The status of the Riksbank - European Central BankProvisions on exchange rate policy issues will be included in a new Foreign Exchange Rate Policy Act. The Riksbank shall determine

Unofficial translation

The status of the Riksbank

The Government Office Miiiistry of Finance

Report to the Council on Legislation

Contents

1 The main content of the proposals .............................................................. 4

2 Legislative proposals ................................................................................... 6 2.1 Proposed amendments to the Constitution ...................................... 6

...................................... 2.2 Proposed amendments to the Riksdag Act 8 ......................... 2.3 Proposai on a Foreign Exchange Rate Policy Act 11

2.4 Proposed amendments to the Sveriges Riksbank Act (1988:1385) .......................................................................... 12

2.5 Proposed amendments to the Act (1 992: 1602) on Foreign ........................................ Exchange and Credit Regulation 27

2.6 Proposal on amendment to the Act (l989:185) on Fees. etc . for Assignments within the Riksdag. its Agencies and Other Bodies ................................................................................... 28

?.7 Proposed amendments to the Act (1986:765) with instructions for the Parliamentary Ombudsmen ....................................... 30

2.8 Proposed amendments to the Act (1 957:684) concerning the Payment System in War Conditions ..................................... 32

2.9 Proposed amendments to the Act (1988:46) concerning the ................................. Audit of the Riksdag's Administration 34

2.10 Proposed amendments to the Act (1 989: 186) concerning Appeal against Administrative Decisions of the Office of

... Administration and Services of the Riksdag and agencies 35

3 This matter and its preparation ................................................................. 36

........................................ 4 Monetary policy and an independent Riksbank 38 ................................ 4.1 Economic policy objectives and instruments 38

4.2 The importance of price stability ................................................... 38 ......................................................... 4.3 Monetary policy instruments 39

............................ 4.4 Short and long-term effects of monetary policy 40 ...................................................... 4.5 Norm-based monetary policy 4 0

5 Monetary and foreign exchange rate policy in the EU .............................. 42 .................................................. 5.1 A historical background to EMU 4 2

5.2 The European Monetary System (EMS) ........................................ 43 ................................. 5.3 The Economic and Monetary Union (EMU) 44 ................................. 5.4 Exchange rate policy in the monetary union 46

............................................................................................ 5.5 ERM 2 47

6 Legal convergence .................................................................................... 49

7 Considerations 52 ........................................................................................... .......................................................................... 7.1 Basic assumptions 52

7.2 Adaptation of Swedish law ............................................................ 53 .................................................. 7.3 The objective of monetary policy 56

7.4 General exchange rate policy issues .............................................. 61 ....................................... 7.5 Application of the exchange rate system 66

.................................. 7.6 The management structure of the Riksbank 70 7.7 The Governing Council ................................................................. 74

..................................................................... 7.8 The Executive Board 80 ................................................ 7.9 The_prohibiti6nagainst iixtruction 86

7.10 Openness and insight ............................................................ 8 9 7.1 1 Note issue .................................................................................... 94 7.12 Coming into force ........................................................................ 97

8 Constitutional remarks .............................................................................. 98 8.1 Proposed amendments to the Constitution .................................... 98 8.2 Proposed amendments to the Riksdag Act .................................. 100

............................. 8.3 Proposal on an Foreign Exchange Policy Act 1 01 8.4 Proposed amendments to the Sveriges Riksbank Act

(1988:1385) ........................................................................ 102 8.5 Proposed amendments to the Act (1992: 1602) relating to

........................... Foreign Exchange and Credit Regulation 1 12 8.6 Proposed amendment to the Act (1 989: 185) on Fees etc . for

...... Commissions at the Riksdag. its Agencies and Bodies 1 12 8.7 Proposed amendments to the Act (1986:765) concerning

Instructions for the Riksdag's Ombudsmen ........................ 113 8.8 Proposed amendments to the Act (1957:684) on the Payments

............................................. System in Conditions of War 1 13 8.9 Proposed amendments to the Act (1988:46) on Auditing of the . . ...................................................... Riksdag Admmstration 114 8.10 Proposed amendment of the Act (1 989: 186) relating to peal

against Administrative Decisions by the Riksdag's Office ..................... of Administration and Services and agencies 114

The main content of the proposals

In the submission to the Council on Legislation the Government proposes that the Riksbank is to be responsible for monetary policy and that the Riksbank's status is to be strengthened. Furthermore, it is proposed that the objective of monetary policy should be to maintain price stability. This objective is to be stated in the Riksbank Act (1988:1385). The Riksbank shall in addition, as an authority under the Riksdag without setting aside the price stability objective, support the goals for general economic policy with the aim of achieving sustainable growth and high employment.

Furthermore, the Government proposes that the provisions in the Constitution on foreign exchange rate policy is changed in such a way that the responsibility for general exchange rate policy issues transfers from the Riksbank to the Govenunent. The Government shall then decide upon the system to establish the value of the krona in relation to foreign currencies (the exchange rate system). Provisions on exchange rate policy issues will be included in a new Foreign Exchange Rate Policy Act. The Riksbank shall determine the central rate and the band width in a fixed exchange rate system and the practical application of exchange rate policy in a system with floating exchange rates.

The Government proposes a change of the Riksbank's management structure. The Governing Council is to be given a supervisory function. The Governing Council's responsibilities are stated in the Riksbank Act. An Executive Board with six full-time employed members is to be set up which is to decide in all monetary policy issues and manage the Riksbank. The Executive Board is to be appointed by the Governing Council for a period of six years.

According to the proposal, the Riksdag shall appoint the members of the Governing Councii, adopt the balance sheet and the profit and loss statement, and decide on discharge fiom liability for the Governing Council and the Executive Board. The Governing Council shall consist of eleven members and as many deputies. The period of office shall be four years. The duties of the Governing Council include the appointment of the Governor and Deputy Governor of the Riksbank, and the Executive Board. The Governing Council shall make proposals to the Riksdag regarding the appropriation of the Riksbank's profits.

The Government proposes that an explicit prohibition for agencies to determine how the Riksbank is to decide in matters concerning monetary

policy should be included in the Constitution. An equivalent provision to the effect that a member of the Executive Board may not seek or take instructions when carrying out monetary policy duties is to be included in the Riksbank Act. The Riksbank's decision concerning the application of the exchange rate system is of considerable importance for the Riksbank's possibility to achieve the objective of stable prices and with that the monetary policy and shall therefore be covered by the prohibition against taking instructions.

In order to ensure insight in and control of the Riksbank's operations in the monetary policy sphere, it is proposed that the Bank shall inform the Government of all important monetary policy decisions. Furthermore, the Chairman of the Governing Council of the Riksbank and the Vice Chairman shall have the right to attend the meetings of the Executive Board with the right to speak, but without the right to put forward proposals or to vote. The Riksbank shall at least twice a year submit a report to the Riksdag on the monetary and foreign exchange policy.

Legislative proposals

Proposed amendments to the Constitution

It is hereby proposed as regards the constitution1 that Chapter 9, Article 12, shall have the following wording, imd that a new paragraph, Chapter 9, Article 11, shall be included with

the following wording.

Present wording Proposed wording

9 kap. 11 §

The Government bears responsibility for general foreign exchange rate policy issues. Other decisions on the foreign exchange rate policy will be regulated by legislation.

The Riksbank is the central bank of Sweden and is responsible for exchange rate and credit policy. It shall also promote a safe and eficient payments system.

The Riksbank is an authority under the Riksdag.

The Riksbank is administered by an eight-member Governing Council. Seven of these Council members are elected by the Riksdag. These Council members electpom among their number one member as Governor of the Riksbank for a Bve-year period. The Council members elected by

The Riksbank is the central bank of Sweden and is an authority under the Riksdag. The Riksbank is responsible for the monetary policy. No authority may determine the decisions made by the Riksbank on issues relating to monetary policy.

The Riksbank has an eleven- member Governing Council elected by the Riksdag. The Riksbank is managed by an Executive Board, which is appointed by the Governing Council.

A Council member or a member

the Riksdag elect a chairman ~i-om among their number. This chairman may not exercise any other commission or hold any o8ce within the executive direction of the Bank. Rules concerning the Riksdag's election of the . Governing Council, concerning the direction of the Riksbank in other respects, and concerning its operations are laid down in the Riksdag Act and elsewhere in law.

