates of the Realm) and was run under the auspices of the parliament of the day. Due to the failure of Stockholm Banco the new bank was managed under the direct control of the Riksdag of the Estates
to prevent the interference of the King. When a new Riksdag
was instituted in 1866, the name of the bank was changed to Sveriges Riksbank.
Having learnt the lesson of the Stockholms Banco experience, the Riksbank was not permitted to issue bank-notes. Nevertheless, in 1701 permission was granted to issue so called credit-notes. Some time in the middle of the 18th century counterfeit notes began appearing which caused serious problems. To prevent forgeries
it was decided that the Riksbank should produce its own paper for bank-notes and a paper-mill, Tumba Bruk
, was founded in Tumba
, on the outskirts of Stockholm.
A few years later, the first commercial banks were founded and these were also allowed to issue bank-notes. The bank-notes represented a claim to the bank without interest
paid, and thus became a considerable source of income
to the banks. Nonetheless, security in the form of a deposit
at the Riksbank was required to cover the value
of all notes issued.
During the 19th century the Riksbank maintained a dominant position as a credit
institution and issuer of bank-notes. The bank also managed national trade transactions as well as continuing to provide credit to the general public. The first branch-office was opened in 1824, later followed with subsidiary branches opening in each county (län). The present operational activities as a central bank differ from those during the 19th century. For example, no interest-rate related activities were conducted.
The position of the Riksbank as a central bank dates back to 1897 when the first Riksbank Act was accepted concurrently with a law giving the Riksbank the exclusive right of issuing bank-notes. This copyright
concluded its role and importance regarding monetary policy in a modern sense, as the exclusive right to issue notes is a condition when conducting monetary policy and defending the value of a currency. Behind the decision were repeated demands that the private banks should cease to issue notes as it was considered that the ensuing profit
s should befall the general public.
The Swedish currency was until 1931 backed by gold and the paper-certificates could be exchanged for gold coins. The bank was obligated until 1975 by the Swedish constitution to exchange the paper-certificates for gold, but in 1931 a specialized temporary law was written to free the bank from this obligation. This law was renewed every year until the new constitution was ratified 1975 which split the bank from the government into a stand-alone organization not obligated to exchange notes for gold.
In November 1992, the fixed exchange rate regime of the Swedish Krona
collapsed. A few months later, in January 1993, the Governing Board of the Riksbank developed a new monetary policy regime based on a floating exchange rate
and an inflation target. These policies were extensively influenced by assistance from the Bank of Canada
, which had extensive previous experience controlling inflation, while similarly being a small open economy, heavily subject to foreign exchange rate swings.
From 1991–93, Sweden experienced the most severe recession since the 1930s. The recession in the early 1990s forced inflation down to around 2%. The rate of inflation continued to be low during the subsequent years of strong growth in the late 90s.
In July 2009 Sweden's Riksbank was the first central bank to use a negative interest rate, lowering its deposit rate to −0.25%, a policy advocated by deputy governor Lars E. O. Svensson
.
, which is awarded with the Nobel Prize
s at the Prize Award Ceremony in Stockholm
, on 10 December, the anniversary of Nobel
's death.
. to counter economic slowdown due to the financial crises of 2008. This is the interest (or in this case, "penalty") commercial banks get for depositing capital at the Riksbank over night. The lending rate, i.e. the interest commercial banks have to pay for lending money over night, is positive 0.75 percent.
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
of Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
and the world's oldest central bank. It is sometimes called the Swedish National Bank or the Bank of Sweden (not to be confused with Swedbank
Swedbank
Swedbank AB is a leading Nordic-Baltic banking group with 9.5 million retail customers and 534,000 corporate customers in Sweden, Estonia, Latvia, and Lithuania. In Sweden, the group has 377 branches. In the Baltic countries, it has another 224 branches...
, a normal bank).
