EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 4 August 2008 
at the request of the Swedish Ministry of Finance  
on a report concerning the financial independence of Sveriges Riksbank 
(CON/2008/34)  
 Introduction and legal basis
 
On 14 March 2008 the European Central Bank (ECB) received a request from the Swedish Ministry of 
Finance for an opinion on a report entitled ‘The Riksbank’s financial independence’ (SOU 2007:51) 
(hereinafter the ‘report’). The report sets out two al ternative proposals for am endments to the Law on 
Sveriges Riksbank concerning changes to Sveriges Riks bank’s capital structure and profit distribution. 
The ECB’s competence to de liver an opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the third indent of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 
on the consultation of the European Central Bank by  national authorities regarding draft legislative 
provisions1, as the proposals set out in the report relate to Sveriges Riksba nk. In accordance with the first 
sentence of Article 17.5 of the Rules of Procedure of  the European Central Bank, the Governing Council 
has adopted this opinion. 
 1. Background 
1.1 Sveriges Riksbank is a public authority who se operational activities are governed by the Sveriges 
Riksbank Act (SFS 1988:1385) (hereinafter the ‘Rik sbank Law’). Sveriges Riksbank is a legal 
entity in its own right and has its own assets, cons istent with the principle that there are economic 
and political reasons for a national central bank (N CB) to be independent. A comprehensive reform 
of the Riksbank Law undertaken in 1999 significantly strengthened Sveriges Riksbank’s independence. 
1.2 In the 1999 reform, however, financial independenc e was not a widely discussed issue, and to date 
there are no regulations guaranteeing Sveriges Riks bank’s financial independence. This fact was 
highlighted when the Riksdag (Swedish Par liament) passed resolutions requiring Sveriges 
Riksbank to pay extraordinary dividends for the fiscal years 2000 and 2001. Critics of these 
decisions were of the opinion that Sveriges Riks bank’s financial independe nce could be questioned 
if it was possible for the Riksdag to require funds from Sveriges Riksbank in this way.  
                                                     
 
1 OJ L 189, 3.7.1998, p. 42.  
2 1.3 The ECB criticised the payment of these extraordinary dividends a nd has stated in its Convergence 
Reports that Sveriges Riksbank’s financial independence should be reflected in the Riksbank Law. 
Already in the EMI’s convergence report of 1998 it was pointed out that “if Parliament were to 
deviate from the objective criteria to which it has a dhered in the past, this could affect the Bank’s 
financial independence. A statutory safeguard clau se should therefore be considered in order to 
ensure that Parliament’s power may not impe de the proper performance of the Bank’s ESCB-
related tasks.” 
1.4 On 27 April 2006 the Swedish Government appoint ed Director General Ingrid Bonde to head a 
Commission of Inquiry (hereinafter the ‘Commission ’) to investigate issues relating to the structure 
of Sveriges Riksbank’s balance sheet and capital and distribution of its profits. The Commission’s 
mandate was also to submit proposals for statutor y regulation of the principles according to which 
Sveriges Riksbank’s profits should be distributed. 
 2.  The Commission’s proposals concerning the ch anges to Sveriges Riksbank’s capital structure 
and profit distribution  
2.1 Ms Bonde presented the report in June 2007. It contains two alternative proposals for Sveriges 
Riksbank’s capital structure and profit distri bution which, from a central government finance 
perspective, are considered equal: 
(i)  Alternative 1  Alternative 1 proposes that Sveriges Riksbank’s right  to issue banknotes and coins should be used 
to fund its operational activities. It views curre ncy in circulation as cost-free capital which more 
than covers Sveriges Riksbank’s needs as iden tified by the Commission. According to the 
Commission’s calculations, Sveriges Riksbank n eeds cost-free capital of between SEK 60 and 
74 billion. As at June 2007, currency in circ ulation is approximately SEK 110 billion.  
Although, according to the Commission, currency in  circulation should provide sufficient cost-free 
funding for Sveriges Riksbank’s operational ac tivities, the Commission nevertheless advises that 
Sveriges Riksbank should be provided with a re latively small amount of own capital, initially 
amounting to SEK 10 billion. Under this propo sal, approximately SEK 50 billion could be 
transferred from Sveriges Riksbank to central gove rnment. If such a transfer to central government 
were to take place, the Riksbank would need to  sell currency assets with a corresponding value. 
The distribution would need to take place over a l ong period of time, or be structured otherwise so 
as not to affect the exchange rate for the Swedish krona. 
The size of Sveriges Riksbank’s primary capital, whic h would be increased in line with changes in 
the consumer price index, would form the basis for calculating any distribution of profit by Sveriges Riksbank. Where the primary capital is less  than the amount prescribed by law, no profit 
3 distribution would be permitted. In all other cases,  Sveriges Riksbank’s entire profit would be 
distributed to central government. 