A Council member for whom the Riksdag does not grant discharge jiom liability is thereby severedfiom his appointment. The Council members elected by the Riksdag may remove the chairman fiom oflce and the person who is a Council member and the Governor of the Rikbankfiom his appointment.

of the Executive Board for whom the Ribdag does not grant discharge fiom liability is thereby severed fiom his appointment or his employment. The - Governing Council may sever a member of the Executive Board fiom his employment only if he no longer meets the requirements which are made on him to be able to carry out his duties or if he has been guilty of serious misconduct.

Provisions on election of the Governing Council and of the Rihbank's executive management and operations are regulated by law.

This Act comes into force on 1 January 1999.

Proposed amendments to the Riksdag Act

It is hereby proposed as regards the Riksdag ~ c t ~ that the supplementary provision 9.8.1 shall cease to apply, and that Chapter 3, section 8, Chapter 8, section 6 , and Chapter 9,

section 8, and the supplementary provision 3.8.3 shall have the following wording.


3 kap. 8 5

Other bodies which are appointed by the Riksdag in whole or in part may present proposals to the Riksdag on questions which concern the competence, organisation, personnel or activities of the body concerned. The Riksdag can direct that such a body may also present proposals to the Riksdag in other cases.

Special provisions are laid down concerning annual reports to the Riksdag by Riksdag bodies.

Supplementary provisions

3.8.3 Special provisions are laid

down concerning the right of the Governing Council of the Riksbank, the Parliamentary Ombudsmen, and the Auditors of the Riksdag to submit proposals on questions other than the questions referred to under section 8, first paragraph,$rst sentence.

The provisions made in the first to thirdparagraphs also apply to the Executive Board of the Riksbank.

Supplementary provisions

3.8.3 Special provisions are laid

down concerning the right of the Governing Council and the Executive Board of the Bank of Sweden, the Parliamentary Ombudsmen, and the Auditors of the Riksdag to submit proposals on questions other than the questions referred to under section 8, first paragraph.

8 kap. 6 §

Elections by the Riksdag of Governing Council of the Riksdag are valid for the electoral period of the Riksdag.

The Governing Council shall elect, ji-orn outside their number, not more than two Deputy Governors of the Ribbank to serve for a term of j v e years. These shall serve, in such mutual order as the Governing Council may determine, as alternates for the Governor of the Riksbank on the Governing Council.

9 kap. 8 §

A decision may be taken to institute proceedings against an offkial named below for an offence committed in the execution of his appointment or duties,

1. in the case of legal procee- 1. in the case of legal proceedings against a member of the dings against a member of the Governing Council or any of the Governing Council of the Riks- Auditors of the Riksdag, only by bank, a member of the Executive the Standing Committee on Finan- Board of the Riksbank or any of ce (Finance Committee). the Auditors of the Riksdag, only

by the Standing Committee on Finance (Finance Committee).

2. in the case of legal proceedings against a member of the Riksdag Board of Administration, the Election Review Committee, or the Riksdag Complaints Board, or against a parliamentary Ombudsman or the Clerk of the Chamber, only by the Committee on the Constitution.

The Riksdag may direct that the provisions of the first paragraph on a decision to institute legal proceedings against a member of the Governing Council of the Riksdag shall not be applied in respect of an ofence committed in dealing with a question concerning the import or export of foreign currency.

The provisions made in the Jirst paragraph on prosecution of a member of the Riksbank's Execu- tive Board shall not apply in respect of an oflence committed in dealing with the exercise of the Riksbank's right of decision pursuant to the Act (1 992: 1602) on Foreign Exchange and Credit Regulation.

l . This Act comes into force on 1 January 1999 2. The Riksdag shall appoint in December 1998 for a period from 1

January 1999 until the end of the period of office, eleven members of the Governing Council of the Riksbank. The previous appointments to the Governing Council which the Riksdag has made for this term of office will thereby terminate.

Proposal on a Foreign Exchange Rate Policy Act

The following is hereby proposed.

1 § The Government bears responsibility for general foreign exchange rate policy issues pursuant to Chapter 9, Article 1 1 , of the Constitution.

2 § The Government shall decide on the system that is to apply for establishing the value of the krona in relation to foreign currencies (the exchangerate-sy stem).

3 § The Riksbank may apply to the Government that the Government shall make a decision on the exchange rate system. Such a request shall be swiftly dealt with by the Government.

4 § The Government shall consult the Riksbank before making decisions on the exchangerate-system.


2.4 Proposed amendments to the Sveriges Riksbank Act (1988:1385)

It is hereby proposed as regards the Sveriges Riksbank Act (1988:1385) that section 55 shall cease to apply, and that sections 4, 10, 20, 29, 31-35, 38-50 and 56 shall have the

following wording, and that the heading above section 9 shall be entitled "Exchange rate

and monetary policies", and that four new paragraphs be included in the Act, sections 33a, 33b,

39a and 34a with the following wording.


4 § Pursuant to Chapter 9, Article Pursuant to Chapter 9, Article 12,

12, of the Constitution, the of the Constitution, the Riksbank Riksbank is responsible for is responsible for the monetary foreign exchange rate and credit policy. policies. In addition, it shall pro- The objective of the Riksbank's mote a safe and eficient payment operations shall be to maintain

price stability. system. The Riksbank shall also pro-

mote a safe and efJicient payment system.

10 § The Riksbank shall decide the The Riksbank shall decide on

system that shall apply for the application of the foreign establishing the value of the krona exchange rate system decided in relation to foreign currencies upon by the Government. and determine the application of this system.

20 § In pursuance of its credit policy, In pursuance of its monetary

the Riksbank may, in individual policy, the Riksbank may, in cases, decide to impose cash individual cases, decide to impose reserve restrictions on credit cash reserve restrictions on credit

institutions. institutions. Cash reserve requirement means that a certain share, not exceeding

fifteen per cent of the credit institution's investments or liabilities, in each case calculated in a manner stipulated by the Riksbank, shall for a specific period be covered by funds of a corresponding value that, with or without interest compensation, shall be deposited in a Riksbank account on behalf of the institution concerned. To an extent determined by the Riksbank in each individual case, the credit institution's cash holdings, shall be equal to such funds.

For foreign credit institutions that are entitled to conduct operations from branches registered in Sweden, the cash reserve requirement is estimated on the basis of the investments or obligations of the particular branch.

29 § If the Riksbank's operations give If the Riksbank's operations give rise to a question of statutory rise to a question of statutory amendment or other governmental amendment or any other measure, the Governing Council governmental measure, the may make a proposal concerning Governing Council or the the matter to the Riksdag or the Executive Board may within their Government. respective area of responsibility

make a proposal concerning the matter to the Riksdag or the Government.

Before a proposal to the Riksdag or the Government is made, the Governing Council and the Executive Board shall consult one another.

Pursuant to Chapter 9, Article 12, of the Constitution, the Riksbank is managed by a Governing Council made up of eight members, seven of whom are appointed by the Riksdag, and one, the overn nor, by the other members, who also elect a Chairman among their number.

One or more Vice Chairmen are

The Riksbank has a Governing Council - made up of eleven members, appointed by the Riksdag.

A Chairman and one Vice Chairman are appointed by the Council members among themselves.

appointed by the Council members among themselves. The Governor may not be appointed Vice Chairman.

Pursuant to Chapter 8, section 6, of the Rihdag Act, the Governing Council appoints, fiom outside its own members, not more than two Deputy Governors and also decides in what mutual order they shall serve as alternates for the Governor on the Governing Coun- cil.

In addition, the Deputy Gover- nor exercises all other duties of the Governor, when the latter is indisposed Following a decision by the Governor, a Deputy Governor may also serve as alternate for the Governor on other occasions with respect to the management of certain matters or groups of such matters.

The operations of the Riksbank are managed by an Executive Board, consisting of six members, who are appointed by the Governing Council for a period of six years. The Governing Council appoints the Chairman of the Executive Board, who, at the same time, shall be the Governor of the Riksbank, and at least one Vice Chairman, who, at the same time shall serve as Deputy Governor of the Riksbank.

If a Board Member resigns ahead of time, a new member shall be appointed for the remaining time of the period of ofice.