History
The Riksbank began its operations in 1668, its antecedent being Stockholms BancoStockholms Banco
Stockholms Banco in Sweden was the first European bank to print banknotes. The bank was founded in 1657 by Johan Palmstruch and began printing banknotes in 1661...
(also known as the Bank of Palmstruch), which was founded by Johan Palmstruch
Johan Palmstruch
Johan Palmstruch was a Dutch merchant credited with the introduction of paper money to Europe. He became a commissioner in the National Board of Trade after his arrival in Sweden in 1647 and began submitting proposals for banking institutions to King Charles X Gustav in the 1650s...
in 1656. Although the bank was private, it was the King who chose its management: in a letter to Palmstruch he gave permission to its operations according to stated regulations.
However, Stockholms Banco, the world's oldest note-issuing bank collapsed as a result of the issuing of too many notes without the necessary collateral. Palmstruch, who was considered responsible for the bank's losses, was condemned to death, but later received clemency. On 17 September 1668, the privilege of Palmstruch to operate a bank, was transferred to the Riksens Ständers Bank (translation: Bank of the Estates of the Realm) and was run under the auspices of the parliament of the day. Due to the failure of Stockholm Banco the new bank was managed under the direct control of the Riksdag of the Estates
Riksdag of the Estates
The Riksdag of the Estates , was the name used for the Estates of the Swedish realm when they were assembled. Until its dissolution in 1866, the institution was the highest authority in Sweden next to the King...
to prevent the interference of the King. When a new Riksdag
Parliament of Sweden
The Riksdag is the national legislative assembly of Sweden. The riksdag is a unicameral assembly with 349 members , who are elected on a proportional basis to serve fixed terms of four years...
was instituted in 1866, the name of the bank was changed to Sveriges Riksbank.
Having learnt the lesson of the Stockholms Banco experience, the Riksbank was not permitted to issue bank-notes. Nevertheless, in 1701 permission was granted to issue so called credit-notes. Some time in the middle of the 18th century counterfeit notes began appearing which caused serious problems. To prevent forgeries
Forgery
Forgery is the process of making, adapting, or imitating objects, statistics, or documents with the intent to deceive. Copies, studio replicas, and reproductions are not considered forgeries, though they may later become forgeries through knowing and willful misrepresentations. Forging money or...
it was decided that the Riksbank should produce its own paper for bank-notes and a paper-mill, Tumba Bruk
Tumba Bruk
Tumba Bruk is the printing company responsible for manufacturing of the Swedish krona banknotes. The company was founded by Sveriges Riksbank in 1755 to produce banknotes, but in 2002 the company was sold to the current owner, banknote paper supplier Crane & Co.. It is located in Tumba, close to...
, was founded in Tumba
Tumba, Sweden
Tumba is a bimunicipal locality and the seat of Botkyrka Municipality in Stockholm County, Sweden with 35,311 inhabitants in 2005. A part of its statistical urban area, called Rönninge, is in Salem Municipality. The population is 35,311 . The Swedish krona banknotes are printed by Crane AB at Tumba...
, on the outskirts of Stockholm.
A few years later, the first commercial banks were founded and these were also allowed to issue bank-notes. The bank-notes represented a claim to the bank without interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
paid, and thus became a considerable source of income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
to the banks. Nonetheless, security in the form of a deposit
Deposit account
A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the...
at the Riksbank was required to cover the value
Value (economics)
An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
of all notes issued.
During the 19th century the Riksbank maintained a dominant position as a credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
institution and issuer of bank-notes. The bank also managed national trade transactions as well as continuing to provide credit to the general public. The first branch-office was opened in 1824, later followed with subsidiary branches opening in each county (län). The present operational activities as a central bank differ from those during the 19th century. For example, no interest-rate related activities were conducted.
