1951 - International commitments and increased regulation

Sweden joins the International Monetary Fund and World Bank. New regulations led the Riksbank to govern the commercial banks with an iron fist.

The International Monetary Fund and the World Bank were set up at the Bretton Woods Conference in 1944. The aim of the Bretton Woods system was to make currencies convertible against each other to promote world trade, but, at the same time, international capital flows were regulated and restricted. Sweden’s hesitation over membership of the International Monetary Fund (IMF) and World Bank was partly due to the high cost.

However, the strongest argument against membership was the restriction of monetary policy freedom. The fixed exchange rate made it difficult to adjust the value of the krona, should this become necessary. In addition, it increased the risk that Sweden would import other countries’ inflation.

During the post-war period, many of the regulations of the war years remained and a close check was kept on most central banks. Their independence, policies and approach to managing the depression of the 1930s were criticised. Fiscal policy was seen as a more accurate instrument than monetary policy for evening out fluctuations in economic activity. Monetary policy was placed in the service of economic policy Fiscal policy was given primary consideration and ministries of finance took command. In practice, this mean, among other things, that the Governor of the Riksbank conferred with the Government ahead of more or less all decisions.

At the same time, the Riksbank managed much of Sweden’s market regulation and kept the commercial banks on a tight leash. By as early as 1949, the government had granted the Riksbank the right to determine the size of the commercial banks’ cash reserves. In 1951, a law was passed on the regulation of interest rates, giving the Riksbank the right to determine the interval for the banks’ lowest and highest interest rates. In addition, no bond loans could be issued without the Riksbank's permission. In 1959, the wartime law of 1939 regulating access to currency was tightened. The currency regulations meant that both companies and individuals would have to seek permission to invest or borrow abroad and the amount of the tourist travel allowance was limited.

All of these and other regulations laid the basis for the Riksbank’s policies until the deregulation of the 1980s and led to the Riksbank becoming a large government bureaucracy for the management of individual matters. In 1982, 37,000 such matters were managed by about a hundred employees in the foreign exchange department.