(ii)  Alternative 2 Alternative 2 is based on the principle that cu rrency in circulation is not suitable as cost-free 
capital. Instead currency in circul ation is deemed to be a debt to central government on which 
Sveriges Riksbank pays interest corresponding to a short-term risk-free interest rate in Swedish 
kronor, e.g. the repo rate.  
Under this alternative, the cost of producing ba nknotes and coins, current ly borne by Sveriges 
Riksbank, would be deducted from the interest payable to central government. Thus the capital 
needed to cover current costs would be lower unde r this alternative, becau se Alternative 1 also 
requires there to be assets producing a return to fund the costs of producing banknotes and coins. 
Under this alternative, the Commission estim ates the total capital requirement at  
SEK 52 – 63 billion, which is relatively close to Sveriges Riksbank’s curre nt level of own capital 
(SEK 58 billion). 
This alternative is based on Sveriges Riksbank ha ving own capital of SEK 60 billion. With regard 
to profit distribution, the same principle as in Alternative 1 would apply, i.e. all profit increasing own capital above the target level of SEK 60 billi on would be distributed. As under Alternative 1, 
this capital would be index linke d and written up in line with infl ation. The balance sheet total 
would be approximately the same as it is currently. 
2.2 On 8 February 2008, as a stage in the Swedish legislative process, Sveriges Riksbank issued a 
response to the report. It welcomed the Commiss ion’s proposals to strengthen its financial 
independence by regulating in law the size of its own capital and distribution of its profits. 
However, it pointed to some difficulties with the alternatives proposed  by the Commission, 
especially Alternative 1.  
Sveriges Riksbank therefore expressed its preference for Alternative 2, subject to some adjustments 
(indexation of capital on nominal gross domestic product and a significant safety margin). Moreover, regarding the Commission’s proposal in Alternative 2 for the supply of banknotes and coins to form the basis for an annual fee to be  paid by Sveriges Riksbank to central government, 
Sveriges Riksbank questioned the compatibility of this proposal with the prohibition on monetary 
financing laid down in the Treaty 
 3.  General observations  
3.1 The ECB welcomes the Swedish Ministry of Fina nce´s request for an op inion on the report at a 
stage in the legislative process when it should still be possible to integrate the ECB’s views into 
any draft legislation. The ECB also strongly suppor ts the Swedish legislator’s intention to regulate 
the capital structure and profit distribution of Sveriges Riksbank. 
4 3.2 Even though the ECB is positive regarding the Swed ish legislator’s intention to regulate the profit 
distribution of Sveriges Riksbank, several issues in the two proposals entail the risk of undermining 
Sveriges Riksbank’s financial independence and are therefore of considerable concern to the ECB. 
3.3 It is noted that Sweden was obliged to have brought into force the necessar y adaptations to comply 
with the relevant provisions of the Treaty2 and the Statute of the European System of Central 
Banks and of the European Central Bank (hereina fter the 'ESCB Statute') concerning central bank 
independence by the time of establishment of the ESCB on 1 June 1998. 
3.4 Moreover, the ECB would like to emphasise that, although Member States with a derogation do not 
yet participate in economic and monetary union (EMU ), they have a legal duty to adapt the statutes 
of their NCBs ‘to ensure compatibility with the Tr eaty and the Statute in respect to Eurosystem-
related tasks’3. In this respect, any legislative reform should aim to gradually achieve consistency 
with Eurosystem standards. In this case, it s hould facilitate the convergence of the Swedish legal 
framework, necessary for Sweden to become a full participant in EMU without the need for 
subsequent legislative reforms.  
3.5 In particular, regarding Alternative 1, it is to be  noted that pursuant to Article 106(1) of the Treaty, 
only the ECB and the NCBs are entitled to issu e euro banknotes. Nowhere in the Treaty does it 
state that such euro banknotes are conceptually equivalent to cost-free capital owned by any 
individual NCB. Thus, the issuance of euro bank notes is not a right granted to an NCB by an 
individual Member State as assumed under Alternativ e 1, but a right granted jointly to the ECB and 
the NCBs by the Treaty under the authority of the ECB’s Governing Council.  
3.6 Furthermore, Article 105(2) of the Treaty defines holding and management of the official foreign 
reserves of the Member States as a basic task to  be carried out through the ESCB. Whilst this 
Treaty provision 4 does not prohibit the sale of assets per se, including those assets denominated in 
foreign currency, the competence to take decisi ons on the composition of an NCB’s assets needs to 
remain with the NCB. The adoption of legislati on that would impose an obligation on an NCB to 
sell a Member State’s official foreign reserves in co ntradiction with the assignment of this task to 
the NCB would be inconsistent with the Treaty, as it would deprive that NCB of one of its basic 
tasks under the Treaty and transfer from the NC B to the political authorities of the relevant 
Member State a competence that the Treaty clearly assigns to the NCBs.  
