The Riksbank's proposal on the restoration of equity - amendment to the state budget for 2024
Translated from Swedish by AI; the translation may contain errors. The Swedish text is the original.
Summary AI, written in advance
M believes that the Riksbank's independence is central and that its funding should never be part of the annual budget priorities 1. S emphasizes that independence is important for the bank to be able to fulfill its societal tasks and that the funding should be separate from the state's budget 2. SD argues that the new Riksbank Act aimed to strengthen the bank's financial independence through a statutory structure for equity 3. C believes it is important to avoid the Riksbank being "spoon-fed" by the Riksdag through equity requirements in order to safeguard its independence 4. C believes that the changes agreed upon are important because the capital is restored with 25 billion and the requirement for a motion regarding low equity is reformulated into an opportunity 4. C argues that this avoids a future economic dependency for the Riksbank towards the Riksdag 4. C believes that they have jointly secured the Riksbank's future earning capacity and found a solution to the problem with the motion regarding the restoration of equity 4.
Written by AI in advance and may contain errors. The numbers lead to the speech a statement builds on; check against the text below.
Edward Riedl (M)
Madam Speaker! Let me begin by, despite the late hour, extend a thanks to the deputy chairman of the Committee on Finance, Mikael Damberg, for good cooperation on this issue and also, of course, to the other members of the Committee on Finance. It is good to have broad agreement on these types of issues. Many thanks also to the Committee on Finance's secretariat for very good support. I see that you are staying despite it being late.
Let me briefly say that the arrangement we have with an independent Riksbank serves Sweden very well. The Riksbank's independence is completely central to being able to solve the tasks that rest upon the Riksbank.
The Riksbank is not an ordinary appropriations agency. The Riksbank's financing should never be part of the Riksdag's and the government's annually recurring budget priorities. At the same time, the significant changes in value in the Riksbank's balance sheet in recent years show long-term challenges with today's financing solution that were not foreseen when the current Riksbank Act was drafted during the previous mandate period.
Against this background, the Committee on Finance proposes that 20 billion SEK be transferred from the state budget 2024 to the Riksbank for the restoration of the bank's equity, in accordance with the Riksbank's submission to the Committee on Finance.
It is now proposed that the Riksdag issue two motions to the government to promptly return with proposals for legislative amendments that ensure the bank's long-term financing. This is, of course, about safeguarding the Riksbank's independence in the long term. Firstly, the government shall clarify the conditions for when and how the Riksbank shall submit a motion to the Riksdag regarding the restoration of equity, and secondly, the government shall return to the Riksdag with proposals that strengthen the Riksbank's possibilities for self-financing over the longer term.
Madam Speaker! I vote in favor of the Finance Committee's proposal for a decision.
Mikael Damberg (S)
Madam Speaker! The arrangement with an independent Riksbank has served Sweden well. We Social Democrats consider that independence is important so that the Riksbank can act independently and with force to solve its central societal tasks.
According to the Sveriges Riksbank Act, the Riksbank shall maintain low and stable inflation over the long term. Without prejudice to the inflation target, the Riksbank shall also contribute to a balanced development of production and employment.
A fundamental thought regarding the Riksbank's independence is that the bank's financing should be separate from the state's budget and annual politically determined budget priorities.
All of this is significant. It affects people in their everyday lives. A credible inflation target creates a stable and predictable development of prices in the entire society, which in turn creates the conditions for favorable economic development with good growth. At the same time, the cost shocks and food price increases of recent years show that people with small economic margins have been hit hard by inflation. Ordinary LO households have lost ten years of real wage increases. Therefore, the fight against inflation is important.
The Riksbank can, through its monetary policy tools, act to influence the economy and inflation. One of the monetary policy tools the Riksbank has at its disposal is quantitative easing, which means that the bank buys securities and bonds to keep interest rates down and/or stabilize the economy.
After the financial crisis and during much of the last decade, the purchase of securities has been used widely, not only by the Swedish Riksbank but by many leading central banks around the world. The effectiveness and goal achievement in this work have been evaluated.
The use of quantitative easing has led to many central banks, including the Riksbank, now holding large assets in the form of securities. When the inflation shock arrived and interest rates began to be raised, the value of the assets fell. For the Riksbank, the rapid interest rate increase led to a decrease in the value of the Riksbank's holdings of bonds and that the bank reported a large loss in 2022.
Madam Speaker! According to the current Riksbank Act, the Riksbank shall make a submission regarding the restoration of the bank's own capital if it falls below a certain threshold level. That threshold level corresponds to one-third of the target level, or approximately 20 billion kronor. Since the value of the Riksbank's own capital has fallen below the threshold level, the Riksbank now proposes in its submission that the Riksdag shall restore the bank's own capital to the base level.
