Swedish Debt Office calls for clearer FX rules

The Swedish National Debt Office has responded to a government inquiry by asking for clearer rules about how and when the country’s central bank – Riksbank – can ask for loans to strengthen foreign exchange reserves.

The Debt Office was responding to proposals in the inquiry “Financial independence and balance sheet of the Riksbank” (SOU 2013:9).

The inquiry is linked to established principles intended to ensure the state does not tie up more capital than is necessary for the purpose of balancing assets and liabilities. These principles include ensuring funds are not earmarked for specific purposes except in exceptional cases. The intention of the rules is to ensure the system benefits taxpayers.

The Debt Office added 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 said that it supported the principle of ensuring the financial independence of the Riksbank, by setting out in law the amounts of interest-free capital it has access to – again to ensure the the costs of running the Riksbank are met and are topped up as needed.

“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 Debt Office stated.

“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.”

 

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