øystein olsen : management of the government pension fund global ( gpfg ) introductory statement by mr øystein olsen, governor of the norges bank ( central bank of norway ), before the standing committee on finance and economic affairs of the storting ( norwegian parliament ), oslo, 25 april 2014. * * * please note that the text below may differ from the actual presentation. i would like to thank the chairman of the committee for the invitation to speak on the management of the government pension fund global. the framework for the management of the gpfg rests on a clear division of responsibilities and roles between owner and manager. the government and the storting decide the key principles and guidelines for the gpfg. norges bank ’ s role is to secure the highest possible return over time within the framework established by the political authorities. since the first capital transfer in 1996, the gpfg has grown to over nok 5 trillion. a third of this amount – nok 1. 8 trillion – is the return. achieving returns requires risk - taking. the gpfg ’ s investment horizon is particularly long and its short - term risk capacity is high, which is the reason behind the relatively high allocation to equities. this is also the reason for adding other asset classes, such as real estate. we can outperform the market by taking advantage of these specific features in its investment choices. when new companies become listed, they are included in the equity indices. in some cases, we can achieve better terms by investing in new companies ahead of a planned listing. as the gpfg has grown so has norges bank ’ s experience in investment management. the investment universe has broadened. every year new emerging economies are added to the list of countries in which we can invest. the aim is always to improve the trade - off between risk and return over time. the gpfg is subject to an extensive governance and control framework. the ministry of finance draws up the mandate for investment management. norges bank ’ s executive board has laid down, pursuant to the mandate, further detailed guidelines for the ceo of norges bank investment management. pursuant to these guidelines, norges bank investment management makes decisions concerning individual investments. control and supervision of investment management follow the same lines as the delegation of investment decisions. risk and return are routinely reported to the executive board and discussed at its meetings. norges bank reports on investment management to the gpfg ’ s

import. commodities account for a substantial share of norwegian exports. commodity prices are subject to wide variations. experience shows that a deterioration in the terms of trade results in a depreciation, whereas an improvement leads to an appreciation. the exchange rate thus acts as a stabiliser, a buffer that partly curbs the effects of changes in the terms of trade on economic activity. developments in the krone exchange rate can also contribute to restraining the effects on prices of higher wage growth and other domestic cost disturbances when there is confidence that inflation will be stable over time. oil and gas are the commodities that account for the largest share of norwegian exports. a substantial portion of the revenues from the sale of oil and gas is invested in foreign equities and bonds through the government petroleum fund. the fund has thus diminished the impact of short - term fluctuations in oil prices on the domestic use of petroleum revenues. in the last 20 years, fluctuations in the terms of trade have been three to four times greater for the norwegian economy including the petroleum sector than for the mainland economy. the petroleum fund thus relieves pressure on the krone exchange rate. the relatively low level of uncertainty that market participants seem to attach to krone exchange rate developments may be a reflection of this. introduction of euro banknotes and coins the introduction of euro banknotes and coins from 1 january 2002 has no direct consequence for norwegian monetary policy. for households and businesses in the euro area, the new currency will become a physical reality, not just an accounting currency. the practical advantages of the common currency will become more apparent. the euro may be used in twelve countries. the costs connected with currency exchange between the twelve countries disappear. when the national currencies are withdrawn, price differences between the euro area countries will become more apparent. the result may be increased competition and lower interest rates over time. euro area citizens will develop a more positive attitude to the euro as their money. they will experience that the euro is stable, as it will be reflected in a stable level of retail prices. the changeover period, from the introduction of euro banknotes and coins until the national currencies cease to have legal tender status, is short. norwegian enterprises and households will also have to exchange their cash in euro area countries ’ national currencies. there seems to be a perception that exchange between two foreign currencies in norwegian banks must be made via norwegian krone, so that two exchange transactions are actually made, with fees being charged twice. i