This partly reflected lowered market expectations concerning an interest rate increase abroad and expectations that interest rates might rise earlier in Norway than in other countries. Changes in the krone resulted in unintended tightening of monetary policy. This trend was reversed, however, by low inflation figures and reductions in the interest rate. The interest rate reduction was probably of considerable importance as it eliminated the excess return on NOK investments. The krone, measured by a broad index (I-44), appreciated again markedly from mid-February 2004 to the first half of May. After that, the krone depreciated through June. The publication of lower-than-expected consumer price figures for May contributed to weakening market expectations of an increase in interest rates in the near future, and the krone depreciated. After the monetary policy meeting on 1 July, the krone was stable for a long period, but since then it has fluctuated in line with changes in oil prices. Past experience shows that the krone is at times heavily influenced by developments in the interest rate differential between Norway and other countries. This is given weight in interest-rate setting. However, as mentioned, themes in foreign exchange markets shift, and Norges Bank does not have instruments to fine-tune the exchange rate. Normally, Norges Bank will not intervene in the foreign exchange market in order to influence the exchange rate. Exchange market interventions, either buying or selling foreign currency, are not suitable as an instrument for influencing the krone exchange rate over a somewhat longer period.

The new National Bank was expected to gradually take over the activities of the former noteissuing institutions and to bring some welcome order to the payment system. At the time, the value of the Swiss franc was defined in gold and silver, the precious metal content of the coins was fixed accordingly and banknotes could be exchanged for gold. Nowadays, the SNB’s responsibility in matters of monetary stability is uncontested. In fact, it is explicitly mandated by law to preserve price stability while taking economic developments into account. Moreover, economic theory stresses the special responsibility of central banks in this area. The goals, methods and instruments of monetary policy have thus undergone profound changes. Nevertheless, the principles that have guided our activity over the past century have been remarkably enduring, and this is exemplified by the history of the National Bank. Pursuit of stability From the outset, the National Bank recognised that its role as the national note-issuing institution would extend far beyond the harmonisation of payment systems. The first steps were difficult. During the First World War, the SNB actively participated in financing military expenditures through its loans. This undisciplined lending policy pushed up inflation, thereby contributing to the social unrest of 1918. This sparked a broad debate on the SNB’s responsibility for the massive price rise. These events, along with the subsequent tragedy of German hyperinflation, left a strong mark on the National Bank. It must have been at that time that the SNB fully realised the complexity of its task.