Hedging of foreign exchange reserves
In September 2023, the Riksbank decided to hedge part of the foreign exchange reserves to reduce its financial risks. Over a period of four months, the Riksbank sold USD 8 billion and EUR 2 billion against Swedish kronor and entered into FX swaps for the same amount. As a result, approximately one quarter of the foreign exchange reserves are financed in the FX swap market. The Riksbank will roll over the swaps with the same amount in foreign currency, in accordance with previous decisions, until the Riksbank decides otherwise.
The value of the foreign exchange reserves in Swedish kronor is affected by changes in market prices such as exchange rates and interest rates. When the krona weakens, the value of the reserves increases and when it strengthens, the value decreases. This exposes the Riksbank to currency risk. Currency risk constitutes a large share of the Riksbank’s total financial risks.
In September 2023, the Riksbank decided to reduce currency risk by hedging approximately a quarter of the foreign exchange reserves. Spread over four months, from 25 September 2023 to 26 January 2024, the Riksbank sold a total of USD 8 billion and EUR 2 billion against Swedish kronor. In line with the sale, the Riksbank entered into FX swaps for the same amount. Thus, since the end of January 2024, around a quarter of the foreign exchange reserves have been financed in the currency swap market, which reduces the currency risk in the foreign exchange reserves.
Below, the Riksbank reports how many dollars and euros were sold per week while the hedge was being built up.
Cumulative sales of euros and dollars per week
Figure: Aggregated sales of EUR and USD
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