eva srejber : how the riksbank's financial assets are managed speech by ms eva srejber, first deputy governor of the sveriges riksbank, at the handelsbanken, stockholm, 25 april 2006. references and diagrams to the speech can be found on the sveriges riksbank website, www. riksbank. com. * * * let me begin by thanking you for the invitation to come here and speak about the riksbank ’ s financial asset management. the reason that i wish to take up this question is that, as you know, we recently changed the currency allocation in our foreign exchange reserve. this change is part of the general review of financial asset management that has been under way at the riksbank for some time. in order to avoid any confusion with regard to what lies behind overall changes in our financial asset composition, it is important to explain the principles for our asset management. on a general plane, the riksbank does not differ from other asset managers. like them, we endeavour to generate earnings for our owner, in our case the general government. it is instead the way our management is limited that makes the riksbank, like other central banks, different. central banks exist ultimately to carry out a number of tasks crucial to the economy, which are linked to monetary and exchange rate policy and the functioning of the payment system. for us at the riksbank it means that we are to ensure that inflation is low and to promote the safe and efficient functioning of the payment system. both of these tasks make far - reaching demands on how our assets should be managed. in concrete terms, it means that i and my colleagues on the executive board must achieve a balance between the requirements our task place on asset management and the goal of generating earnings. in this balance it is obvious that the possibility to carry out our statutory tasks takes precedence. earnings are only taken into account if they are attained without jeopardising the riksbank ’ s central policy functions. the result of this balance is perhaps most easily described with the aid of the riksbank ’ s balance sheet ( see figure 1 ). the riksbank ’ s balance sheet our financial assets are dominated by foreign government bonds 1, which can be sold if necessary to intervene in the foreign exchange market. in other words, these assets have a direct link to our task concerning monetary and foreign exchange policy. historically, the gold holding has been justified for similar

( see figure 5 ). the price rise may be a consequence of the expectation that demand will increase, but oil stocks are large and the opec countries have good capacity to increase their production, which should have a restraining effect on the oil price. other commodity prices – metals, foods and other agricultural products – have also risen in recent months ( see figure 6 ). usa the united states is currently suffering its most prolonged recession since the 1940s. it started back in december 2007. according to our most recent forecast, the us economy will shrink by an average of around 3 per cent in 2009. growth is expected to be positive again with effect from next year. since the monetary policy meeting in july the national accounts figures for the second quarter of this year have been published. they showed that gdp fell by only 0. 3 per cent between the first and second quarters of this year, which was slightly better than we anticipated. employment continued to fall in july, but less than expected, and unemployment fell by a tenth of a percentage point, which was better than market expectations. imf, world economic outlook update, july 8 2009. cpi inflation in the united states fell to - 2. 1 per cent in july, but when food and energy prices are excluded it fell to 1. 5 per cent ( see figure 7 ). the underlying inflation rate measured in this way has been relatively stable in recent years and has only declined slightly over the past year. an important condition for a turnaround and stabilisation in the us economy is that house prices touch bottom and begin to rise again. developments in real house prices in the united states since 1950 comprise a good example of a price bubble ( see figure 8 ). the question now is how far house prices will fall before the turnaround comes. the federal reserve notes in its most recent monetary policy report that developments in the housing market remain weak, although there are some signs of an improvement. 3 euro area gdp growth in the euro area remains weak. according to the forecast in the monetary policy report, gdp in the euro area will fall by an average of almost 5 per cent in 2009. next year we are expecting largely zero growth and after that a fairly weak increase. domestic demand in particular is expected to be weak for a long time to come in the euro area. the weak domestic demand means that the euro area is dependent on a boost from abroad – in particular the united states and other important trading partners – to be able to make a recovery. since