The Riksbank's financing

Edward Riedl (M)

Mr. Speaker! Let me begin by saying that Swedish democracy, regardless of the color of the government, many times exhibits a great willingness to compromise and consensus on important issues concerning the framework for our democracy and how things should function. The matter of changes in the Riksbank Act, that is to say, the new Riksbank Act, which we are now going to handle, demonstrates exactly this. Today, all eight parties in this chamber will agree to strengthen the Riksbank's independence and increase its possibilities for own earnings. Ultimately, this also strengthens the independence – I will return to this.

I would like to thank all the parties and, above all, our Chancellery for a very good job in getting this in place. Some decisions in here may seem small but take quite a lot of time and work. One of all the officials who has done a good job is here in the chamber and is nodding.

We carried out a major review of the Sveriges Riksbank Act in broad political agreement during this mandate period. We now saw a need to make some adjustments, in equal agreement.

To begin with, we make it possible for the Riksbank not to have a requirement to come to the Riksdag and request supplementary funds, if it does not itself consider it necessary. Previously, this was an obligation for the Riksbank as a result of the adjustments made in the Riksbank Act, but now the Riksbank gets back the possibility to decide for itself how it wants to view this.

The second thing that is important, perhaps most important for ensuring the independence of the Riksbank in the long term, is of course about ensuring that the Riksbank can cover its own administrative costs. This is a very central part of the independence. The Riksbank is now given, with these adjustments, the possibility to maintain cash requirements, that is to say to receive an additional earning for its own administrative costs.

The Riksbank's financing

Both the Swedish Riksbank historically and also central banks around the world have had money as their primary source of financing. Banknotes and coins are thus what have financed the central banks' operations. It is about the simple fact that a hundred-kronor note at the beginning of the year, with some inflation, even some controlled inflation, is worth slightly less at the end of the year. The Riksbank prints banknotes and coins, and we as citizens hold them. At the end of the year, they are worth slightly less, and that margin on all banknotes and coins is what central banks and the Swedish Riksbank have historically earned their money on.

This has now changed. I believe that very few of you listening to the debate use a lot of cash in your daily lives, which means that the need to find other sources of funding has obviously increased. When we do not use cash, the Riksbank receives less revenue, and then one becomes, if other solutions are not found, more dependent. We do not want that; instead, we want an independent Riksbank. I am therefore very pleased that we can, in broad consensus, make these, as I believe, necessary adjustments.

I would like to once again express a big thank you to everyone who has contributed to this work. Now, Vice Chairman Mikael Damberg, Social Democrat, is not here, but the Finance Committee's presidium has, together with the secretariat, pulled a heavy load. My intention was to thank him, but perhaps it is better that he is not here in the chamber and becomes quite annoyed because he is receiving praise. But a big thank you, also to all of you others who have in different ways been involved and contributed. And above all, as I said, a big thank you to the Finance Committee's secretariat for very professional work!

With this, Mr. Speaker, I would also like to take the opportunity to wish the Speaker, the Speaker's Office, my fellow members in the Committee on Finance, our office, and also you who are listening a very Merry Christmas and a Happy New Year.

(Applause)

The speech at riksdagen.se, in Swedish (opens in a new tab)

Ingela Nylund Watz (S)

Mr. Speaker! I would first like to express my approval of the committee's proposal. I would also like to apologize if I exceed my allotted time by a few minutes.

I would like to agree with Edward Riedl's grateful observation that we have succeeded in reaching an agreement between the Riksdag's eight parties regarding these important changes. It is a strength for Sweden that we jointly safeguard our Riksbank's independence. This independence is expressed, among other things, by the fact that it finances itself. It is therefore not a budget item in the state's budget that finances the Riksbank's operations, but it does so itself.

In the new Riksbank Act, which Edward Riedl mentioned, an obligation was introduced for the Riksbank to come to the Riksdag and request supplementary funds if the equity fell below a certain target level. We have had discussions with the Riksbank regarding whether it is reasonable for the legislator's requirements to specify when this should occur or if there should be an opportunity for the independent Riksbank to decide for itself when it wants to come to the Riksdag. We have now, in this proposal, landed on that we shall make this an opportunity instead of an obligation.