When required, the Governing Council shall determine in which mutual order, the Deputy Gover- nors shall serve in the place of the Governor when the latter is indisposed

33 § A member of the Governing A member of the Governing Council may not be a Government CounciI may not minister or a member or a deputy 1. be a Government minister, o f a board of directors of a credit 2. be a member of the Executive institution. Nor may a member of Board, the Governing Council be a minor 3. be a member or a deputy of a or a declared bankrupt or have a board of directors of a bank or trustee in accordance with Chap- other company subject to super- ter 11, section 7, of the Code vision by the Financial Super- relating to Parents, Guardians visory Board, or

and Children. 4. hold any other employment The Jirst paragraph also or assignment which makes them

applies to Deputy Governors. unsuitable for the appointment as member of the Governing Coun- cil.

Neither may members be minors, nor declared bankrupt, nor have a trustee in accordance with Chapter 11, section 7, of the Code relating to Parents, Guar- dians and Children.

If a member takes any employment or assignment which can come into conflict with the provisions of the f i s t paragraph, the Rikdag shall release him ji-om the appointment as member of the Governing Council.

3 3 a 5 A member of the Executive Board may not

1. be a member of Parliament, 2. be a Government minister, 3. be employed at the Govern-

ment Ofice, 4. be employed at central ad-

ministration by a political party, 5. be a member or a deputy of a

board of directors of a bank, or any other company subject to supervision by the Financial Supervisory Board, or

6. hold any other employment or assignment which makes them unsuitable for the appointment as member of the Executive Board

Neither may members be minors, nor declared bankrupt, nor have a trustee in accordance with Chapter l I , section 7, of the Code relating to Parents,

Guardians and Children. If a member takes any

employment or assignment which can come into conflict with the provisions of the cfirst paragraph, he shall immediately notzfi the Governing Council.

For a period of one year after a member has ceased to serve on the Executive Board, he may not hold such employment or carry out such assignments as are referred to in the first paragraph 5 and 6 without the consent of the Governing Council.

33 b 5 The right to sever a member of the Executive BoardJi.om his appointment follows pom Chapter 9, Article 12, of the Constitution.

A decision on removal@om the assignment shall be appealed against within two months of service of the decision. The Governor of the Rikbank may appeal at the European Court of Justice. Other members of the Executive Board may appeal at The Labour Court pursuant to the Legal proceedings on labour dispute Act (1 974:3 71).

The Labour Court may declare a decision on removal Ji.om the employment invalid.

I f an appeal is not made within the time prescribed in the second paragraph, the party has lost the right to appeal.

34 § The operations of the Rihbank are The Rikbank conducts its

conducted at a head office in Stockholm, where the Governing Council also has its seat.

The Riksbank also conducts operations at branch offices and banknote depots, in that number and at those locations determined by the Riksbank.

The Head Office contains an Auditing Department and other units decided by the Governing Council.

Under the Governing Council, Riksbank operations are managed by the Governor. Operations of the Auditing Department, however, are managed by the Governing Council, unless an alternative course of action is stipulated in the Act (1988:46) on the Auditing of Parliamentary Administration, etc.

The distribution of business between dzfferent departments shall be contained in a work order for the Riksbank

operations at a head office in Stockholm, where the Governing Council and the Executive Board also have their seat.

The Riksbank may also conduct operations at branch offices and banknote depots, in that number and at those locations determined by the Riksbank.

The Head Office shall contain an Auditing Department and other units decided by the Rihbank.

Operations of the Auditing Department are managed by the Governing Council, unless an alternative course of action is stipulated in the Act (1988:46) on the Auditing of the Riksdag's Administration, etc.

The distribution, of business between dzfferent departments shall be contained in a working order as referred to in section 38.

The Auditing Department of the Riksbank is also responsible for the auditing of the Office of Administration and Services of the Riksdag, the Parliamentary Ombudsmen and the Auditors of the Riksdag, in accordance with the auditing plans established by the authority concerned.

38 § The Riksbank makes decisions The Governing Council decides concerning the work order and the the working order for the Riks- other regulations required for bank. work at the Riksbank The members of the Governing

The members of the Governing Council and such personnel and Council and such personnel and persons appointed for specific persons appointed for specific assignments at the Riksbank as

assignments at the Riksbank as determined by the Riksbank, shall submit to the Riksbank a written report of their holdings of financial instruments and of changes in such holdings as stipulated in Chapter 1, section 1, of the Act on Trading in Financial Instruments ( l 99 1 :980).

The Riksbank also makes decisions on an individual basis in matters concerning personnel and persons appointed for specific assignments at the Riksbank, to the extent that such matters are not governed by legislation or decisions of the Riksdag or by the Office of Administration and Services of the Riksdag.

determined by the Riksbank, shall submit to the Riksbank a written report of their holdings of financial instruments and of changes in such holdings as stipulated in Chapter l , section 1, of the Act on Trading in Financial Instruments (1 99 1 :980). This, however, does not apply to the Chairman and Vice Chairman of the Governing Council and the members ofthe Executive Board

The Riksbank also makes decisions on an individual basis in matters concerning personnel and persons appointed for specific assignments at the Riksbank, to the extent that such matters are not governed by legislation or decisions of the Riksdag or by the Office of Administration and Services of the Riksdag.

39 § Stipulations governing the About remuneration to members remuneration to members and and deputy members of the deputies of the Governing Council Governing Council there are are contained in the Act provisions in the Act (1989:'185) (1987576) on Fees, etc. for on fees, etc. for Assignments on Assignments on behalf of the behalf of the Riksdag, its Riksdag, its Authorities and Authorities and Bodies. Bodies. Salaries and other employment

beneJits for members of the Executive Board are established by the Governing Council.

39 a The Chairman and the Deputy Chairman of the Governing Council and the members of the Executive Board shall notijj to the Riksdag in writing

I . holdings of Jinancial instruments as ' stipulated in Chapter I , section I , of the Act on Trading in Financial Instruments (1 991:98O).

2. holdings of shares in a partnership or an economic association except tenant ownership associations, and shares of equivalent legal entities,

3. ownership, wholly or partly, of business premises pursuant to Chapter l, section 5, of the Local Government Tax Act (1928:j 70).

4. agreements of a Jinancial nature with previous employers, such as agreements on wage and pension benefits, which are paid during the period covered by assignments as member of the Governing Council or the Executive Board, and

5. credits and other liabilities and the conditions for these.

Notzjkation of assets and agreements according to the first paragraph 2-4 need not be made i f they together do not exceed a market value of SEK 500,000. The same applies to credits and other liabilities according to the first paragraph 5 i f these together are less than SEK 500,000.

Notification shall thereafter be made for every change that entails that the amount speciJied in the second paragraph is changed by more than SEK 100,000.

Notification according to the first paragraph shall be made, when the assignment or employment is commenced and there-

after, at the latest four weeks from the asset having been acquired, an agreement entered into or a debt arising or such a change as indicated in the third paragraph has taken place.

40 § The Riksbank shall have a Staff The Riksbank shall have a Staff

Disciplinary Board, chaired by the Disciplinary Board, chaired by the Governor of the Riksbank. In Governor of the Riksbank. In addition to personnel representa- addition to personnel representatives, the other members of the tives, the other members of the Board shall be appointed by the Board shall be appointed by the Riksbank. The following matters Riksbank. The following matters, shall be decided by the Board: which concern others than

members of the Executive Board, shall be decided by the disciplinary board:

1. dismissal from a position on account of the personal circumstances, though not from probationary appointments,

2. disciplinary measures, 3. notification of prosecution, 4. suspension. The Staff Disciplinary Board has a quorum when the chairman and at

least half of the other members are present.

41 § The Governing Council makes The Governing Council shall decisions concerning I . appoint members of the

I . matters concerning regula- Executive Board, the Governor of tions relating to individual per- the Riksbank and determine the sons, mutual order between the Deputy

2. matters concerning the Governors in accordance with establishment of working orders section 32, and other important issues 2. decide on salaries and other concerning the Riksbank's orga- benefits for members of the nisation and working forms, Executive in accordance with

3. matters concerning the paragraph two of section 39, system for determining the value of 3. grant consent to resigning the krona in relation to other members of the Executive Board currencies, to hold a position or carry out an

4. matters concerning guidelines for the administration of the assets itemised in section l I,

5. matters concerning important international credit agreements,

6. matters concerning the oficial discount rate and interest terms in connection with the lending and borrowing as described in the jrst paragraph of section 18, as well as conditions relating to lending in accordance with the second paragraph of section 18,

7. matters concerning major recommendations to or agreements with credit institutions,

8. matters concerning cash reserve - requirements and special fees when cash reserve requirements are notJirlJilled,

9. matters concerning interest terms on the Government's account,

10. matters concerning purchases of equity or shares in accordance with section 24,

I I . major matters concerning composition, write-08 write-down or remission of claim,

12. matters covered by section 37 and appointments to positions as Head of Department or Administrative Director.