The position of the Riksbank as a central bank dates back to 1897 when the first Riksbank Act was accepted concurrently with a law giving the Riksbank the exclusive right of issuing bank-notes. This copyright
Copyright
Copyright is a legal concept, enacted by most governments, giving the creator of an original work exclusive rights to it, usually for a limited time...
concluded its role and importance regarding monetary policy in a modern sense, as the exclusive right to issue notes is a condition when conducting monetary policy and defending the value of a currency. Behind the decision were repeated demands that the private banks should cease to issue notes as it was considered that the ensuing profit
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
s should befall the general public.
The Swedish currency was until 1931 backed by gold and the paper-certificates could be exchanged for gold coins. The bank was obligated until 1975 by the Swedish constitution to exchange the paper-certificates for gold, but in 1931 a specialized temporary law was written to free the bank from this obligation. This law was renewed every year until the new constitution was ratified 1975 which split the bank from the government into a stand-alone organization not obligated to exchange notes for gold.
In November 1992, the fixed exchange rate regime of the Swedish Krona
Swedish krona
The krona has been the currency of Sweden since 1873. Both the ISO code "SEK" and currency sign "kr" are in common use; the former precedes or follows the value, the latter usually follows it, but especially in the past, it sometimes preceded the value...
collapsed. A few months later, in January 1993, the Governing Board of the Riksbank developed a new monetary policy regime based on a floating exchange rate
Floating exchange rate
A floating exchange rate or fluctuating exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency....
and an inflation target. These policies were extensively influenced by assistance from the Bank of Canada
Bank of Canada
The Bank of Canada is Canada's central bank and "lender of last resort". The Bank was created by an Act of Parliament on July 3, 1934 as a privately owned corporation. In 1938, the Bank became a Crown corporation belonging to the Government of Canada...
, which had extensive previous experience controlling inflation, while similarly being a small open economy, heavily subject to foreign exchange rate swings.
From 1991–93, Sweden experienced the most severe recession since the 1930s. The recession in the early 1990s forced inflation down to around 2%. The rate of inflation continued to be low during the subsequent years of strong growth in the late 90s.
In July 2009 Sweden's Riksbank was the first central bank to use a negative interest rate, lowering its deposit rate to −0.25%, a policy advocated by deputy governor Lars E. O. Svensson
Lars E. O. Svensson
Lars E. O. Svensson, born 1947, is an Swedish economist on the faculty of Princeton University. He has published significant research in macroeconomics, especially monetary economics, international trade and general equilibrium theory. He is among the most influential economists in the world...
.
Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel
Following its third centennial in 1968, the Bank instituted the annual Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred NobelNobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel , is an award for outstanding contributions to the field of economics, generally regarded as one of the...
, which is awarded with the Nobel Prize
Nobel Prize
The Nobel Prizes are annual international awards bestowed by Scandinavian committees in recognition of cultural and scientific advances. The will of the Swedish chemist Alfred Nobel, the inventor of dynamite, established the prizes in 1895...
s at the Prize Award Ceremony in Stockholm
Stockholm
Stockholm is the capital and the largest city of Sweden and constitutes the most populated urban area in Scandinavia. Stockholm is the most populous city in Sweden, with a population of 851,155 in the municipality , 1.37 million in the urban area , and around 2.1 million in the metropolitan area...
, on 10 December, the anniversary of Nobel
Alfred Nobel
Alfred Bernhard Nobel was a Swedish chemist, engineer, innovator, and armaments manufacturer. He is the inventor of dynamite. Nobel also owned Bofors, which he had redirected from its previous role as primarily an iron and steel producer to a major manufacturer of cannon and other armaments...
's death.
Negative Interest Rate
In July 2009 Sweden's Riksbank was the first central bank to use a negative interest rate, lowering its deposit rate to −0.25%, a policy advocated by deputy governor Lars E. O. SvenssonLars E. O. Svensson
Lars E. O. Svensson, born 1947, is an Swedish economist on the faculty of Princeton University. He has published significant research in macroeconomics, especially monetary economics, international trade and general equilibrium theory. He is among the most influential economists in the world...