I would, however, like to emphasize that we in the committee have nevertheless decided that the target level of 60 billion that has been identified shall be included in the report, as well as that one should come to the Riksdag if one falls down to a third of that target level.

This did happen. The Riksbank made an enormous loss in 2022, 81 billion, and the annual reports for 2023 showed a deficit of 2 billion when profit and equity were added together. That meant that in the spring, the Riksbank had to come to the Committee on Finance and ask for a capital injection.

We have handled this matter. There have been many discussions, and the officials have been heavily involved. It has been a rather complicated process, but the committee has now landed on this report. We also gave an additional 25 billion to the Riksbank in the chamber in June. It was approximately half of what the Riksbank requested.

I also want to emphasize that in connection with making this addition, we also made a decision on a committee initiative to review this regarding moving from obligation to possibility, as well as the Riksbank's self-financing ratio. This is what this report contains. The Government has delivered on the announcement, and that is very good.

So, the Riksbank Act is being changed so that the obligation to come to the Riksdag with demands for the restoration of its own capital is instead formulated as a possibility. With this, the Riksbank's independence is strengthened because it will be they themselves who decide whether the possibility shall be utilized.

The Riksbank's unrealized profits on its revaluation accounts, except for the gold account, shall continue to be fully taken into account when the Riksbank chooses to make a submission to the Riksdag regarding the restoration of its own capital. Today, the losses affect the result but not the unrealized profits on the revaluation accounts because they are not included in the own capital under the current arrangement. This was also something that the committee pointed out in the announcement and wanted to be looked at. In this proposal, the circumstance is therefore taken into account: that in these calculations, the unrealized profits shall be included so that it will be easier to assess how much own capital the Riksbank needs in the future.

It is, Mr. Speaker, quite correct as the committee chairman stated: We use fewer and fewer banknotes and coins in Sweden. This has caused the Riksbank to lose a large share of what has been its natural revenue, the so-called seigniorage.

That is why we now have a proposal that means the Riksbank is given an opportunity to demand interest-free deposits from banks and credit institutions, both Swedish and foreign that have offices in the country, if the own capital were to fall below the target level. But this may only be done for the purpose of financing operations, and it may not be used for monetary policy purposes.

In this way, we give the Riksbank a better opportunity to earn its own way to cover its administrative costs. We make the assessment that the administrative costs the Riksbank has will in any case not be able to be covered in any other way within the near future.

There is a small addition in the report concerning the implementation of some changes in the EU's finality directive and in the payment services directive. It is important in order to make it possible for payment institutions and issuers of electronic money to participate in the so-called settlement system, which we have in Sweden. Today, it is only the Riksbank, the National Debt Office and the credit institutions that are allowed to do so, but now we are therefore opening up the possibility for others to also participate in the system.

In summary: We, eight parties here in the chamber, jointly make some changes to further strengthen the Riksbank's independence. We open the possibility to increase the Riksbank's self-financing rate, and we incorporate some EU directives into the Swedish legislation.

With this, I wish a Merry Christmas to all colleagues in the committee, thank our fantastic civil service staff in the Finance Committee's office, and wish all staff in the Riksdag Administration and the Speaker's Office a very Merry Christmas.

(Applause)

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Dennis Dioukarev (SD)

Madam Speaker! Just before the highest inflation since the 80s hit, Sweden and the rest of the Western world had suffered from the opposite: low inflation rates, risk of deflation, and a corresponding low-interest environment. Then the pandemic hit, and the Riksbank, like the rest of the world's central banks, carried out large purchases of bonds in order to support the economic recovery.

When inflation finally turned upwards, it did so with conviction, and the policy rate did as well. The inversion of the relationship between interest rates and bonds caused the value of the holdings in the Riksbank's portfolio to fall sharply. This caused the new Riksbank Act, which the Riksdag decided on in November 2022, to have to show its true colors immediately. This applies in particular to the recapitalization rule that was actualized due to the Riksbank's own capital decreasing. That is why we stand here today.