13. matters concerning which persons shall be bound by obligation to report pursuant to the second paragraph of section 38,

14. Other matters which pursuant to this Act or other legislation, shall be determined by

assignment, in accordance with paragraph four of section 33a,

4. decide on dismissal of a member of the Executive Board @om his employment, in accordance with section 33b,

5. make proposals to the Riksdag and the Auditors of the Riksdag for appropriation of the Riksbank's profit, in accordance with paragraph two of section 48,

6. be responsible for proposals within its area of responsibility, in accordance with section 29,

7. decide the working order for the Riksbank in accordance with paragraph one of section 38,

8. manage the operations of the Auditing Department, in accordance with paragraph two of section 35, and

9. determine the appearance of the notes and coins which the Bank gives out in accordance with section 5.

The Governing Council may on behalf of the Rikrbank make comments on referrals within its area of responsibility.

Matters which are not to be decided by the Governing Council are to be determined by the Executive Board. The Executive Board may decide that a matter may be determined by the Governor of the Riksbank or by another oflcial at the Riksbank

the Governing Council, and 15. matters which the Gover-

ning Council considers to be of major importance or which are referred to the Governing Council by the Governor.

Matters not to be determined by the Governing Council are determined by the Governor. To the extent that such matters are not of a character that requires scrutiny by the Governor, they may be determined by another oficial in accordance with the stipulations governing working orders, or by special decision.

41 a § Members of the Executive Board may not seek or take instructions when they are fuIJilling their monetary policy duties.

42 § Prior to the Riksbank making a The Riksbank shall prior to every monetary policy decision, the monetary policy decision of minister appointed by the Govern- importance, inform the minister ment shall be consulted. appointed by the Government.

I f such consultation is not possible and if there is exceptional cause, the Riksbank may make such a decision without consultation.

43 § The Governing Council shall Minutes shall be taken at meetings convene at least every two weeks. of the Governing Council. The business of the meetings shall be recorded in minutes.

The Governing Council has a quorum when not less than six members are present. However,

The Governing Council has a quorum when not less than eight members are present. Each

matters that require urgent treatment are subject to a quorum offive members, on condition that at least four of the members support the decision. m e n voting, each member shall make his opinion known. However, nobody is obliged to vote for more than one proposal.

Stipulations concerning voting on certain personnel matters are contained in section 5 of the Act (RFS 1980:4) on Determining Bodies in Disciplinary Responsibility, etc. relating to employees at the Ribbank and its authorities and in section 26 of the Employment Act (1 96S:6Ul).

member who take part in the final treatment shall also take part in the decision. However, nobody is obliged to vote for more than one proposal. In decisions on severing a member of the Executive Board Pom his employment, at least eight of the members of the Governing Council shall support the decision.

44 § I f a matter to be handled by the Minutes shall be taken at meetings Governing Council is of minor of the Executive Board. significance or of a particularly The Executive Board has a urgent nature, it may be deter- quorum when at least half of its mined by notzj?cations made members are present. However, between members. matters that require urgent

treatment may be decided upon by two members if they are in agreement. Each member who take part in the final treatment shall also take part in the decision. However, nobody is obliged to vote for more than one decision.

The Chairman and the Vice Chairman of the Governing Council have the right to be present at the Executive Board's meetings with the right to speak, but without the right to make proposals and vote.

45 § The Governing Council may not The Governing Council and the convene at a location which is Executive Board may not convene occupied by an alien nation. at a location which is occupied by

an alien nation.

46 § Notifications issued by the Gover- Notifications issued by the ning Council to the Riksdag or the Governing Council or the Execu- Government must include infor- tive Board to the Riksdag or the mation detailing the members who Government must include infor- have participated in the decision- mation detailing the members who making process and the person have participated in the decision- who submitted the facts of the making process and the person matter. If a vote is not unanimous, who submitted the facts of the this shall be indicated in the matter. If a vote is not unanimous, notification or be evident from an this shall be indicated in the appended extract from the minutes notification or be evident from an of the meeting. appended extract from the minutes

of the meeting.

47 § The calendar year is the Rik- The Rikbank's accounting year is bank's accounting year. the calendar year.

Each year prior to the end of Each year prior to the end of December, the Governing Council December, the Executive Board shall draft a budget for the shall draft a budget for the Riksbank's administrative activi- Riksbank's administrative activities during the following accoun- ties during the following accounting year. The budget shall be ting year. The Executive Board submitted to the Riksdag's shall submit the budget to the Finance Committee and the Riksdag's Finance Committee and Auditors of the Riksdag for their the Auditors of the Riksdag and attention. the Governing Council for their

attention.

48 § The Riksbank is obliged to keep accounts and is to fulfil this duty in a manner that provides the information necessary for an assessment to be made of the Riksbank's operations.

Each year, prior to February 15, Each year, prior to February 15, an Annual Report of the an Annual Report of the

Riksbank's operations during the preceding accounting year and a proposal concerning the appropriation of its profit shall be submitted by . the Governing Council to the Riksbank and the Auditors of the Riksdag. The Annual Report shall consist of a Profit and Loss Account, a Balance Sheet, a Report by the Governing Council and an account of exchange rate and credit policies.

Riksbank's operations during the preceding accoun'ting year shall be submitted by the Executive Board to the Riksdag and the Riksdag's Auditors, and the Governing Council shall make proposals as the appropriation of the profit of the Riksbank. The Annual Report shall consist of a Profit and Loss Account, a Balance Sheet, an Administration Report and an account of foreign exchange and monetary policies and on how the Riksbank has promoted a safe and eficient payment system.

49 § The Riksbank's Profit and Loss Account and Balance Sheet are

approved by the Riksdag, which also determines the appropriation of the Riksbank's profit. If the value of the reserve fund has declined to less than SEK 500 million, at least ten per cent of the profit for the year shall be allocated to the reserve fund until it has retained a level of this amount.

The Riksdag determines The Riksdag determines whether the Governing Council whether the Governing Council shall be discharged from liability shall be discharged fiom liability for its management of the for its operations and the Riksbank. Executive Board for its

management of the Riksbank. Discharge JLom liability may only be denied if there are reasons to make claims of economic liability against a member of the Governing Council or the Executive Board, or ifthe member should be prosecutedfor criminal actions in connection with his assignment or his employment.

50 § The Riksbank shall hand over a written report to the Riksdag at

least twice ayear on the monetary policy.

The Riksbank shall make public statistical data concerning foreign exchange and credit conditions on a continual basis. In addition, the Riksbank shall make public decisions in respect of changes in the official discount rate.

Decisions made by the Riksbank in accordance with this Act may only be appealed to the extent and in the order stipulated in the Act (1 989: 1 86) concerning Appeals against Administrative Decisions made by the Office of Admi- nistration and Services of the Riksdag and its bodies.

56 § Decisions made by the Riksbank in accordance with this Act may only be appealed to the extent and in the order stipulated in the Act (1 989: 186) concerning Appeals against administrative decisions made by the Office of Admi- nistration and Services of the Riksdag and its bodies.

Appeal against the Governing Council's decision to sever a member of the Executive Board Pom his employment is regulated in section 33b.

1. This Act comes into force on 1 January 1999 2. The Riksdag shall appoint in December 1998 members of the

Governing Council of the Riksbank applying the provisions in paragraph one of section 3 1 and section 33 with their new wording.

3. The Governing Council elected in accordance with point 2 shall appoint, in December 1998, from its members a Chairman and a Vice Chairman and appoint, from the time of the Act coming into force, an Executive Board of the Riksbank, the Chairman of the Executive Board, and at least one Vice Chairman. The Governing Council shall thereafter apply the provisions in paragraph two of section 31, section 32, section 33a and section 43 in their new wording.

4. In the appointment of the Riksbank's Executive Board in accordance with point 3, one of the members shall be appointed for six years, one for five years, one for four years, one for three years, one for two years and one for one year.

Proposed amendments to the Act (1 992: 1602) on Foreign Exchange and Credit Regulation

It is hereby proposed that Chapter 4, section 3, of the Act (1992:1602) on Foreign Exchange and Credit Regulation shall have the following wording.


