1931 - First in the world with price stability target

After speculation against the krona, Sweden abandoned the gold standard. The exchange rate became variable but, to protect domestic purchasing power, the Riksbank became the first central bank in the world to have a price stability target as a standard for monetary policy.

Sweden’s abandonment of the gold standard led to a decrease of the foreign currency reserve from SEK 300 million to SEK 30 million in three months. The defence of the Swedish krona proved unsuccessful. A floating exchange rate was adopted and the krona was written down by 30 per cent.

At the same time, the Swedish Finance Minister of the time, Felix Hamrin, declared that the monetary policy target should be “to use all the available instruments to maintain the Swedish krona’s domestic purchasing power”. The Riksbank thereby became the first bank in the world to have a price stability target as a standard for monetary policy. In 1933, the krona was pegged to sterling, which was not then considered to be in contravention of the price stability target.

Both inflation and deflation would be combated. Interest rates fell to lower and lower levels over the 1930s. This contributed towards domestic markets such as construction picking up and counteracted the downturn of the economy. Sweden coped with the strains of the 1920s and 1930s better than most other countries.

The price stability target was abandoned in the post-war period, when monetary policy was placed in the service of economic policy and fiscal policy was given primary consideration. It was not until the start of the 1990s that it again became common for central banks to have explicit inflation or price stability targets. This took place after it had repeatedly become clear that neither fixed exchange rates nor money supply targets could prevent high and varied inflation in all situations. In 1993, the Riksbank defined the price stability target as 2 per cent annual inflation.