3.7 With regard to Alternative 2, the Treaty provi des no support for considering currency in circulation 
as an NCB’s debt to the central government of an  individual Member State. Such a proposal would 
defeat the concept of a single currency for all Me mber States and is therefore incompatible with 
Community law and the requirements of Eurosystem  legal integration. As  a consequence, the 
Commission’s proposal to have Sveriges Riksbank pa y a fixed fee to the Swedish Government as 
                                                      
2  Article 108 of the Treaty. 
3  ECB Convergence Report May 2008, p. 26. 
4  See also Article 108 of the Treaty 
5 remuneration on such indebtedness is clearly incons istent with the provisions of Article 32 of the 
Statute on monetary income allocation.  
 4.  Specific observations Central bank financial independence  
4.1 The general concept of central bank independence,  in particular in conjunction with the specific 
aspect of financial independence, requires that in  performing its tasks, an NCB can independently 
assess the risks involved and has the power to decide on necessary precautions to take. The 
principle of financial independence also impli es that an NCB must have sufficient means to 
perform not only its ESCB-related tasks but also  its own national tasks (e.g. financing its 
administration and own operations). The ECB has stat ed in its Convergence Reports that a Member 
State may not impose reductions of capital on an NC B without the ex ante agreement of the NCB’s 
decision-making bodies. This principle aims to en sure that the NCB retains sufficient financial 
means to fulfil its mandate under Article 105(2) of  the Treaty and the Statute as a member of the 
ESCB. 
4.2 Sveriges Riksbank’s current statutory capital is  SEK 1 billion, plus a reserve fund of SEK 0.5 
billion and a contingency fund (the  Riksbank’s own capital amounted  to around SEK 58 billion at 
the end of 2007). Under Alternative 1 Sveriges Riksbank’s own capital would be SEK 10 billion, 
while under Alternative 2 it would be SEK 60 billion.  The ECB is of the view that the higher the 
level of own capital, the better safeguards the capital provides against future losses.  
4.3 The ECB has also stated in its Convergence Repor ts regarding financial provisions or buffers that 
an NCB must be free independently to create financ ial provisions to safeguard the real value of its 
capital and assets
5. Although the Commission proposes in its report that primary capital should be 
adjusted upwards annually by a factor corresponding  to the change in the consumer price index, 
neither of the proposed alternatives provides Sver iges Riksbank with a right to create financial 
provisions or buffers. Furthermore, the payment of  an annual fee based on currency in circulation 
as provided for under Alternative 2, irrespective of real profits, would risk reducing the amount of 
cost-free capital available to Sveriges Riksbank and, consequently, the safety margin for 
unforeseen events requiring action by it in the performance of its tasks.  
4.4 Therefore, neither Alternative 1 nor Alte rnative 2 as proposed by the Commission would be 
sufficient to ensure Sveriges Riksbank’s financ ial independence leaving it able to accumulate 
reasonable reserves from earned income and create fi nancial buffers to cove r its risk exposures, 
thereby safeguarding the real value of its capital and assets. 
                                                      
5  ECB Convergence Report May 2008, pages 20 and 21. See also ECB Opinions CON/2003/22 of 15 October 2003 at the 
request of the Finnish Ministry of Fi nance on a draft government proposal to amend the Suomen Pankki Act and other 
related acts and CON/2004/1 of 20 January 2004 at the reques t of the Economic Committee of the Finnish Parliament on 
the government proposal to amend the Suomen Pankki Ac t and other re lated acts. 
6 The prohibition on monetary financing 
4.5 Under Alternative 2, Article 3 of the draft Ch apter 10 of the Riksbank Law would oblige Sveriges 
Riksbank to pay an annual contribution to centr al government calculated in accordance with an 
interest rate corresponding to the repo rate on the nominal amount of currency in circulation. 
Although Section 4 provides that no transfer to central government may take place if Sveriges 
Riksbank’s primary capital is below the minimum le vel laid down in the Riksbank Law, the current 
drafting seems to imply that Sveriges Riksbank woul d still have to pay the annual contribution to 
central government even if its own capital were in sufficient, i.e. before losses are accounted for. 
4.6 The current drafting of Article 3 does not rule out the possibility of an intra-year anticipated profit 
distribution which Sveriges Riksbank would be obli ged to pay to central government even if its 
profit and loss accounts showed a loss. The propos ed Article 3 should therefore be adapted to 
ensure that no transfer of money to central govern ment may take place before approval of Sveriges 
Riksbank´s profit and loss account. This would ru le out a breach of the monetary financing 
prohibition under Article 101 of the Treaty as a result of a distribution of unrealised profits.  