The Riksbank Committee, which I myself sat on, laid the foundation for the new law and chose to design the accounting rules asymmetrically regarding profits and losses. In practice, this means that unrealized losses are carried to the Riksbank's results at the end of the year, while unrealized profits do not. This makes the need for recapitalization appear larger than it actually is.

In the current recapitalization rule - a very long word - there is also an automaticity, an obligation to submit a request for restoration if the equity falls below one-third of the target level. This in itself leaves no room for flexibility in any given situation. Therefore, it is proposed in the bill we have to decide on today, partly a symmetry in the consideration of unrealized gains and losses, and partly an opportunity rather than an obligation to request recapitalization.

This will provide a more accurate picture of the balance sheet and make it easier to assess whether the Riksbank is in need of a supplement, and if so, how large, while simultaneously ensuring the Riksbank's financial independence. It is also clarified, as stated, that the Riksbank has an opportunity and not an obligation to request a replenishment because there could be reasons for the Riksbank not to request replenishment, for example, if the financing need decreases or if the value of banknotes and coins increases.

Madam Speaker! Speaking of banknotes and coins, or cash, para, dinero and money if you will, the amount of cash in Sweden has been halved over a decade, partly due to changing payment habits among the population, and partly because the banks have deliberately phased out cash services. This, in turn, has reduced the Riksbank's opportunities to finance its operations in the way that the vast majority of central banks in the world still do, namely through seigniorage.

I and with the decision here today, the Riksdag will therefore give the Riksbank an opportunity to introduce a so-called reserve requirement, a requirement on deposits from banks at the Riksbank, if the Riksbank's own capital falls below the target level. It will strengthen the possibilities for self-financing.

I vote in favor of the committee's proposal for a decision.

I would also like to take the opportunity to wish the Speaker, the Speaker's Presidium, my colleagues in the Committee on Finance and the Committee on Finance's office a very Merry Christmas and a Happy New Year.

(Applause)

In this speech, Mattias Eriksson Falk and Charlotte Quensel (both SD) concurred.

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Martin Ådahl (C)

Madam Speaker! Actually, the only truly central thing with a central bank is price stability and financial stability - that one manages to keep inflation in check and that one manages to keep the financial system running.

For both of these, the central bank, Riksbanken here in Sweden, has an entirely unique and exceptional responsibility. Despite periods of uncertainty and setbacks, our Swedish Riksbank has once again succeeded in its core missions. Although the government often and gladly takes the credit for the fight against inflation, it has at best a supporting role alongside Riksbanken. The main role belongs to Riksbanken, and thus the credit for inflation now being subdued belongs to it.

All the other practical matters concerning a central bank like Riksbanken, which are also a craft for experts, usually come into the background. This concerns, for example, how Riksbanken finances its staff and what the balance sheet looks like. It is usually seen as secondary. Riksbanken is, after all, the one that issues the money itself, so financing will ultimately always be available.

The decisive factor is that the financing and the balance sheet provide the Riksbank with independence, because independence has historically in Sweden proven to uphold the Riksbank's role as the guardian of price stability and of financial stability.

But parallel to the inflation crisis in recent years, and interacting with it, there are things that have put precisely these practical issues, the Riksbank's balance sheet and earning capacity, at the center. It is about a combination of unfortunate circumstances, political and economic, unfortunate legislation, rapid swings in inflation, and the fact that Swedes are at the forefront in the world in abandoning banknotes and coins, as has been said here in the debate, in favor of digital means of payment.

First, the new Riksbank Act unfortunately established a corridor for the Riksbank's own capital with a floor and a ceiling. So it became, Madam Speaker, even though there were several, including the Center Party, who advised against this and warned against it.