The Riksbank's operations require long-term rules of the game. Therefore, I am very pleased that all eight parties in the Committee on Finance agree on the content of today's report. The Committee proposes, as previously mentioned, that 25 billion kronor be transferred during 2024 from the state budget to the Riksbank for the restoration of the bank's equity.
The Committee further notes that a fundamental principle of the Riksbank's independence is that the bank's financing shall be separate from the rest of the state and not dependent on the fiscal policy considerations that the Riksdag makes annually. The Committee therefore proposes two announcements to the Government regarding legislative changes.
Firstly, the government shall promptly return to the Riksdag with legislative proposals clarifying the conditions for the Riksbank's submissions regarding the restoration of equity to the Riksdag. In these clarifications, the requirement for submission regarding the restoration of equity should be replaced with an option for the same. The government shall clarify how the asymmetry in the accounting principles regarding unrealized gains and unrealized losses shall be handled during the restoration of equity.
Secondly, the government shall also return to the Riksdag with legislative proposals that meet the Riksbank's need to strengthen the possibilities for self-financing.
Madam Speaker! In conclusion, I would like to reciprocate the thanks from the Chairman of the Committee on Finance for good cooperation and thank all parties for constructive cooperation. It is a strength that we today have a broad political consensus on the Riksbank's financing. It is a strength that we in the Swedish Riksdag can make decisions that provide good conditions for the Swedish economy.
I vote in favor of the proposals in the Committee on Finance's report.
Dennis Dioukarev (SD)
Madam Speaker! When I entered the Riksdag in 2014 and began working with the Riksbank issues, Sweden and the world were in a situation where deflation was a real risk that was discussed in the monetary policy debate in many Western European countries. This may be difficult to imagine given the high inflation of recent years, but at that time, the low inflation rate actually led to a series of cuts in the repo rate despite the fact that we were in a boom. It is an unusual monetary policy combination that is hardly a typical example one learns about in the textbooks.
In February 2015, the Riksbank lowered the interest rate for the first time in Sweden's history to minus 0.1. In practice, this meant that the banks were forced to pay to have money in an account at the Riksbank. This was done to stimulate demand and thus inflation. I posed a question to the Riksbank regarding the implication of this when it actually happened. I wondered if it meant that private individuals in turn would have to pay for their savings, that is, whether the commercial banks would introduce negative interest on private individuals' savings accounts. Naturally, that never happened, but in any case, this thought experiment illustrates what kind of experiment this was in the sense that it had never been tested before. The Riksbank was not alone in this - even the ECB, Switzerland, Denmark, Japan, and several others lowered the interest rate below zero.
With this low-interest-rate environment in tow, we entered the pandemic, which meant major disruptions in logistics chains, which resulted in supply-disrupting effects. Governments and central banks around the world reacted by stimulating the economy through a strongly expansive monetary and fiscal policy.
If we then fast-forward to February 2022, Russia invades Ukraine. Europe, which until then had been heavily dependent on cheap Russian gas, experiences an energy crisis with sharply rising energy prices as a consequence.
This all in all sets the scene for what happens next. Before, during, and after the pandemic, the world's central banks, including Riksbanken, purchase a large amount of government securities, corporate bonds, secured bonds, etc. To press down interest rates, they aim these on their balance sheet in the beginning of 2022. When inflation eventually shoots from 2-3 percent to 10 percent within the span of twelve months, Riksbanken responds according to all the rules of the art by adopting interest rate hikes that take the interest from 0 percent to 4 percent over one and a half years in order to defend the inflation target. When the interest rate goes up and the bonds go down, it results in large unrealized losses in Riksbanken's portfolio and a negative equity in the financial statements for 2022.
Approximately at the same time as the monetary policy conditions shift from negative interest rates to strongly tightening policy, a new Riksbank Act is introduced in Sweden. This is the first revision of the Riksbank Act since 1999, when provisions on fixed monetary value and the Riksbank's independence were introduced; otherwise, it was a law that was not adapted to the world we live in today. The purpose of the new Riksbank Act was to modernize the law based on today's economic climate as well as to strengthen the Riksbank's financial independence through a statutory order and structure for the Riksbank's own capital.
The changed monetary policy landscape, together with a new Riksbank Act including the new recapitalization rule, which I had intended to describe in more detail, which I am skipping due to the late hour, collectively means that we stand here today and have this debate. According to the annual reports for 2023, the Riksbank's equity is less than one-third of the target level after a large reported loss in 2022. Therefore, the Riksbank submitted a proposal to the Riksdag which the committee now partially approves. It instructs the government or the authority it decides upon to transfer 25 billion kronor to the Riksbank.