4 kap. 3 §

Decisions taken at the Riksbank by Decisions taken at the Riksbank another than the Governing by another than the Executive Council may be appealed against Board may be appealed against to to the Governing Council. the Executive Board.

Decisions by the Governing Decisions by the Executive Council in matters concerning the Board in matters concerning the imposition of fines or the setting imposition of fines or the setting of special fees may be appealed of special fees may be appealed against to the Administrative against to the Administrative Court of Appeal. Court of Appeal.

The Riksbank may decide that a decision shall apply immediately.


2.6 Proposal on amendment to the Act (1 989: 185) on Fees, etc. for Assignments within the Riksdag, its ~gencies and Other Bodies

It is hereby proposed that sections 1 and 2 of the Act (1989: 185) on Fees etc. for Commissions at the Riksdag, its Agencies and Other Bodies shall have the following wording


1 9 Fees for certain assignments at the Riksdag, its Agencies and Other Bodies shall be paid as follows: 1. Sveriges Riksbank 1. Sveriges Riksbank

The Chairman of the Governing The Chairman of the Governing Council 10,000 Council 10,000

Other member of the Governing Other member of the Governing Council who is not an ofJiciaI at the Council 5,000 Bank 5,000

Deputy for Board Member who is not an oflcial at the Bank 1,300

Deputy for Board Member 1,300

2 § For carrying out an assignment which is specified in section 1, an

assignment as a member or deputy member of the Election Review Committee, and on the EU Committee, and assignments as deputy in the Nordic Council's Swedish delegation's Executive Committee and in the Riksdagen's Complaints Board, a special fee is paid per meeting (meeting fee) at the amount set by the Riksdag's Administrative Office. This meeting fee is however not paid to

a) The Governor of the a) The Chairman of the EU Riksbank, Committee,

b) The Deputy Governor of the b) The Deputy Chairman of the Riksbank, EU Committee.

c) The Chairman of the EU Committee,

4 The Deputy Chairman of the

EU Committee. The meeting fee is also paid to members and deputies of the Advisory

Council on Foreign Affairs, during the period that expenses are not paid to members or deputy members in accordance with Chapter 4, section 1 (1 994: 1065) on Financial Conditions for Members of Parliament. This fee amount is set by the Office of Administration and Services of the Riksdag . As deputy who takes part in the meeting without taking part in the decision, a meeting fee is only paid if the respective body so decides.


Proposed amendments to the Act (1986:765) with instructions for the Parliamentary Ombudsmen

It is hereby proposed that Chapter 2 of the Act (1986:765) on Instructions for the Parliamentary Ombudsmen shall have the following wording.


2 § Under the supervision of the ombudsmen are

1 . Central and local government authorities, 2. Officials and other holders of posts at these authorities, 3. Other persons holding posts or carrying out assignments, which are

associated with the exercise of power, as regards their activities, 4. Officials and those carrying out assignments at public enterprises

when they carry out commissions on behalf of the enterprise in such limited companies where the state through the enterprise has a deciding influence.

As regards officers in the Defence Forces, this supervision only applies to officers with at least the rank of second lieutenant and those having equivalent positions. The Ombudsmen's supervision does not apply to

1. Members of Parliament, 2. The Administration Board at

the Riksdag, the Electoral Review Board at the Riksdag, the Complaints Board at the Riksdag, or the Clerk of the Chamber,

3. The Governing Council, the Governor of the Riksbank and Deputy Governors, except as regards participation in the exercise of the Riksbank's power of decision according to Act (1 992: 1602) concerning Foreign Exchange and Credit Regulation,

4. The Government or its ministers,

The Ombudsmen's supervision does not apply to

l . Members of Parliament, 2. The Administration Board at

the Riksdag, the Electoral Review Board at the Riksdag, the Complaints Board at the Riksdag, or the Clerk of the Chamber,

3. The Governing Council of the Riksbank, the members of the Executive Board of the Riksbank, except as regards participation in the exercise of the Riksbank's power of decision according to Act (1 992: 1602) concerning Foreign Exchange and Credit Regulation,

4. The Government or its

5. 'The Chancellor of Justice, ministers, and 5. The Chancellor of Justice,

6. Members of decision-making and local government bodies. 6. Members of decision-making

local government bodies. The Ombudsmen do not supervise one another's activities. By postholder is meant in this Act, unless otherwise clear fiom the

context, a p m ~ n w h o is subject to the supervision of the Ombudsmen.


2.8 Proposed amendments to the Act (1 957:684) concerning the Payment System in War Conditions

It is hereby proposed that sections 2 and 4 of the Act (1957:684) on the Payment System under War Conditions shall have the following wording.


If Sweden is at war, the Government, &er hearing, where this is possible, the Governing Council of the Riksbank, may notify instructions on the Riksbank's issue of notes and coins and banking operations, and publication of the Riksbank's accounts to apply instead of the statutory provisions contained in the Sveriges Riksbank Act (1988:1385) and in other legislation.

If Sweden is in danger of war or there exist such exceptional circumstances which are occasio- ned by there being a war outside of Sweden's boundaries or that Sweden has been at war or is threatened by war, the Government may, after an application by the Governing Council of the Riksbank, notify such regulations are referred to in the first paragraph.

If Sweden is at war, the Government, after hearing, where this is possible, the Executive Board of the Riksbank, may notify instructions on the Riksbank's issue of notes and coins and banking operations, and publication of the Riksbank's accounts to apply instead of the statutory provisions contained in the Sveriges Riksbank Act (1988:1385) and in other legislation.

If Sweden is in danger of war or there exist such exceptional circumstances which are occasio- ned by there being a war outside of Sweden's boundaries or that Sweden has been at war or is threatened by war, the Government may, after an application by the Executive Board of the Riksbank, notify such regulations as are referred to in the first paragraph,

4 § If Sweden is at war, the If Sweden is at war, the Government, after hearing where Government, after hearing where possible, the Governing Council of possible, the Executive Board of

the Riksbank, may decide that the Riksbank shall be obliged to redeem payment forms intended for postal giro and direct payment forms issued by central or local government agencies, national insurance offices, or other postgiro account holders, which have been approved for payment by direct payment forms, and that such forms shall be accepted as payment by government agencies.

If Sweden is in danger of war, or there exist such exceptional circumstances which are occasio- ned by there being a war outside of Sweden's boundaries or that Sweden has been at war or is threatened by war, the Govern- ment may, after a consultation of the Governing Council of the Riksbank, notify such regulations as are referred to in the first paragraph.

the Riksbank, may decide that the Riksbank shall be obliged to redeem payment forms intended for postal giro and direct payment forms issued by central or local government agencies, national insurance offices, or other postgiro account holders, which have been approved for payment by direct payment forms, and that such forms shall be accepted as payment by government agencies.

If Sweden is in danger of war, or there exist such exceptional circumstances which are occasio- ned by there being a war outside of Sweden's boundaries or that Sweden has been at war or is threatened by war, the Govern- ment may, after a consultation of by the Executive Board of the Riksbank, notify such regulations are referred to in the first paragraph.

This Act comes into force on 1 January 1999

Proposed amendments to the Act (1988:46) concerning the Audit of the Riksdag's Administration

It is hereby proposed that sections 3 of the Act (1988:46) concerning the Audit of the Riksdag Administration shall have the following wording.


3 § The Auditors of the Riksdag shall at the latest by 15 March make a report to the Riksdag on the audit of the Riksbank and the Stiftelsen Riksbanken's Jubileum Fund.

These reports shall shed light These reports shall shed light on the scope and direction of the on the scope and direction of the audit examination and, with audit examination and as regards regard to the Riksbank, to result in the Riksbank to result in a a statement as to whether the statement as to whether the auditors consider that the auditors consider that the members of the Governing members of the Governing Council of the Riksbank should be Council and the Executive Board discharged from liability. of the Riksbank should be

discharged from liability. The auditors shall as regards the Riksbank also take a position on the

Riksbank's profit and loss account and balance sheet.


Proposed amendments to the Act (1989: 186) concerning Appeal .against Administrative Decisions of the Office of Administration and Services of the Riksdag and agencies

It is hereby proposed that sections 3 of the Act (1989:186) on Appeal against Administrative Decisions of the Office of Administration and Services of the Riksdag and agencies shall have the following wording.


