Questions and answers on the strengthening of the foreign currency reserve

Why does the Riksbank have a foreign currency reserve?

One of the reasons why the Riksbank needs a foreign currency reserve relates to the Riksbank's responsibility for ensuring that the financial system works safely and efficiently. An important component of this work is to be able, in a crisis situation, to provide liquidity assistance to the Swedish banks. As the Swedish banks fund a significant part of their operations in foreign currency, the Riksbank must have a sufficient reserve of foreign currency to be able to meet the needs of the banks when necessary.

 

Why does the Riksbank need to strengthen the foreign currency reserve?

During the financial crisis, the Riksbank has lent US dollars to Swedish banks. The Riksbank has also entered into so-called swap agreements with the Icelandic, Latvian and Estonian central banks. In addition, we have increased our commitments to the International Monetary Fund (IMF). These arrangements amount to foreign currency corresponding to approximately SEK 100 billion. It is important that we continue to be prepared for the fact that the financial crisis can be both severe and prolonged. This is why we now need to restore the level of the foreign currency reserve.

 

What will you actually do to strengthen the foreign currency reserve?

 

The Riksbank will borrow the foreign currency, that is we will not buy foreign currency for Swedish krona. In practice, the Swedish National Debt Office borrows the foreign currency on behalf of the Riksbank. This money is then deposited in one of the Riksbank's accounts. 

 

Read more about the foreign currency reserve via the links below.

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