Costs and risks of operational activities 4.7 The report uses Sveriges Riksbank's current opera ting costs as a basis for calculating how much of 
its own capital is necessary to cover operating costs.  In view of the changi ng structure of financial 
markets and the economy and in order to preser ve Sveriges Riksbank's ability to adjust its 
operating costs  and therefore to preserve its inde pendence, however, it is important to retain 
flexibility regarding the level of operating costs which Sveriges Riksbank may need to finance in 
the future through returns on its capital. Hence, it is important that Sveriges Riksbank can retain a 
sufficient part of its earnings to enable it to  meet future increases in its operating costs. 
4.8 The report analyses the sources of risks that ma y lead Sveriges Riksbank to require capital in 
excess of the level needed to cover operating cost s. One of the sources of risk identified in the 
report is credit risk incurred in operational ac tivities. This includes credit risk stemming from 
Sveriges Riksbank's monetary policy operations, to  which Sveriges Riksbank would be exposed if 
one of its monetary policy counterparties defaulte d on its obligations and if the collateral against 
which it had granted credit lost value. The report takes the view that ‘Sveriges Riksbank's credit 
risk in operational activities is not on such a scale as  to affect its capital requirements’. While this 
view may have been borne out by past experience,  it is important to recognise that the operational 
framework within which Sveriges Riksbank operates, in particular but not only as concerns monetary policy operations, may change in futu re. Sveriges Riksbank should therefore retain the 
flexibility to change such framework in proportion to the requirements of its mandate and in line 
with the changing structure of financial market s and of the economy. Hence, Sveriges Riksbank 
should have the authority to adjust that portion of  its targeted level of capital which corresponds to 
credit risk incurred in operational activities. This  implies that it is unadvisable to follow the 
7 Commission’s proposal to index the amount of required capital by reference to consumer price 
inflation. 
Financial risk management 4.9 A large part of the financial risk to which Sveriges Riksbank is exposed stems from its foreign 
currency and gold holdings. The Commission argues that these should either be liquidated or hedged to eliminate currency and gold price risk s, which are not necessary for the conduct of 
monetary policy in the current floating rate re gime. Therefore the report does not contemplate any 
need for additional capital buffers  to offset potential asset management losses. In relation to the 
Government and the Riksdag, the competence to  assess financial risks and take decisions to 
provide for their coverage is subject to the i ndependence requirement, and this competence should 
be clearly recognised in the Riksbank Law as pertaining to Sveriges Riksbank’s decision-making bodies.  
4.10 Credit and interest rate risk s would however not be eliminated even if all assets were effectively 
denominated in Swedish kronor. Hence, the ECB c onsiders that the estimate of the amount of 
capital required for Sveriges Riksbank to fulfil its tasks should still allow for potential losses 
stemming from its asset management activities. Mo reover, the ECB considers that it would be 
problematic to convert all foreign reserves into Swedish public debt securities for several reasons. 
Sweden has a small, open economy and, even tho ugh the need for currency intervention under the 
current floating exchange rate regime is limited, Sveriges Riksbank must be well equipped to cope 
with possible future regime shifts. Complying with both the Central Bank Gold Agreement of 
27 September 2004 and Article 101 of the Treaty
6, as well as considering the impact on exchange 
rate and domestic markets,  could prove difficult and need careful  consideration. Moreover, the total 
holdings of national public sector securities that w ould in such case be held by Sveriges Riksbank 
would amount to a very high percentage of the outstanding Swedish public debt, comparatively 
well above that held by any other NCB. Potentiall y, this could adversely distort the pricing of 
assets in the Swedish capital market, and might possi bly also result in scarcity of collateral both for 
intraday credit systems and for Sveriges Riksba nk's liquidity injecting operations. Finally, the 
liquidation of all its foreign reserves would depriv e Sveriges Riksbank of one of its main central 
bank tasks (see paragraph 3.6 above). Hence, while it may indeed be advisable to reduce currency 
and gold exposures (either through outright sales or through the use of hedging on the derivatives markets) with the aim of reducing capital consumpti on, a complete elimination or neutralisation of 
the risk attaching to foreign assets would seem a bol d step with few precedents in the international 
landscape. 
 
                                                     
 
6  In this respect the ECB takes particular note of the Co mmission’s statement on page 106 of the report that ‘It would be 
most advantageous if the Swedish Natio nal Debt Office could issue paper th at the Riksbank exchanged for currency 
assets. However, taking into account the EU prohibition agains t direct government borrowing from central banks, it is not 
possible to conduct such a swap in the opinion of the Commission.’ 
8 This opinion will be published on the ECB’s website.  
  Done at Frankfurt am Main, 4 August 2008. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET