How should we view the development of the krona?

The development of the nominal exchange rate against some currencies in recent years may seem dramatic, but the fluctuations are not remarkably large from a historical perspective. A trade-weighted exchange rate was, on average, at about the same level in 2022 as it was in 1993 when the variable exchange rate and inflation targeting were introduced.

However, it is the real exchange rate – which considers inflation differences between countries and thus says something about relative price levels – that is relevant for the purchasing power of the Swedish krona in other countries. The real exchange rate weakened for several decades until the early 2000s. This development can be understood in the light of factors such as productivity and savings. For example, savings have been higher in Sweden than in the 1970s and 1980s. However, from around 2005, no trends in these fundamental explanatory factors can be seen. The development of the real exchange rate since then appears different depending on which price level measures in Sweden and abroad are compared.

The period of inflation targeting has not entailed any long-term trend depreciation of the krona. The nominal exchange rate depreciated much more during the period 1973-1993 when Sweden did not have an inflation target. Although the objective at that time was to keep the exchange rate fixed, fiscal and monetary policy were not designed in line with this objective and the krona was devalued several times. Monetary policy affects the nominal value of the krona, but cannot achieve targets for both the krona and inflation.

Authors: Carl-Johan Belfrage, Jesper Hansson and Anders Vredin of the Monetary Policy Department.