. to counter economic slowdown due to the financial crises of 2008. This is the interest (or in this case, "penalty") commercial banks get for depositing capital at the Riksbank over night. The lending rate, i.e. the interest commercial banks have to pay for lending money over night, is positive 0.75 percent.
First Deputies
- Karl Langenskiöld, 1901–1912
- Victor Moll, 1912–1929
- Ivar RoothIvar RoothIvar Rooth was the International Monetary Fund 's second Managing Director and Chairman of the Executive Board, serving from 1951–1956. He was born on November 2, 1888, in Stockholm, Sweden...
, 1929
Governors
- Ivar RoothIvar RoothIvar Rooth was the International Monetary Fund 's second Managing Director and Chairman of the Executive Board, serving from 1951–1956. He was born on November 2, 1888, in Stockholm, Sweden...
, 1929–1948 - Klas Böök, 1948–1951
- Mats Lemne, 1951–1955
- Per Åsbrink, 1955–1973
- Krister WickmanKrister WickmanHans Krister Wickman was a Swedish politician. He served as Minister for Foreign Affairs from 1971 to 1973. He was Governor of Sveriges Riksbank from 1973 to 1976. He also served as Minister of Industry from 1969 to 1971.- References :...
, 1973–1976 - Carl Henrik Nordlander, 1976–1979
- Lars WohlinLars WohlinLars Magnus Wohlin is a Swedish politician and Member of the European Parliament. He was elected into the European Parliament as a member of the June List, but later joined Kristdemokraterna....
, 1979–1982 - Bengt Dennis, 1982–1993
- Urban BäckströmUrban BäckströmUrban Bäckström is a Swedish economist who is the current CEO of the Confederation of Swedish Enterprise. He is a former Governor of the Bank of Sweden.-Personal:...
, 1993 – 31 December 2002 - Lars HeikenstenLars HeikenstenLars Johan Heikensten, born 13 September 1950, is a former Governor of Sveriges Riksbank and Doctor of Economics. He is currently executive director of the Nobel Foundation....
, 1 January 2003 – 31 December 2005 - Stefan Ingves, 1 January 2006–
See also
- Economy of SwedenEconomy of SwedenThe economy of Sweden is a developed diverse economy, aided by timber, hydropower and iron ore. These constitute the resource base of an economy oriented toward foreign trade...
- Monetary policy of SwedenMonetary policy of SwedenThe monetary policy of Sweden is decided by Sveriges Riksbank, the central bank of Sweden. The monetary policy is instrumental in determining how the Swedish currency is valued.-History:The main events in the monetary history of the Krona are:...
- Swedish kronaSwedish kronaThe krona has been the currency of Sweden since 1873. Both the ISO code "SEK" and currency sign "kr" are in common use; the former precedes or follows the value, the latter usually follows it, but especially in the past, it sometimes preceded the value...
- Riksdaler
- Scandinavian Monetary UnionScandinavian Monetary UnionThe Scandinavian Monetary Union was a monetary union formed by Sweden and Denmark on May 5, 1873, by fixing their currencies against gold at par to each other...
- Swedish krona
- Parliament of SwedenParliament of SwedenThe Riksdag is the national legislative assembly of Sweden. The riksdag is a unicameral assembly with 349 members , who are elected on a proportional basis to serve fixed terms of four years...
- Government of SwedenGovernment of SwedenThe Government of the Kingdom of Sweden is the supreme executive authority of Sweden. It consists of the Prime Minister and cabinet ministers appointed by the Prime Minister. The Government is responsible for their actions to the Riksdag, which is the legislative assembly...
- Swedish National Debt OfficeSwedish National Debt OfficeThe Swedish National Debt Office founded by the Riksdag of the Estates in 1789, is a Government agency in Sweden. The first task of the Debt office was to finance the War against Russia started by King Gustav III....
- Södra BankohusetSödra BankohusetSödra Bankohuset or Gamla Riksbanken is a building in Gamla stan, the old town of Stockholm, Sweden, together with Norra Bankohuset the location of the Bank of Sweden until 1906...