Management of the gold and foreign currency reserve
As Sweden’s central bank, the Riksbank has unlimited scope for increasing the amount of Swedish krona (SEK) as and when necessary. However, the same scope does not exist as regards foreign currency. As most other central banks, therefore, the Riksbank has a gold and foreign currency reserve.
This is primarily to guarantee that the Riksbank can perform its mandatory tasks of keeping inflation low and stable and promoting financial stability. The Riksbank's gold and foreign currency reserve is worth around SEK 500 billion. The currency reserve enables the Riksbank to buy and sell currency for monetary and foreign exchange policy purposes and provides contingency in order to be able to provide the financial system with liquidity in foreign currency. Furthermore, it allows the Riksbank to fulfil various international commitments, including to the IMF and other central banks. A secondary aim of the gold and foreign currency reserve is to generate a healthy return for the Riksbank, and ultimately for central government, in relation to the risk taken in the management of the reserve. A healthy return also strengthens the Riksbank's financial independence.
The currency reserve can mitigate the effects of a crisis
The risks in the Swedish financial system have gradually increased. This is because Swedish banks have grown substantially. The banking sector has become large in relation to the Swedish economy, which means that a financial crisis could be very costly for Swedish households and companies. Furthermore, banks have become increasingly dependent on having access to foreign currency as they have increased their operations in other countries.
Thanks to the currency reserve, the Riksbank can, in a crisis situation, offer loans in foreign currency to banks. This can mitigate the effects of a financial crisis and prevent it from spreading to the society at large.
Safe assets with a healthy return
For the Riksbank to be able to maintain a high level of preparedness, the assets must have good liquidity; it should, in other words, be possible to convert them into liquid funds at very short notice. For this reason, the currency reserve mainly contains currencies that can be required for liquidity support and assets that are quickly convertible to liquid funds. The assets must also be very safe, which limits the scope for taking risks in the investments. This is why the foreign currency reserve mainly contains government bonds issued by states with high credit ratings. In addition, the currency reserve is required to be large enough for the Riksbank to be able to fulfil its commitments. On condition that the foreign currency reserve meets the requirements for preparedness entailed in the Riksbank’s commitments, the Riksbank shall also take into account sustainability aspects in managing the foreign exchange reserves.
Regulatory framework for asset management
The Riksbank has a regulatory framework for asset management: a financial risk and investment policy and regulations following on from the policy. Through annual decisions, the Executive Board sets the framework for the composition of the gold and foreign currency reserves and what risks may be taken in their management. It also details how the Riksbank is to identify, measure, manage, monitor and report these risks.