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)
Date: 2008-08-04
Institutions: European Central Bank
Subjects: Sweden, balance sheet, central bank, national law, profit, share capital

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  alternative  proposals  for  amendments  to  the  Law  on 

Sveriges Riksbank concerning changes to Sveriges Riksbank’s capital structure and profit distribution. 

The  ECB’s  competence  to  deliver  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 Riksbank. 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 whose operational activities are governed by the Sveriges 

Riksbank  Act  (SFS  1988:1385)  (hereinafter  the  ‘Riksbank  Law’).  Sveriges  Riksbank  is  a  legal 

entity in its own right and has its own assets, consistent with the principle that there are economic 

and political reasons for a national central bank (NCB) 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 independence was not a widely discussed issue, and to date 

there  are  no  regulations  guaranteeing  Sveriges  Riksbank’s  financial  independence.  This  fact  was 

highlighted  when  the  Riksdag  (Swedish  Parliament)  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 Riksbank’s financial independence 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.  

 
 
 
 
                                                      
1.3  The ECB criticised the payment of these extraordinary dividends and 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 adhered in the past, this could affect the Bank’s 

financial  independence.  A  statutory  safeguard  clause  should  therefore  be  considered  in  order  to 

ensure  that  Parliament’s  power  may  not  impede  the  proper  performance  of  the  Bank’s  ESCB-

related tasks.” 

1.4  On  27 April  2006  the  Swedish  Government  appointed  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 statutory regulation of the principles according to which 

Sveriges Riksbank’s profits should be distributed. 

2.  

The Commission’s proposals concerning the changes 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  distribution  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  currency  in  circulation  as  cost-free  capital  which  more 

than  covers  Sveriges  Riksbank’s  needs  as  identified  by  the  Commission.  According  to  the 

Commission’s  calculations,  Sveriges  Riksbank  needs  cost-free  capital  of  between  SEK 60  and 

74 billion. As at June 2007, currency in circulation is approximately SEK 110 billion.  

Although, according to the Commission, currency in circulation should provide sufficient cost-free 

funding  for  Sveriges  Riksbank’s  operational  activities,  the  Commission  nevertheless  advises  that 

Sveriges  Riksbank  should  be  provided  with  a  relatively  small  amount  of  own  capital,  initially 

amounting  to  SEK 10 billion.  Under  this  proposal,  approximately  SEK 50 billion  could  be 

transferred from Sveriges Riksbank to central government. 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 long 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, which 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 

2 

 
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  currency  in  circulation  is  not  suitable  as  cost-free 

capital.  Instead  currency  in  circulation  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  banknotes  and  coins,  currently  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  under  this  alternative,  because  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  estimates 

the 

total  capital 

requirement  at  

SEK 52 – 63 billion, which is relatively close to Sveriges Riksbank’s current level of own capital 

(SEK 58 billion). 

This alternative is based on Sveriges Riksbank having 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 billion would be distributed. As under Alternative 1, 

this  capital  would  be  index  linked  and  written  up  in  line  with  inflation.  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  Commission’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  Finance´s  request  for  an  opinion  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 supports the Swedish legislator’s intention to regulate 

the capital structure and profit distribution of Sveriges Riksbank. 

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3.2  Even though the ECB is positive regarding the Swedish 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 necessary 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 (hereinafter 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 Treaty 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 should 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  issue  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  banknotes  is  not  a  right  granted  to  an  NCB  by  an 

individual Member State as assumed under Alternative 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 provision4 does not prohibit the sale of assets per se, including those assets denominated in 

foreign currency, the competence to take decisions on the composition of an NCB’s assets needs to 

remain with the NCB. The adoption of legislation that would impose an obligation on an NCB to 

sell a Member State’s official foreign reserves in contradiction 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  NCB  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 provides 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  Member  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 pay a fixed fee to the Swedish Government as 

2  
3  
4  

Article 108 of the Treaty. 
ECB Convergence Report May 2008, p. 26. 
See also Article 108 of the Treaty 

4 

                                                      
remuneration on such indebtedness is clearly inconsistent 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  implies  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 stated in its Convergence Reports that a Member 

State may not impose reductions of capital on an NCB without the ex ante agreement of the NCB’s 

decision-making  bodies.  This  principle  aims  to  ensure  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 Reports regarding financial provisions or buffers that 

an NCB must be free independently to create financial provisions to safeguard the real value of its 
capital and assets5. 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  Sveriges  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  Alternative  2  as  proposed  by  the  Commission  would  be 

sufficient  to  ensure  Sveriges  Riksbank’s  financial  independence  leaving  it  able  to  accumulate 

reasonable  reserves  from  earned  income  and  create  financial  buffers  to  cover  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 Finance 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 request of the Economic Committee of the Finnish Parliament on 
the government proposal to amend the Suomen Pankki Act and other related acts. 

5 

 
                                                      
The prohibition on monetary financing 

4.5  Under Alternative 2, Article 3 of the draft Chapter 10 of the Riksbank Law would oblige Sveriges 

Riksbank  to  pay  an  annual  contribution  to  central  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 level laid down in the Riksbank Law, the current 

drafting seems to imply that Sveriges Riksbank would still have to pay the annual contribution to 

central government even if its own capital were insufficient, 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  obliged  to  pay  to  central  government  even  if  its 

profit  and  loss  accounts  showed  a  loss.  The  proposed  Article 3  should  therefore  be  adapted  to 

ensure that no transfer of money to central government may take place before approval of Sveriges 

Riksbank´s  profit  and  loss  account.  This  would  rule  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 operating costs as a basis for calculating how much of 

its own capital is necessary to cover operating costs. In view of the changing structure of financial 

markets  and  the  economy  and  in  order  to  preserve  Sveriges  Riksbank's  ability  to  adjust  its 

operating  costs    and  therefore  to  preserve  its  independence,  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  may  lead  Sveriges  Riksbank  to  require  capital  in 

excess  of  the  level  needed  to  cover  operating  costs.  One  of  the  sources  of  risk  identified  in  the 

report  is  credit  risk  incurred  in  operational  activities.  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 defaulted 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  future.  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  markets  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 

6 

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  risks,  which  are  not  necessary  for  the  conduct  of 

monetary policy in the current floating rate regime. 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 independence 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 risks would however not be eliminated even if all assets were  effectively 

denominated  in  Swedish  kronor.  Hence,  the  ECB  considers  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.  Moreover,  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 though 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 Treaty6, 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 would 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.  Potentially,  this  could  adversely  distort  the  pricing  of 

assets in the Swedish capital market, and might possibly also result in scarcity of collateral both for 

intraday  credit  systems  and  for  Sveriges  Riksbank's  liquidity  injecting  operations.  Finally,  the 

liquidation of all its foreign reserves would deprive 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 consumption, a complete elimination or neutralisation of 

the risk attaching to foreign assets would seem a bold step with few precedents in the international 

landscape. 

6  

In this respect the ECB takes particular note of the Commission’s statement on page 106 of the report that ‘It would be 
most  advantageous  if  the  Swedish  National  Debt  Office  could  issue  paper  that  the  Riksbank  exchanged  for  currency 
assets. However, taking into account the EU prohibition against direct government borrowing from central banks, it is not 
possible to conduct such a swap in the opinion of the Commission.’ 

7 

 
                                                      
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 

8