Opinion of the European Monetary Institute at the request of the Swedish Ministry of Finance under Article 109f (6) of the Treaty establishing the European Community (the “Treaty”) and Article 5.3 of the Statute of the EMI on a draft legislative proposal to amend certain legal provisions regarding the status of Sveriges Riksbank (CON/97/26)
Date: 1997-11-07
Institutions: European Monetary Institute
Subjects: Sweden, board of directors, central bank, convergence criteria, institutional activity, monetary integration, money, national law

OPINION OF THE EUROPEAN MONETARY INSTITUTE

at  the  request  of  the  Swedish  Ministry  of  Finance  under  Article  109f  (6)  of  the  Treaty

establishing  the  European  Community  (the  “Treaty”)  and  Article  5.3  of  the  Statute  of  the

EMI on a draft legislative proposal to amend certain legal provisions regarding the status of

Sveriges Riksbank

CON/97/26

1.

On  8  October  1997  the  EMI  received  a  request  from  the  Swedish  Ministry  of  Finance  for  an

opinion  on  a  draft  legislative  proposal  to  amend  certain  legal  provisions  regarding  the  status  of

Sveriges Riksbank (the “legislative proposals”). The legislative proposals are set out in a report

submitted to the Swedish Council on Legislation by the Swedish Government on 2 October 1997

and  entitled  “The  status  of  the  Riksbank”  (“Lagrådsremiss  -  Riksbankens  ställning”)  (the

“Report”). On 13 October 1997 the EMI received an unofficial English translation of the Report

from the Swedish Ministry of Finance.

2.

The  EMI’s  competence  to  deliver  an  opinion  is  based  on  Article  1.1,  second  indent,  of  the

Council  Decision  (93/717/EC)  of  22  November  1993  on  the  consultation  of  the  EMI  by  the

authorities  of  the  Member  States  on  draft  legislative  provisions,  as  the  legislative  proposals

contain  new  provisions  concerning  the  status  of  Sveriges  Riksbank  (the  “Bank”),  inter  alia,  in

view of the need to implement provisions of the Treaty and in particular Article 108 thereof.

3.

The  EMI  welcomes  the  timely  adaptation  of  the  legal  provisions  governing  the  status  of  the

Bank.  As  mentioned  in  the  EMI’s  1995  and  1996  reports  on  “Progress  towards  convergence”

(the “1995 and 1996 Convergence Reports”), timely adaptation is necessary to enable the EMI

and other Community institutions to assess, in accordance with their reporting obligations under

the  Treaty,  progress  made  towards  the  fulfilment  of  the  legal  requirements  for  Stage  Three  of

EMU. A reference is also made to the EMI report on “Legal convergence in the Member States

of the European Union as at August 1997”, which was published on 27 October 1997 (the “1997

Report”).

4. 

The  EMI  notes  with  satisfaction  the  comprehensive  fashion  in  which  the  adaptation  of  the

Sveriges  Riksbank  Act  (1988:1385)  (the  “Act”)  and  other  relevant  legal  provisions,  including

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articles of the Constitution, is addressed in the Report. However, the EMI would like to comment

on certain aspects of central bank independence. In addition, the Report indicates in Chapter 3

that the legislative proposals are limited to Treaty obligations “with respect to the second stage of

[...] EMU” and the EMI would like to make some comments arising from the need to ensure the

integration  of  the  Bank  into  the  European  System  of  Central  Banks  (the  “ESCB”)  in  Stage

Three of EMU upon Sweden’s adoption of the single currency, as required, inter alia, by Article

14.3 of the Statute of the European System of Central Banks and of the European Central Bank

(the “ESCB Statute”), which will entail further amendments to Swedish law.

5.

Central bank independence needs to be achieved at the latest by the date of the establishment of

the ESCB. The timetable for the adaptation of national legislation regarding the independence of

national central banks (“NCBs”) in view of Articles 107 and 108 of the Treaty is addressed in

the 1995 Convergence Report (pages 89-90):

“[...] NCBs should become effectively independent by the date of the establishment of

the ESCB. Clear support for this view can be found in Article 109e (5) [of the Treaty],

which  expressly  states  that  the  process  leading  to  NCB  independence  should  be

commenced  during  the  second  stage.  [...]  Before  the  start  of  Stage  Three,  the  ECB’s

Governing Council will have to decide upon the policy framework of the ESCB. At this

crucial stage, it is important that the Governors, who will sit on the Governing Council

[of the ECB], come from fully independent NCBs.”

This requirement is not reflected in the date of entry into force of the legislative proposals, which

is set for 1 January 1999. In Sweden there is a need to amend not only the statutory provisions

regarding  the  Bank  which  are  contained  in  the  Act,  but  also  the  Swedish  Constitution.  In  this

respect, the EMI has taken note that “[a]mendments to the Constitution cannot enter into force

before  1  January  1999  as  such  amendments  require  the  endorsement  of  two  consecutive

Parliaments” (page 140 of the 1996 Convergence Report).

6.

The  overall  assessment  of  the  legislative  proposals  on  the  general  position  of  the  Bank,  the

primary  objective  of  the  Bank  and  the  new  proposed  structure  of  the  Bank  and  its  decision-

making bodies, in order to achieve central bank independence, is positive (and the EMI notes the

references in the Report, inter alia, to Articles 107 and 108 of the Treaty and Articles 7 and 14.2

of the ESCB Statute, as well as to the 1995 and 1996 Convergence Reports). In this context, the

EMI  welcomes  the  division  of  responsibilities  between  the  Bank’s  Governing  Council  and  its

new Executive Board, as set out in the proposed amended wording of Section 41 of the Act, and

the legislative proposal on personal independence for members of the Bank’s Executive Board,

as  contained  in  the  proposed  new  Section  33a  of  the  Act.  The  EMI  notes  that  the  area  of

responsibility of the Bank’s Executive Board shall cover all matters which are not to be decided

- 3 -

by  its  Governing  Council  (whereby  the  proposed  amended  wording  of  Section  41  of  the  Act

provides an enumeration of matters to be decided by the Governing Council) and that a member

of the Executive Board of the Bank (as opposed to a member of the Governing Council) may not

be  a  member  of  Parliament.  In  view  of  the  restricted  area  of  responsibility  of  the  Bank’s

Governing  Council,  the  legislative  proposals  address  satisfactorily  the  inconsistency  with  the

Treaty  and  the  ESCB  Statute  concerning  the  possibility  of  having  members  of  Parliament  as

members  of  the  Bank’s  Governing  Board,  to  which  reference  was  made  in  the  1996

Convergence Report and the 1997 Report (page 140 and page 56 respectively).

7.

The proposed provisions on the personal independence of members of decision-making bodies of

the  Bank,  including  the  legislative  proposals  concerning  the  term  of  office  and  grounds  for

dismissal  of  members  of  the  Bank’s  Executive  Board,  receive  the  EMI’s  general  support.

However, the transitional provisions to the proposed amendments to the Act provide that the first

group of appointees to the Executive Board will include one member whose first term of office

will be four years, and that three other members will be appointed for three years, two years and

one year respectively. Moreover, the proposed second paragraph of Section 32 of the Act raises

the  possibility  that  terms  of  office  of  members  of  the  Executive  Board  replacing  a  resigning

member will also be below the minimum term of office of five years stated in Article 14.2 of the

ESCB Statute and the 1995 and 1996 Convergence Reports. The EMI appreciates the fact that

the  initial  term  of  office  may  be  influenced  by  the  wish  to  create  a  staggered  appointment

scheme and that the replacement arrangement envisaged for use in the event of resignations is

designed not to upset such a scheme. At the same time, the EMI would like to emphasise that

each individual member of a decision-making body involved in the performance of the tasks and

duties  conferred  upon  the  ESCB  by  the  Treaty  and  the  ESCB  Statute  (“ESCB-related  tasks”)

should have the same security of tenure in accordance with Article 14.2 of the ESCB Statute as

stated in the 1995 and 1996 Convergence Reports.

8.

The EMI also notes the arrangement referred to in the proposed amended wording of the third

paragraph of Article 12 of Chapter 9 of the Constitution Act, according to which a member of

the  Bank’s  Executive  Board  is  severed  from  his  appointment  before  his  term  of  office  has

expired if the Riksdag does not grant him discharge from liability. Whilst the suggested wording

of the legislative proposal regarding the grounds on which a member of the Executive Board of

the  Bank  can  be  dismissed  by  the  Bank’s  Governing  Council  (in  the  same  paragraph  of  the

Constitution  Act)  is  compatible  with  the  ESCB  Statute,  the  grounds  on  which  the  Riksdag  can

deny  such  a  member  discharge  from  liability,  as  contained  in  the  legislative  proposal  for

Section 49 of the Act, do not conform with Article 14.2 of the ESCB Statute.

9.

The proposed  amended  wording  of  Article  12  of  Chapter  9  of  the  Constitution  Act  also  states

that the Bank is an authority under the Riksdag, and the EMI notes that the Report indicates that

- 4 -

the  independence  granted  to  the  Bank  through  the  prohibition  against  instructions  in  the  said

Article of the Constitution Act and the proposed new Section 41a of the Act, as read against the

background  of  Articles  2  and  7  of  Chapter  11  of  the  Constitution  Act,  would  ensure  the

protection of the Bank against instructions from the Riksdag and public authorities, including the

Government,  with  respect  to  the  Bank’s  exercise  of  monetary  policy.  The  substantive  area

where independence is required, however, is formulated in Article  107 of the Treaty to cover all

ESCB-related tasks, and not only “issues relating to monetary policy” (as in the proposed Article

12 of Chapter 9 of the Constitution Act) or “monetary policy duties” (as in the proposed Section

41a  of  the  Act).  This  distinction  is  noted  in  Chapter  7.9  of  the  Report  and  the  ESCB-related

tasks are indicated in Chapter 7.6 of the Report, but the scope of Article  107 of the Treaty is not

fully  reflected  in  the  suggested  wording  for  the  legislative  proposals  on  the  prohibition  against

instructions.

10. According to the proposed amended wording of Section 41 of the Act, the Governing Council of

the  Bank  shall  make  proposals  to  the  Riksdag  and  the  Auditors  of  the  Riksdag  for  the

appropriation of the Bank’s profit in accordance with Section 48 of the Act. The EMI stated in

its  1996  Convergence  Report  that  in  situations  “where  third  parties  and,  particularly,  the

government and/or parliament are in a position, directly or indirectly, to exercise influence on the

determination of an NCB’s budget or the distribution of profit, the relevant statutory provisions

should contain a safeguard clause to ensure that this does not impede the proper performance of

the NCB’s ESCB-related tasks” (page 103 of the 1996 Convergence Report). To the extent that

the  above  legislative  proposals  would  provide  a  means  of  exercising  influence  on  the

determination  of  the  Bank’s  budget  or  the  distribution  of  its  profit,  such  a  statutory  safeguard

clause should be considered in respect of the Bank’s ESCB-related tasks.

11.

The  EMI  welcomes  the  introduction  of  price  stability  as  the  objective  of  the  Bank  and  its

formulation in the proposed amendment to Section 4 of the Act. The EMI notes the discussion

on  other  tasks  in  Chapter  7.3  of  the  Report  and  would  stress  the  primacy  of  the  objective  of

price stability as required by the Treaty and the ESCB Statute; any other objective, such as the

inclusion of the promotion of “a safe and efficient payment system” suggested in the legislative

proposal for Section 4 of the Act, must be without prejudice to the objective of price stability (as

indicated  by  the  wording  of  Article  105(1)  of  the  Treaty  and  Article  2  of  the  ESCB  Statute).

