Monetary policy of Sweden
Encyclopedia
The monetary policy of Sweden is decided by Sveriges Riksbank
, the central bank of Sweden
. The monetary policy
is instrumental in determining how the Swedish currency
is valued.
are:
("marginal rate") at 500%. The bank began to sell short-term government securities in large amounts but soon realized that market forces were strong, so they lowered their target rate, and let everyone sell what they wanted to sell, and the country saw a large selling of SEK, and SEK denominated papers. Between September 1992 and February 1993 the Swedish currency "TCW" index went from 125 to 100 (20% fall), while the British currency XBP index fell from 200 to 142 (29% fall).
Sveriges Riksbank
Sveriges Riksbank, or simply Riksbanken, is the central bank of Sweden and the world's oldest central bank. It is sometimes called the Swedish National Bank or the Bank of Sweden .-History:...
, the central bank of Sweden
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
. The monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
is instrumental in determining how the Swedish currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
is valued.
History
The main events in the monetary history of the KronaSwedish krona
The krona has been the currency of Sweden since 1873. Both the ISO code "SEK" and currency sign "kr" are in common use; the former precedes or follows the value, the latter usually follows it, but especially in the past, it sometimes preceded the value...
are:
- Introduction of the KronaSwedish kronaThe krona has been the currency of Sweden since 1873. Both the ISO code "SEK" and currency sign "kr" are in common use; the former precedes or follows the value, the latter usually follows it, but especially in the past, it sometimes preceded the value...
, based on the gold standardGold standardThe gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
on May 5, 1873. (1 kg of gold = 2480 Kronor) - The tie to gold is abolished on August 2, 1914.
- The tie to gold is de facto re-established in November 1922.
- The tie to gold is de jure re-established on April 1, 1924
- The tie to gold is abolished once more on September 27, 1931. Floating exchange rate.
- A tie to the British PoundPound sterlingThe pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...
is introduced in June 1933. (1 GBP = 19.40 SEK) - Tied to the US DollarUnited States dollarThe United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
on August 28, 1939. (1 USD = 4.20 SEK) - A controlled appreciation of 14.3 %, against all other currencies and gold on July 13, 1946. (1 USD = 3.60 SEK)
- A controlled depreciation of 30.5 % against the USD on September 19, 1949. (1 USD = 5.17 SEK)
- Membership of the International Monetary FundInternational Monetary FundThe International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
and part of the Bretton Woods systemBretton Woods systemThe Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...
on August 31, 1951. - A controlled depreciation of 1.0 % against gold and a 7.5 % appreciation against the USD on December 21, 1971.
- A controlled depreciation of 5.0 % against gold and a 5.6 % appreciation against the USD on February 16, 1973.
- Membership in the EuropeEuropeEurope is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
an "currency snakeSnake in the tunnelThe snake in the tunnel was the first attempt at European monetary cooperation in the 1970s, aiming at limiting fluctuations between different European currencies...
" in March 1973. - Adjustment of the exchange rates within the "snake"; a controlled 3 % depreciation against the DEM on October 18, 1976.
- Adjustment of the exchange rates within the "snake"; a controlled 6 % depreciation against the DEM on April 4, 1977.
- Sweden leaves the "snake". A controlled 10 % depreciation against a trade based "currency basketCurrency basketA currency basket is a portfolio of selected currencies with different weightings. A currency basket is commonly used to minimize the risk of currency fluctuations. An example of a currency basket is the European Currency Unit that was used by the European Community member states as the unit of...
" on August 29, 1977. - A controlled depreciation of 10 % against the "currency basket" on September 14, 1981.
- A controlled depreciation of 16 % against the "currency basket" on October 8, 1982.
- A tie to the European Currency UnitEuropean Currency UnitThe European Currency Unit was a basket of the currencies of the European Community member states, used as the unit of account of the European Community before being replaced by the euro on 1 January 1999, at parity. The ECU itself replaced the European Unit of Account, also at parity, on 13...
is introduced unilaterally on May 17, 1991. (1 ECU = 7.40 SEK) - Floating exchange rate on November 19, 1992
1992
In late 1992 (September 14, Monday) the British pound began a steep decline that made it "leave" the Exchange Rate Mechanism on the Wednesday of that week. At the same time the Swedish currency began to decline; the first reaction from the central bank was to try to keep the current fixed exchange rates in place, and they set a target for their equivalent to the federal funds rateFederal funds rate
In the United States, the federal funds rate is the interest rate at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis. Institutions with surplus balances in their accounts lend...
("marginal rate") at 500%. The bank began to sell short-term government securities in large amounts but soon realized that market forces were strong, so they lowered their target rate, and let everyone sell what they wanted to sell, and the country saw a large selling of SEK, and SEK denominated papers. Between September 1992 and February 1993 the Swedish currency "TCW" index went from 125 to 100 (20% fall), while the British currency XBP index fell from 200 to 142 (29% fall).
See also
- Scandinavian Monetary UnionScandinavian Monetary UnionThe Scandinavian Monetary Union was a monetary union formed by Sweden and Denmark on May 5, 1873, by fixing their currencies against gold at par to each other...
- Economy of SwedenEconomy of SwedenThe economy of Sweden is a developed diverse economy, aided by timber, hydropower and iron ore. These constitute the resource base of an economy oriented toward foreign trade...
- History of copper currency in SwedenHistory of copper currency in SwedenThe Swedish Empire had the greatest and most numerous copper mines in Europe as it entered into its pre-eminence in the early 17th century as an emerging Great Power. Through poor fiscal policies and in part the Treaty of Älvsborg, Sweden lost control of its reserves of precious metals, primarily...