Madam Speaker! This is not a debate in the sense that the parties represent different positions, but rather we have a broad cross-bloc consensus on a question of great importance for Sweden. The Riksbank is to be recapitalized with 25 billion. We all agree on this, and it is a strength for Sweden and important for the Riksbank's financial independence.
Madam Speaker! In addition to the submission, the Committee on Finance also directs two announcements to the Government. I will not go into these in detail. The first concerns a clarification of the accounting principles which will further strengthen the Riksbank's financial independence. The second concerns the Riksbank's earning capacities; we direct an announcement to the Government to return to the Riksdag on how self-financing is to be strengthened.
Martin Ådahl (C)
Madam Speaker! We stand here now in the late hour to discuss the Riksbank's submission regarding the restoration of its own capital. This is a technical issue, which we are debating late in the evening in the chamber, but it is also a very important issue for the Riksbank's independence, which in turn is a prerequisite for the Riksbank's successful inflation control.
I want to emphasize something that several speakers have said: that fortunately, there is a large and broad consensus in the Riksdag regarding the Riksbank's independence. This is something that the Center Party has also always safeguarded. I want to thank the committee for good cooperation in this technical issue and not least thank the committee's secretariat for unique efforts to make this as good as possible. I also want to emphasize that the Center Party would preferably never have wanted to stand here and discuss the restoration of the capital. The matter is a consequence of deficiencies in the new Riksbank Act which we pointed out and which, unfortunately much faster than we could have imagined, led to the need for this motion.
There are two separate problems that have become relevant at the same time. One is that the Riksbank has a weaker earning capacity than before because we Swedes use banknotes and coins dramatically less. Banknotes and coins function as an interest-free loan to the Riksbank. The capital can be used to create returns and income for the Riksbank. That is the so-called seigniorage, which is the Riksbank's most important earning.
Since we Swedes now often pay with cards, or for that matter with Swish and other digital solutions, there are far fewer outstanding banknotes and coins. It is much more practical and simple for many, not least for the banks, that fewer cash is used, but it reduces the Riksbank's possibilities to finance itself. This is also quite unique for Sweden, which has gone further in stopping the use of banknotes and coins than in principle any other country.
In this report from the Riksdag, the possibilities and solutions for remedying this problem with the service are presented. It is no secret that what is discussed most and what the ECB has chosen is a capital requirement for the banks that corresponds to the seigniorage's previous opportunity for earning.
The second of the problems that have been highlighted simultaneously concerns the requirement on the Riksbank that now exists in the Riksbank Act regarding requesting new capital from the Riksdag when the equity falls below a certain level. This has been described here earlier, and I will not go into it in more detail. It is also something that is quite unique to Sweden and which was created in connection with the new Riksbank Act. The requirement is also not matched by any automatic requirement on the Riksdag and government to restore the capital according to the Riksbank's request.
Did not foresee that this requirement would become relevant as quickly as it did. After the Riksbank, as also described, made extensive bond purchases as part of the monetary policy and also for financial stability, the rapid and unexpected rise in inflation led to these bonds losing value and the lower limit for capital was activated.
It is important to say that in practice there is no real lower limit for the equity. It is created by the Riksbank Act's requirements on provision. Several central banks have historically functioned and function with negative equity, because you are the one who issues the money yourself. You therefore do not function as a normal commercial enterprise or a bank. But the law has set this requirement, and it has now been activated.
What must be avoided in this context, in order to safeguard the Riksbank's independence, is that the Riksbank is, so to speak, hand-fed by the Riksdag as a consequence of the requirement for own capital – that one must ask for capital again and again. Therefore, the changes that we have now agreed upon and which are made through the report are very important. On the one hand, the capital is restored with 25 billion, and on the other hand, the requirement for submission when the own capital becomes too low is practically removed and reformulated into an opportunity. Thus, a possible future economic dependency of the Riksbank towards the Riksdag is avoided.
Overall, I would therefore like to thank the Committee on Finance for good cooperation. Together, we have secured the Riksbank's future earning capacity. We have addressed the problem regarding the presentation of equity restoration and found a solution. In this way, the Riksbank Act can be improved. Looking toward the future, opportunities are created to make further improvements regarding equity to avoid similar situations arising again and to guarantee the Riksbank's independence.
The deliberation was hereby concluded.
Source: The Swedish Parliament. The speeches come from the open data of the Riksdag, translated into English by AI, which may contain errors.