Debt Office wants clearer rules for foreign exchange reserves

Press release 30 May 2013

The rules for when and how the Riksbank can turn to the Swedish National Debt Office and ask for loans to strengthen the foreign exchange reserves should be clarified and set out in law. The rules ought to say that the Debt Office should replenish the reserves after they have been put to use for lending. These are the views of the Debt Office according to a response submitted to the Government.

The Debt Office thus endorses the main elements of the proposals in the Government inquiry "Financial independence and balance sheet of the Riksbank" (SOU 2013:9), while refraining from expressing a specific view on what constitutes a suitable level for the foreign exchange reserves.

The Debt Office notes that the inquiry's proposals are based on the established principles for how the state's asset and liability management in general is organised. These principles entail, for example, that the state does not earmark funds other than in exceptional cases and does not tie up more capital than necessary. This ultimately benefits tax payers. The Debt Office also emphasizes that it is important that the limits on the Riksbank's balance sheet are decided by the parliament and thus set out in law.

The Debt Office also backs the inquiry's proposal to strengthen and secure the financial independence of the Riksbank by setting out in law that the bank has a minimum amount of interest-free capital. This capital should be sufficiently large to ensure that the interest income covers – with a margin – the costs of running the Riksbank, and it should be topped up when needed.

Foreign exchange reserves to be replenished only after being put to use

When and how the Riksbank can turn to the Debt Office and ask for loans to strengthen the foreign exchange reserves should be set out in law. The rules ought to say that the Debt Office should bring the reserves back only after they have been put to use for lending. This means that it would no longer be possible for the Riksbank to decide unilaterally to strengthen the reserves through loans from the Debt Office. The Debt Office's ability to borrow in foreign currency when the need arises gives more than adequate safety.

The same procedures should be applied to Sweden's lending to the International Monetary Fund (IMF). This means that when the IMF asks the Riksbank to transfer funds, the Debt Office will borrow corresponding amounts and transfer them to the Riksbank. Currently, loans to the IMF are financed from the foreign exchange reserves, a setup that reduces the Riksbank's access to foreign currency to be used for other purposes.

The Debt Office also concludes that the handling of the costs for Sweden's loans to the IMF should be reviewed. Currently, they are covered from the Riksbank's net interest income. This is not in line with the principles in the Budget Act on how costs to the state should be reported.

Response on inquiry Financial independence and balance sheet of the Riksbank  

For more information:
Linda Rudberg, press officer, +46 8 613 45 38