3 § A decision on the appointment of an official may not be appealed against if it relates to one of the following posts

At the Riksdag - the Director of Administration Office, the Head of negotiations at the Administration Office, the Assistant Clerk of the Chamber, Head of the Committee Secretariat, and Head of the Riksdag's International Secretariat,

At the Riksbank - the Governor At the Riksbank - the members of the Rihbank, the Deputy of the Executive Board and the Governor, and the Head of the Head of the Auditing Department, Auditing Department,

At the Parliamentary Ombudsmen - the Head of the ombudsmen's office, At the Riksdag's auditors - the Head of the auditor's office.

This Act shall come into force on 1 January 1999

3 This matter and its preparation

This report to the Council on Legislation contains proposals which have been dealt with previously in other contexts. These include the following.

In 1993 the Riksbank Commission presented proposals for a number of changes aimed at strenghening the independence of the Riksbank and adapting its position to EC requirements (SOU 1993:20). The replies made to this circulation for comment are contained in item ref. no. Fi 9311384.

In a document from the Governing Council to the Riksdag's Standing Committee on Finance (the Finance Committee) in October 1995, the Governing Council among other things took up certain recommendations made by the Riksbank Commission. This document has been dealt with in the Government Bill on Economic Policy to Strengthen Growth and Development in October 1995 (Government Bill l995/96:25) and by the Finance Committee in a report (1 995196: FiUl).

Furthermore, the EMU Commission has dealt with the position of the Riksbank in connection with the so-called credibility problem for monetary and currency policies if Sweden remains outside the Monetary union (SOU 1996:158). The EMU Commission has not made any concrete proposals for legislation. The referral replies to the commission's report have been presented in a departmental memorandum, Ds l997:22.

At the instigation of the Minister of Finance, a memorandum was drawn up on 13 September 1996 by the Under-Secretaries for legal affairs at the Cabinet Office, the Ministry of Justice and the Ministry of Finance. This memorandum was complemented by a further memorandum on 5 November 1996 on the EMU and the Constitution. Both these memoranda, which together are known as the Memorandum by the Under-Secretaries for Legal Affairs, have been circulated for comment. The replies are available in item ref.no. Fi 9614413.

The committee considering responsibility for exchange rate policy, the Exchange Rate Policy Committee, presented a proposal for legislation on responsibility for exchange rate policy in January 1997 (SOU 1997:lO). This report has been circulated for comment. The replies are available in item ref-no. Fi 9713 12.

In discussions between the party leaders on 17 October 1996, it was decided that the deliberations on constitutional and other legislative issues related to the future status of the Riksbank should take place in a

working committee with representatives of all the parliamentary parties. The members of this working committee (see item ref.no. Fi 9614413) have been MP Jan Bergqvist (S), Lars Tobisson (m), Anne Wibble (fp), Kenneth Kvist (v), Peter Eriksson (mp) and Mats Ode11 (kd). The working committee has been chaired by Erik Asbrink, the Minister of Finance.

The result of the working committee's work is published in the ministry memorandum on The status of the Riksbank (Ds 1997:50). The memorandum was sent to the Riksbank and the City Court of Stockho-1m for comments. Their comments is available in the matter with ref. no Fi97/2197. The memorandum was also sent to the Labour Court for comments. The Labour Court comments is available in the same matter.

This Report to the Council on Legislation deals with the legislative issues following on from Sweden's undertakings according to the EC Treaty with respect to the second stage of the EMU.

In Chapter 4, the role of monetary policy in economic policy is described. This section is based, inter alia, on parts of the arguments put forward in the Riksbank Commission and the EMU Commission.

A description of monetary and foreign exchange policy in the EMU is provided in Chapter 5.

Chapter 6 takes up the EC-law requirement on national legislation in the member states.

This is followed by the proposals of the government. Chapter 7.1 deals with the position of the Riksbank in general, and Chapter 7.3 the objectives that the Riksbank should have for its operations. Chapters 7.4 and 7.5 deal with responsibility for exchange rate policy. Chapter 7.6 and the fallowing sections present the Riksbank's new management structure.

Monetary policy and an independent Riksbank

Economic .policy objectives and instruments

Economic policy as a whole aims ultimately at safeguarding and increasing the welfare of citizens. However, economic policy decision- makers canrrot make- direct decisions that welfare is to be increased. Instead, parts of economic policy are designed with the intention of achieving a number of sub-goals, such as full employment, high and sustainable economic growth, price stability, a fair distribution of living standards, regional balance and a good environment, which in turn is expected to lead to a secure and enhanced welfare. The sub-goals can be given different priority in different situations but at the same time they are not independent of one another. High growth can accordingly improve the prospects for achieving full employment. In certain cases the sub-goals may also come into conflict with one another. In the short- term, for example, the goal of full employment can come into conflict with the goal on price stability.

From the point of view of democracy, the starting point is that the priorities between the sub-goals in economic policy shall be made by a democratically based body. Even the balance struck between the total policy effects in the long and short-term should on this basis take place through democratic decisions.

The traditional means for achieving the economic policy goals are fiscal and monetary policy. Fiscal policy means that the central government with the aid of budgetary revenue and expenditure intends to influence demand in the economy. To the same end, the Riksbank uses the instrumental rate within the framework of monetary policy. Even certain exchange rate policy decisions may be used to the same end.

The importance of price stability

Price stability is a welfare goal in the sense that high, instable price increases, inflation, worsens the conditions for economic growth. An instable inflation means that it is more difficult and more costly to separate changes of the general level of prices from changes in relative prices. This means that the price mechanism and the functioning of the market deteriorates. The distorting effects of inflation on the distribution of resources in the economy can therefore be assumed to lead to negative real effects, inter alia, on economic growth. Rapid changes in inflation

can also produce arbitrary redivisions of income and wealth. In the event of an unexpected rise in inflation, wealth values tend to be transferred from savers to lenders since inflation decreases the real value of lenders' liabilities and savers' nominal assets. High inflation also means that it is unfavourable to hold cash, since it generates no yield. Inflation then acts as a tax on liquidity, which leads to excessive cash-holding from an economic perspective.

Instable inflation has the clearest distorting effects. International experiences indicate that there is a correlation between the level of inflation and the degree of instability in inflation. Countries with high inflation tend to show the largest instability. It can therefore be established from experience that high inflation has a negative effect on the economy both from the perspective of growth and distribution.

It can also be noted that countries with a high rate of inflation often have lower growth than comparable countries with low inflation. There are several examples of countries with low inflation and good growth, for example Japan and Germany. Before 1975 Sweden also in a international comparison had high growth and moderate inflation.

Monetary policy instruments

Monetary policy is a part of economic policy. It can therefore be considered that monetary policy should have the same objective as economic policy as a whole. However, there is no possibility for monetary policy to affect all the sub-goals that economic policy is targeted at. There is therefore reason to concentrate monetary policy objectives on those that actually can be affected.

Monetary policy instruments are based on the Riksbanken being able to control liquidity in the banking system and thus being able to determine the interest rate conditions on which the banks can invest or borrow liquidity overnight at the Riksbank, i.e. the "interest corridor". The instrument regularly used by the Riksbank to carry out monetary policy are an instrumental interest rate, the rep0 rate, which is the interest rate on liquidity with a week's term, which is set once a week.

The effects of monetary policy are complicated and involve a large number of indirect correlations between the instrumental interest rate and price development, through the real rate of interest, the exchange rate and the provision of credit. These are highly dependant on individual households' and companies' decisions on saving, consumption, investments, prices and wages, etc. These decisions are based in turn on

changing expectations of the future. including expectations about future economic policy.

4.4 Short and long-term effects of monetary policy

In the short-term fiscal and monetary policy has an effect on real variables such as production and employment and can thereby affect economic activity. This depends, inter alia, on wages and prices usually being set for a certain period forwards in time. An expansive economic policy can then in the short-term affect, for instance, real wages and relative prices so that unemployment will be lower at the cost of higher inflation. It is therefore possible for monetary policy to affect the fluctuations of the economy around the long-term growth trend. However, monetary policy instruments give a far from perfect control over the outcome.

In the long-term, it is very diEcult for monetary policy to affect production and employment. The changes that can be achieved by monetary policy will not last. The expectations of the general public and economic decisions are adapted over time to the monetary policy carried out. The rate of inflation is changed and thus the real rate of interest, and the exchange rate adjusts to a long-term level, that is independent of monetary policy. Under normal circumstances, an expansive monetary policy leads in the long-term only to higher inflation.