Incidentally, such an aim may also be achieved by drawing a clear distinction between objectives

and  tasks  in  accordance  with  Chapter  II  of  the  ESCB  Statute,  and  this  aspect  is  noted  in

Chapter  7.3  of  the  Report  (which  states  that  the  promotion  of  a  safe  and  efficient  payment

system  “is  a  basic  duty  for  the  [Bank]  and  is  not  a  real  operational  objective”).  Moreover,  a

national  definition  of  the  Bank’s  duties  in  the  field  of  payment  systems  may  create  uncertainty

since this is an area in which the ESCB is also competent (Article 105(2), fourth indent, of the

Treaty and Article 3.1, fourth indent, of the ESCB Statute). Upon Sweden’s full participation in

- 5 -

Stage  Three  of  EMU,  the  objectives  and  tasks  of  the  Bank  should  reflect  all  elements  of  the

objectives and tasks of the ESCB in Chapter II of the ESCB Statute, and not only the promotion

of the smooth operation of payment systems.

12.

The  EMI  also  notes  the  proposed  new  regime  on  foreign  exchange  policy  with  its  distinction

between general foreign exchange rate policy issues and decision-making on the exchange rate

system,  on  the  one  hand,  and  responsibility  for  the  application  of  the  exchange  rate  system,  on

the other; the legislative proposals would place policy aspects under Government control in line

with arrangements in other Member States, whereas the application thereof would fall under the

authority  of  the  Bank.  The  EMI  has  no  objection  to  such  a  regime  provided  that  the  primary

objective of price stability is maintained. To enable Sweden to participate fully in Stage Three of

EMU, however, the legislative proposals for Article 11 of Chapter 9 of the Constitution Act and

for  a  Foreign  Exchange  Rate  Policy  Act  (whereby  “[t]he  Government  bears  responsibility  for

general foreign exchange rate policy issues”) will need to acknowledge the competences at the

European Community level and of the ECB in Stage Three of EMU in the field of exchange rate

policy under Articles 3a and 109 of the Treaty.

13. Moreover, the proposed amended wording of Article 12 of Chapter 9 of the Constitution Act that

“[n]o authority may determine the decisions made by the Riksbank on issues relating to monetary

policy”  does  not  seem  to  provide  for  the  necessary  integration  of  the  Bank  into  the  ESCB  in

Stage  Three,  whereby  the  Bank  shall  act  in  accordance  with  the  guidelines  and  instructions  of

the  ECB  upon  Sweden’s  full  participation  in  EMU  (as  stated  in  Article  14.3  of  the  ESCB

Statute).  Unless  it  is  clear,  or  made  clear,  that  the  reference  in  the  proposed  provision  to

“authority”  (“myndighet”  in  Swedish)  does  not  affect  the  ECB’s  authority  vis-à-vis  the  Bank

following  Sweden’s  adoption  of  the  single  currency,  it  will  be  necessary  to  review  again  the

proposed constitutional provision on the prohibition against instructions (which could take place at

the same time as the further review of the new Section 41a of the Act and other legal provisions

which will require amendments to enable the Bank to be integrated into the ESCB). As a general

remark, any subsequent legislative adjustments needed with a view to fulfilling the requirements

of the Treaty and the ESCB Statute for full participation in EMU by a Member State would be

facilitated insofar as the relevant legal provisions would be covered by the more flexible form of

statutory law rather than by the Constitution.

14.

The Report proposes that Section 42 of the Act be reformulated to provide that “[t]he Riksbank

shall prior to every monetary policy decision of importance inform the Minister appointed by the

Government”.  This  legislative  proposal  would  not  seem  to  be  fully  appropriate  in  Stage  Three,

when,  following  Sweden’s  adoption  of  the  single  currency,  monetary  policy  decisions  of

importance  will  not  be  taken  by  the  Bank,  but  instead  by  the  Governing  Council  of  the  ECB,

which  will  be  composed  of  the  Governors  of  the  NCBs  of  the  participating  Member  States

- 6 -

(including the Governor of the Bank) and the members of the Executive Board of the ECB. The

topic  of  consultation  and  dialogue  between  NCBs  and  their  respective  political  authorities  is

addressed in the 1996 Convergence Report (page 101):

“The  crucial  issue  is  whether  a  national  institution  has  any  formal  mechanism  at  its

disposal  to  ensure  that  its  views  influence  the  final  decision.  An  explicit  statutory

obligation  for  an  NCB  to  consult  political  authorities  provides  for  such  a  mechanism

and is therefore incompatible with the Treaty and the [ESCB] Statute.

