Monetary History and Central Banking in Sweden Norges Bank’s bicentenary project, 1816 – 2016 Writing Central Bank and Monetary History – what are the

Monetary History and Central Banking in Sweden

Norges Bank’s bicentenary project, 1816 – 2016Writing Central Bank and Monetary History – what are the issues?The Graduate Institute, Geneva. October 30 – 31 2008

Anders Ögren

EHFF – Institute for Economic and Business History Stockholm School of Economics

Histoire et Theorie Economique – EconomiX CNRS at Université de Paris X NanterreUppsala Center for Business History at Uppsala University

Writing Central Bank and Monetary History – what are the issues?

The Graduate Institute, Geneva. October 30 – 31 2008

ANDERS ÖGREN EHFF Stockholm School of Economics and HTÉ EconomiX Université de Paris X Nanterre

What is a Central Bank?

- Currency Management

- Issuer of Base Money

- Bank of the state

- Bankers’ bank

- Provider of lender of last resort

- (Supervisor of the banking/financial system).




Central Bank Objectives

- Pre WW I To guarantee the stable value of the currency and to promote a steady supply of credit (after 1834 to adhere to the specie standard plus a steady supply of credit)

- Fixed exchange rate and employment (or the other way around)

- Price stability (but should also be employment, see for instance critic of the Riksbank from IMF) (Financial Times European edition

November 29, 2006 p. 4)




The classical Central Bank dilemma

Liquidity/Credit vs. stable monetary value(growth vs. financial stability, efficiency vs. prudence)

What factors determine the possibilities of influential monetary policy?

And how?




The Swedish banking system The Riksbank (1668 – ) Bank of Parliament. Central

bank?

National Debt Office (Riksgäldskontoret) State Debt

Discount Companies (1780s – 1818)

Enskilda banks (1831 – 1906) Private, unlimited liability,

right to issue notes

Filial banks (1851 – 1864) Private, unlimited liability,

operating with Riksbank credit and equity capital

Joint Stock banks (1864 – today) Limited liability banks,

(no right to issue notes).




Monetization – Notes in Circulation

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1732

1738

1744

1750

1756

1762

1768

1774

1780

1786

1792

1798

1804

1810

1816

1822

1828

1834

1840

1846

1852

1858

1864

1870

1876

1882

1888

1894

1900

1906

1912

Total amount of circulating notes 1732-1913 in 1000’s SEK. Deflated with index for day-wage: 1732 = 1.

Sources: Jörberg (1972), p.710-714, Riksbanken (1931), p.9-10, p.13-17, p.40-51, Ögren, A. (2003)

Fiat

Silver

Silver & Fiat

Fiat

Silver

Gold & SCU

?




When did the Riksbank become a Central Bank?

Traditionally: When the right to issue notes of the private banks ended (1903)

• Not possible to run influential monetary policy

• A Commercial Bank

• No Inter bank clearing

• No lender of last resort

• Not the Bank of the state

• Not the Bankers’ bank





From the late 1850s to the early 1880s:

Factors influencing monetary policy1) Politics – Democratization

2) Increased internationalization - Capital Imports

3) Development of the Financial System

4) Changing organization of the Bank

5) Changing banking legislation





- Issuer of Base Money (Bank reserves)- (Autonomous) Monetary Policy (sterilization) - Funds of the National Debt Office- Facilitating the Financial System - Relative decrease in the direct involvement in the

financial market- Clearing (Postal Bank Bills, Commercial banks

deposits)- Lender of Last Resort (Discounting of bills, Bonds as

collaterals)- Supervision




Internationalization – Foreign Debt

Cumulative Current Account Balances and Foreign Debt, 1834-1913. 1000's SEK

-1 500 000

-1 000 000

-500 000

0

500 000

1 000 000

1 500 000

1834

1839

1844

1849

1854

1859

1864

1869

1874

1879

1884

1889

1894

1899

1904

1909

Current Account

Capital balance = imported capital

Sources: Lindahl, E., Dahlgren, E. & Kock, K. (1937:1) pp. 268-269, Schön, L. (1999), Sveriges Riksbank (1931) pp. 54-71




The Financial Revolution and the Relative importance of the Riksbank

Year 1840 1850 1860 1870 1880 1890 1900 1910

Riksbank total reserve 6.7% 3.6% 2.9% 2.5% 2.2% 1.5% 2.0% 3.4%

Issued Riksbank notes (base money) 9.8% 6.7% 5.0% 3.0% 3.0% 3.2% 3.2% 6.5%

Circulating Riksbank and Private bank notes 11.3% 8.7% 7.3% 5.3% 6.0% 6.4% 6.3% 6.5%

Money Supply (M2) 12.8% 11.5% 13.0% 19.0% 36.0% 49.9% 61.5% 78.3%

Riksbank assets 15.8% 12.3% 10.0% 7.6% 8.9% 9.8% 10.0% 11.0%

Commercial bank assets 4.3% 6.6% 9.9% 19.6% 36.5% 45.2% 61.7% 79.4%

Savings bank assets n.a. n.a. n.a. n.a. 12.1% 20.8% 21.5% 27.6%

Riksbank lending 8.1% 6.0% 3.9% 2.0% 1.9% 2.9% 2.0% 1.2%

Commercial bank lending 2.3% 3.0% 5.3% 10.8% 20.6% 30.7% 46.0% 64.8%

Savings bank lending n.a. n.a. n.a. n.a. 9.3% 16.7% 17.2% 22.9%

Mortgage associations lending 0.4%* 1.4%* 2.2%* 9.9% 17.2% 19.9% 12.4% 9.2%

Mortgage associations bond issuance 0.3%* 1.0%* 1.7%* 10.5% 20.5% 22.4% 13.2% 9.1%

Life insurance companies’ net insurance fund n.a. n.a. 0.1% 0.6% 2.4% 5.3% 7.1% 9.9%

Foreign debt -2.7% -3.0% 12.2% 17.9% 20.5% 33.2% 24.3% 38.8%

•Only the Skåne Hypoteksförening.Sources: Krantz, O. (2001), Nygren, I. SCB (1960), Schön, L. (2000), Sommarin, E. (1934), Sveriges Allmänna Hypoteksbank (1911), Sveriges Riksbank (1931), Ögren, A. (2003)

Various financial measures in percent of GDP, 1840 – 1910




Financial RevolutionFigure 1: Broad Money Supply in Sweden, 1834 – 1913 (Per Capita and in Stable prices). Semi-logarithmic

Scale

Average annual growth 1834 - 1867 = 1.7%

Average annual growth1873 - 1913 = 4.6%

100

1000

10000

1834

1838

1842

1846

1850

1854

1858

1862

1866

1870

1874

1878

1882

1886

1890

1894

1898

1902

1906

1910

Source: Ögren, A. (2003)




SourcesQualitative:- Minutes of the Boards (the Riksbank, the National Debt

Office and Private banks) - Correspondence- Parliamentary prints- Legal Codes- ContractsQuantitative:- Balance sheets (the Riksbank, the National Debt Office

and Private banks)- Monetary Remittances- Macro data (GDP, Foreign Debt, Fiscal data, Exchange

rates, Interest Rates, Prices)

Documents

Monetary History and Central Banking in Sweden Norges Bank’s bicentenary project, 1816 – 2016 Writing Central Bank and Monetary History – what are the