In recent years, a somewhat more nuanced view has been taken on the ability of monetary policy to af5ect real factors in the long-term. It has been claimed that in the case of unexpected temporary real and monetary disturbances that unemployment, for example, may rise, not only in the short-term but also in the long-term through a certain portion of those who become unemployed becoming long-term unemployed and risking being excluded fiom the labour market. These then no longer constitute an available resource which can be used in a cyclical upturn.

Norm-based monetary policy

For the greater part of the twentieth century, Sweden has applied a fixed exchange rate as a norm for monetary and exchange policy. The purpose of a fixed exchange rate is that the domestic rate of inflation in the long- term should be adapted to inflation in the countries whose currencies the krona is linked to. If credibility can be created for the fixed exchange rate policy, the expectations of the general public on the domestic rate of

inflation will coincide with inflation expectations in the countries we are linked to.

However, there are other norms which can be used to increase credibility in monetary policy and the price stability objective. Since the krona has allowed to float freely in autumn 1992, the Riksbank has successfully applied an inflation target. By setting an inflation target and publicly expressing its view on inflation trends in the economy, the Riksbank has created good possibilities for the general public to make an assessment of future monetary policy and compliance with the inflation target. The risk for unexpected monetary policy measures has thereby been reduced and demands by households and businesses for compensation for the risk that the inflation rate will be higher than expected can thereby be assumed to be lower than would otherwise have been the case.

In other countries, the quantity of money is used as a norm for monetary policy. The purpose is the same, to achieve price stability, but since it may be difficult for both the central bank and the general public to anticipate the effects of monetary policy on the future rate of inflation, the focus has instead been on variables over which the central bank has more direct control. An important condition is, of course, that there is a stable correlation between the quantity of money and the rate of inflation over time. These correlations seems to differ from country to country, so that it is not self-evident that an intermediary goal is suitable for all countries.

The purpose of the norms is to provide a clear objective for policy which facilitates the economic decisions of the general public. However, a norm will have no effect if the general public lack confidence that it will be complied with. By institutionalising the norm in various ways, confidence that it will be upheld can be reinforced and thus the effectiveness of policies improved. One way of institutionalising the price stability goal is to state in legislation that monetary policy shall aim at this objective, and to delegate responsibility for monetary policy to an independent central bank, which is given the freedom to shape monetary policy directed at the price stability goal.

A monetary policy framework, consisting of an independent central bank within a given framework under democratic control with a price stability objective, has served as a basis for several foreign central bank reforms. This view has also influenced the form given to the institutional framework for the ECB, as expressed in the EC Treaty and the statutes for ESCB and ECB.

Monetary and foreign exchange rate policy in the EU

A historical background to EMU

The EC is a peace project and should be viewed against the background of the second world war. At the initiative of the Benelux countries, a plan was emharked upon in 1955. for a common market extending to all areas of economic life, which resulted in the Treaty of Rome with the European Economic Community (EEC) in 1957. The Treaty of Rome itself contained the idea of a closer economic and monetary co-operation.

The preamble to the Treaty of Rome describes a progressive approximation and co-ordination of the Member States' economic policies. Furthermore, it was established that the Member States should regard their cyclical and exchange rate policies as a matter of common interest. Certain general objectives for economic policy were also established. It was especially underlined that Member States should attempt to maintain equilibria in their balance of payments and to uphold confidence in their currency.

The lack of concrete exchange rate policy provisions in the Treaty of Rome can probably be explained by the fact that fixed exchange rates were maintained within the framework of the Bretton Woods system. The tensions in this system towards the end of the 1960s forced many countries into extensive support purchases of the dollar leading to these countries "importing" the American inflation. Within the EC doubts arose as to the will and ability of the USA to put its international monetary policy c6mmitments before its own national interests. The EC therefore began, at French and German initiative, to prepare for a European economic and Monetary union . The reasons for this initiative were, besides a desire to reduce dependence on the USA, that stable exchange rates were regarded as necessary for the stability of the internal market, that exchange rate fluctuations would make more diff~cult the common agricultural policy and the desire to maintain price stability.

The result of the European initiative was the so-called Werner plan which described how a European economic and Monetary union could be achieved in three stages up to 1980. However, the collapse of the Bretton Woods system meant that the plan could never be implemented. Due to the crisis in the Bretton Woods system, currency co-operation was created in the so-called currency snake, which existed until 1979. Sweden left the currency snake in 1977 after a devaluation of the krona. A new currency co-operation initiative was taken by Germany and France, which led to the creation of the European Monetary System, EMS, in

1979. The most important part of this system is the exchange rate co- operation, ERM.

The final preparatory step towards a Monetary union in EU was taken through the Single European Act in 1986. The objective of the Single European Act was that the internal market should be created in 1992 and that an economic and Monetary union should be established. The provisions on the economic and Monetary union , EMU, were included in the treaty following on from the agreement in Maastricht in 1991. According to these provisions, the EMU was to be introduced in three stages, see Chapter 5.3.

The European Monetary System (EMS)

The foundation of the EMS

In December 1978, the European Council adopted a resolution to establish the European Monetary System (EMS), which replaced the currency snake. In addition to the resolution, EMS is based on an agreement between central banks in the EU. This "central bank agreement" consists of three parts; an exchange rate mechanism (ERM), an arrangement between central banks for very-short-term financing of currency interventions and rules for the creation and use of the ecu. Each participating state's central bank is to pay in a certain proportion of its currency reserve to the European Fund for Monetary Co-operation (EFMC) in exchange for oficial ecus. These ecu assets are to be used as a means of payment between the participating countries' central banks.

The exchange rate mechanism, ERA4

The exchange rate mechanism, ERM, consists of provisions for setting central parity rates and implementation of currency interventions.

Each participating currency in the ERM is to have a central parity exchange rate fixed in relation to the other participating currencies and the ecu, which consists of a so-called basket containing most of the EU currencies. The individual currencies in the ERM can fluctuate within a specified band. If a currency reaches the outer limit in relation to another currency, both the affected central banks shall act to maintain the band limits by interventions on the currency market. This committment to intervene is unlimited.

Band widths

Until August 1993, the normal band widths in the ERM were * 2.25 per cent. The countries which had not previously participated in the currency snake were permitted to adopt a broader band width of h 6 per cent when the ERM was established. Even some of the countries that later became members of the ERM, made use of this possibility for broader band widths.

The initial idea was that these broader band widths would be progressively reduced as the economies of the participating countries converged. After speculation with currencies in the ERM in 1992 and 1993, the band widths were instead expanded in August 1993 to f 15 per cent for all participating currencies.

As regards fixed central exchange rates in the ERM, central parity exchange rates may only be altered after agreement between all countries participating in the ERM and the Commission. Important exchange rate policy decisions shall moreover be preceded by mutual consultations between the EU countries taking part in the ERM and those outside.

Membership of the EMS andparticipation in ERA4

EU membership does not automatically entail membership of the EMS, which is voluntary. Nor does EMS membership automatically entail participation in E M . Instead EU countries are to decide themselves when they wish to take part in the ERM whereupon the conditions for membership, i.e. central parity exchange rates and band widths will be the subject of negotiations between the country that decides to take part and the countries that belong to the ERM. The EU countries that do not take part in the ERM participate in the discussions without voting rights.

The Economic and Monetary Union (EMU)

The most far-reaching integration of economic policy in the EU applies to monetary and exchange rate policy. The objective is that monetary and exchange rate policy is to be transferred to the EU level in order to create a stable currency area with a common, stable currency in which exchange rate and interest fluctuations no longer disrupt the internal market. Other decisions on economic policy will continue to be made by individual members but the forms of co-operation are reinforced.

The EMU is being carried out in three stages as provided for in the EC Treaty. These stages entail measures on the part of the EU countries,

among other things to strengthen economic convergence, which is one of the preconditions for the Monetary union being able to function. In order to be able to assess whether the EU countries meet the convergence requirements, convergence criteria have been set. Furthermore, demands are made that national legislation should fulfil certain criteria concerning the national central bank.

The first stage of EMU

In the first stage of EMU, which was concluded on 3 1 December 1993, the Member States were to abolish currency regulations and other restrictions on capital movements. The multilateral monitoring of the Member States' economic development is reinforced. The Member States should also describe in so-called convergence programmes how the national economic policy is to be formed in order to achieve the convergence criteria.

