The foreign currency reserve
The Riksbank, like most other central banks, has foreign exchange reserves to ensure that the Riksbank can fulfil its tasks. The foreign exchange reserves shall be used to provide temporary liquidity support to banks operating in Sweden, to intervene on the foreign exchange market and to fulfil Sweden's part in the IMF's international lending.
The foreign exchange reserves shall be managed so that the Riksbank is always ready to fulfil its commitments. They must therefore be designed so that they can be used at short notice for the above-mentioned measures. The foreign exchange reserves therefore consist mainly of assets in currencies that the Riksbank deems may be needed to provide liquidity support in foreign currencies and assets that can be quickly converted into cash, primarily government bonds in US dollars and euros, but also in British pounds and Norwegian and Danish kroner. In order to spread the risks, the Riksbank has also chosen to invest a small part of the foreign exchange reserves in Australian and Canadian dollars. As per 31 December 2023, the value of the foreign exchange reserves amounted to about SEK 418.9 billion.
Assets in the foreign currency reserv, by currency, 31 December 2023
The starting point for the Riksbank's management of its foreign exchange reserves is the general principles for asset management stated in the Sveriges Riksbank Act. According to the Act, the Riksbank shall manage its assets in order to fulfil its tasks and powers and generate sufficient income to finance its activities. The assets in the foreign exchange reserves shall be managed at low risk, taking into account the Riksbank’s status as a central bank and the purpose of the asset holdings. In the management, particular weight shall be attached to how sustainable development can be promoted without compromising the requirements specified above.
It is up to the Riksbank to make an independent judgement as to how the strategy for management of the foreign exchange reserves should be designed within the framework of the general principles. The Riksbank has an internal regulatory framework in the form of a financial risk and investment policy that constitutes an overall framework for investments and the management of financial risks arising in the management. This policy is complemented by a rule of the gold and foreign exchange reserves that regulates the management in more detail.
The value of the foreign exchange reserves in Swedish kronor is affected by changes in market prices such as exchange rates and interest rates. A depreciation of the krona causes the foreign exchange reserves to increase in value while an appreciation of the krona instead leads to a reduction in the value. The latter exposes the Riksbank to currency risk. Currency risk constitutes a large share of the Riksbank’s total financial risks. To limit the currency risk, the Riksbank has decided that approximately one quarter of the foreign exchange reserves should be hedged. This is done by the Riksbank selling foreign currency in the foreign exchange market and then rolling currency swaps in order to maintain the size of the foreign exchange reserves.