At the same time, the Riksbank had, for monetary policy purposes during the pandemic, purchased bonds in large quantities, which plummeted in value when inflation suddenly rose. The result was that the new Riksbank Act's Achilles' heel was directly exposed. The Riksbank's capital became so low that it fell below the lower limit of the new Riksbank Act, and what was not supposed to happen happened.

The Riksbank was forced, immediately after the new law entered into force, to ask the Riksdag for new capital, and a lot of new capital – tens of billions. One should know that a central bank, unlike a regular bank or a company, does not actually need a certain amount of its own capital. The equity can even be negative in an emergency – and that is actually the case in some European countries – because the central bank ultimately issues the money itself. But the law required this, and the Riksbank therefore had to ask the Riksdag for it. In the long run, such a situation would not have been good for independence.

At the same time, we had a more long-term situation where the Swedes, to a degree that is unique in the whole world, had stopped using banknotes and coins. It didn't apply to everyone, but to very many. For society, there are actually gains with this. Handling banknotes and coins is costly and involves risks. But for the Riksbank's earnings, it is very tough. If we have banknotes and coins in pockets and wallets – if there is anyone in the new generations who is listening who knows what a wallet is – it functions as an interest-free loan to the Riksbank.

For the banknotes and coins that are lent out, the Riksbank can place money in a way that yields a return. The return, the seigniorage, finances the Riksbank. Historically, it actually even provided a surplus to the state from the Riksbank. But without banknotes and coins, there is no seigniorage, no return, no financing.

If the new law threatened the Riksbank's balance sheet in the short term, the absence of banknotes and coins threatened the earnings in the long term. But with the new proposals that the eight parties in the Riksdag have now agreed upon, both of these problems are addressed. I am pleased that the Center Party has been able to contribute to this.

A one-time restoration of the Riksbank's capital has occurred. But now the artificial requirement for own capital is being removed from the law - this floor that triggered the situation. The Riksbank may request money from the Riksdag but no longer has to do so. In this way, independence is strengthened, and in that way, the short-term problem is addressed.

The long-term problem is addressed by the banking system being allowed to deposit money in an interest-free account at the Riksbank. This is what is usually called – and in the eurosystem is called – reserve requirements. In this way, the long-term earning capacity is secured. This is, moreover, quite reasonable, as the banks have earned a lot from avoiding handling banknotes and coins at the same level as in old times.

It is also about the Riksbank's independence. The Riksbank will neither now nor in the future need to come to the Riksdag and ask for money regularly. One avoids having a discussion about where the limit is for a dependence on us in politics, in the Riksdag.

None of this exempts the Riksbank from being frugal with its own expenditures, wise in its management, and cautious with its bond purchases. But it makes our rules of the game from a political standpoint safer, more stable, and more logical, which is necessary in times of great challenges for both the fight against inflation and financial stability.

I thank you for a good cooperation in the Committee on Finance and with the Chancellery. There have been many wise thoughts and intentions when it has come to getting this improved package in place.

I vote in favor of the committee's proposal in the report.

As the final speaker in this final debate, I would, of course, like to wish a very Merry Christmas to the members of the Finance Committee and to the Finance Committee's fantastic secretariat. There are exceptional experts there who have made fantastic contributions during this year. I would, of course, like to wish a Merry Christmas to the Speaker, to colleagues, and to those who are watching us via the broadcast. I wish you all a very Merry Christmas.

(Applause)

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Edward Riedl (M)

Madam Speaker! Had I followed my speech script, Martin would have been right in that he was the last speaker. I apologize for this.

I want to say two things.

First, I would like to take the opportunity to remind the members of the Finance Committee – so that we do not need to call anyone back this year – that we will reconvene immediately after the voting for this year's final decision, when we tie up the budget.

Then, Madam Speaker, I forgot to move for approval of the committee's proposal in the report - after all the work we have done. I therefore take the opportunity to do so now. I move for approval of the Finance Committee's proposal for a decision.

I will not wish Merry Christmas. Martin can be last for that.

The deliberation was hereby concluded.

(Decisions were made under § 11.)

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