A  dialogue  between  NCBs  and  their  respective  political  authorities,  even  when  based

on  statutory  obligations 

to  provide 

information  and  exchange  views, 

is  not

incompatible with the Treaty and the [ESCB] Statute, provided that:

-

-

this  does  not  result  in  interference  with  the  independence  of  the  members  of

decision-making bodies of NCBs;

the  ECB’s  competences  and  accountability  at  the  Community  level  as  well  as  the

special status of a Governor in his/her capacity as a member of its decision-making

bodies are respected; and

-

confidentiality  requirements  resulting 

from  [ESCB]  Statute  provisions  are

observed.”

The  arrangements  envisaged  in  the  legislative  proposal  for  Section  42  of  the  Act  should  be

critically  assessed  in  the  light  of  the  above  considerations  since  the  obligation  to  inform  the

Minister ex ante may in practice have effects similar to a consultation.

15.

For Sweden’s full participation in Stage Three of EMU, and as indicated above, the integration

of  the  Bank  into  the  ESCB  will  require  further  legislative  amendments.  The  provision  on  the

Bank’s exclusive right to issue banknotes contained in Article 13 of Chapter 9 of the Constitution

Act  and  the  related  provisions  laid  down  in  Section  5  of  the  Act  (as  well  as  Section 41, first

paragraph, item 9, of the Act) will need to be amended in Stage Three. First, and in accordance

with  the  1995  and  1996  Convergence  Reports  and  the  1997  Report,  national  provisions  on

banknote  issuance  should  not  prejudice  the  ECB’s  exclusive  right  to  authorise  the  issue  of

banknotes  in  Stage  Three  under  Article   105a  (1)  of  the  Treaty  and  Article  16  of  the  ESCB

Statute. Moreover, in Stage Three, the ECB and the NCBs of participating Member States may

also issue euro banknotes with legal tender status within other participating Member States than

their  own,  and  thus  also  in  Sweden  following  Sweden’s  adoption  of  the  single  currency.  The

legal monopoly over banknote issuance should be adapted in all participating Member States so

as  to  permit  banknote  issuance  by  the  ECB  and  other  NCBs  of  Member  States  without  a

derogation  (but  only  such  members  of  the  ESCB),  without  such  banknote  issuance  being

contrary  to  existing  national  law  (see  Article  105a  of  the  Treaty  and  Article  16  of  the  ESCB

- 7 -

Statute).  The  legal  monopoly  over  banknote  issuance  may,  however,  still  be  restricted  to

banknotes in national currency units during the transitional period and such a restriction may be

retained  until  national  banknotes  lose  their  legal  tender  status.  The  same  would  apply,  mutatis

mutandis,  to  the  exclusive  right  granted  to  the  Bank  in  the  said  Article  of  the  Swedish

Constitution with regard to coins.

16.

The EMI would also like to mention that the Act could make it clear that, from the start of Stage

Three of EMU (or, should Sweden be a Member State with a derogation at first, from the time

that  Sweden  adopts  the  single  currency),  the  Bank  will  form  an  integral  part  of  the  ESCB  (as

proposed  for  the  central  bank  legislation  of  other  Member  States;  for  example,  the

Bundesbankgesetz in Germany and the Bankwet in the Netherlands).

17.

Finally, Section 20 of the Act deals with the imposition of minimum reserves on credit institutions

and, in view of, inter alia, its specific wording, further amendments can be envisaged for Stage

Three  of  EMU  (cf.  Article  19  of  the  ESCB  Statute  and  the  proposed  draft  EU  Council

Regulation on minimum reserves).

18.

The EMI has no objection to this opinion being made public.

7 November 1997