The second stage of EMU

During the second stage of EMU, which was initiated on 1 January 1994, the European Monetary Institute (EMI) was set up, which is intended to participate in creating the conditions required for the transition to a currency union. During this stage, the Council shall also decide which countries are to take part in the currency union. According to Article 1091 in the EU treaty, the ESCB and the ECB are to be established during this stage, or, as the case may be, immediately after 1 July 1998. At the latest at the date of the establishment of the ESCB, each Member State shall ensure that its national legislation is compatible with the Treaty and the Statute of the ESCB. This legislation shall apply to the individual central banks regardless of whether the Member State participates in the currency union or not.

With respect to general economic policy, it is stipulated that co- operation shall be strengthened by governments agreeing on the general guidelines for the economic policy pursued by Member States and the Community. The Member States shall also endeavour to avoid excessive deficits in public finances. The Member States have also given an undertaking not to take responsibility for or take on another Member State's financial obligations.

As of this stage, monetary financing is prohibited, which means that a Member State may not finance public deficits by funds from the central bank. Neither may a state be favoured by special rules or exemptions in

legislation concerning financial institutes, in order to make possible central government borrowing on non-commercial terms.

The third stage of the EMU

The third stage of the EMU - the start of the currency union - is to begin on 1 January 1999, at which time the currency conversion rates of the participating Member States shall be irrevocably fixed and the new currency introduced. Euro notes and coins shall then be introduced at the latest by 1 January 2002 and be fully substituted for the national currencies at the latest by 1 July 2002.

The Member States, which do not meet the necessary conditions for participation in the Monetary union shall be designated as "Member States with derogation". The central banks of these states will be a part of the ECBS but will not be subject to the common monetary policy.

On transition to the third stage, the possible sanctions against countries in the Monetary union which do not meet their obligations with regard to public finances will be expanded, An agreement, the so-called stability and growth pact, aiming at safeguarding budget discipline in the third stage in a sustainable way was entered into during the summer in 1997.

The United Kingdom has a special status in relation to EMU. This means that the United Kingdom is not bound by the provisions for the second and third stage, unless it notifies before 1 January 1998 that it intends to take part in the third stage. Denmark also has a special status, which means that Denmark, even if the convergence criteria are met, has the right to remain outside the Monetary union as a Member State with a derogation. Denmark has notified that it does not intend to take part in the Monetary union fiom the start 1999.

5.4 Exchange rate policy in the monetary union

The Riksbank's statutory responsibility for exchange rate policy is unusual in an EU perspective. In other EU countries, it is usually the Government that has the overall responsibility for exchange rate policy.

According to Articles 109.1 and 109.2 of the EC Treaty, after the Monetary union has taken place, it is the Council of Ministers that shall decide on issues relating to the EMU countries' exchange rate policy in relation to third countries, i.e. non-Community countries. According to Article 109.1 the Council may conclude agreements with third countries on an exchange-rate system for the common currency, the euro, after

consulting the European Parliament. To enter into such an agreement, unanimity is required among the countries participating in the currency union. With respect to decisions to adopt, adjust or abandon central rates of the euro within such an exchange rate system with third countries, the Council's decision may be made with a qualified majority.

The EC Treaty thus gives the Council of Ministers the final right of decision concerning exchange rate policy issues in relation to a third country. In this way, there is an indirect influence fkom the politically responsible bodies over the ECB's activities. The ability of the Council of Ministers to conclude agreements on an exchange rate system, and thus adopt central rates, can at least potentially affect the ECB's credibility as regards the possibility of achieving the price stability goal. Through currency policy decisions, the form of ECB monetary policy is in principle bound to certain guidelines.

The risk for goal conflicts between the ECB's price stability goals and the goals decided by the Council of Minsters has been reduced by the Council only being able to reach a decision after a recommendation from ECB or the Commission. If the application originates from the Commission, the Council of Ministers shall consult ECB before making a decision. This consultation shall take place with the aim of achieving unity in agreement with the goal of price stability. The Council of Ministers or a Member State may request that the Commission put forward a proposal.

In the absence of an exchange-rate system as above, the Council, acting by a qualified majority, either on a recommendation from the Commission and after consulting the ECB or on a recommendation from the ECB, may formulate general orientations for exchange-rate policy. These general orientations shall be without prejudice to the ESCB's objective of maintaining price stability.

ERM 2

At present work is taking place within the EU to establish an exchange- rate system to replace EMS after the currency union has begun. The new exchange-rate system, ERM2, shall make it possible for countries outside the currency union, to link their currencies to the euro.

At the European Council meeting in Dublin on 13-14 December 1996, an agreement was reached on the guidelines for ERM 2, and at the meeting in Amsterdam on 16- 17 June 1997, a resolution was adopted on the introduction of an exchange rate mechanism in the third phase of the economic and Monetary union. ERM 2 is based on voluntary

participation, but it is expected that the member states that do not participate in the Monetary union will participate in ERM 2.

The resolution includes the following. For those currencies taking part in ERM 2, bilateral central rates are to be set in relation to the euro, unlike the existing ERM in which all currencies have bilateral central rates in relation to each other, as well as to the euro. Around these central rates, currencies will be allowed to fluctuate within a relatively wide band, -+l5 per cent. It shdl moreover be possible for a Member State outside the Monetary union to take the initiative in deciding on a narrower band width between the country's currency and the euro.

The central exchange rates will be set jointly by the finance ministers, the ECB and the governors of the central banks in the EU countries that do not take part in the Monetary union. Ministries and governors of central banks in EU countries outside ERM 2 and the Commission shall take part without voting rights.

Furthermore, the agreement states that it shall be ensured that adjustments of central exchange rates may be made as required. All parties to the agreement, including the ECB, shall have the right to initiate a procedure for reviewing the current central rates.

The affected central bank and the ECB shall intervene to maintain the band limits. These interventions shall be automatic and unlimited, with access to very short-term financing within the system. However, the ECB and the national central banks will be able to terminate these interventions if they come into conflict with the objective of price stability.

Legal convergence

Demands on national legislation

In the accession treaty to the EU, Sweden has undertaken to comply with the requirements laid down in the EU treaty on EMU. As has been briefly mentioned in earlier sections, the EC Treaty includes provisions that concern the national central bank legislation. According to Article 109e(5) of the EC Treaty, during the second stage, each Member State shall,. as appropriate, start the process leading to the independence of the central bank in accordance with Article 108 of the Treaty. Article 108 provides as follows:

"Each Member State shall ensure, at the latest at the date of the establishment of the ESCB, that its national legislation, including the statutes of its national central bank, is compatible with this Treaty and the Statute of the ESCB".

The provisions in Article 108 apply regardless of whether a member state participates in the Monetary union or not. An independent central bank is also a necessary condition for a Member State to qualify to take part in the Monetary union. The Council shall in accordance with Article 109j of the EC Treaty, in preparation for the decision on which countries qualify to take part in the Monetary union, make an assessment of whether each individual country fulfils the necessary criteria for the introduction of a common currency. These necessary criteria include, in addition to the economic convergence criteria, an examination of the compatibility between each Member State's national legislation, and the EC Treaty and the Statute of the ESCB. The assessment of the Council shall be based on the reports made by the Commission and the European Monetary Institute (EMI).

EM1 shall annually present the Council with a report on, inter alia, the legal preconditions which the national central banks must fulfil to be integrated with ESCB. EMI's assessment will not only be based on a comparison between the provisions in the treaty and in the national legislation but also on an overall assessment of the form of the national legislation, its application, and the legal framework in which the legislation on the central bank is placed. These reports are to form the basis for the Council's decision on the transition to the third stage of the EMU.

The EC Treaty and the Statute of the ESCB include certain requirements for central bank legislation. These concern

- prohibition for the central bank and the members of their decision- making bodies to seek or take instructions from ~ o m & u n i t ~ institutions or bodies, from any governments of a Member States or from any other body, Article 107 of the EC Treaty and Article 7 of the Statute of the ESCB, - the requirement of at least a five-year term of office for the Governor

of the central bank, Article 14.2 of the Statute of the ESCB, - the requirement for criteria for severing the Governor of a central

bank f i ~ m his appointment, Article 14.2, second paragraph, of the Statute of the ESCB.

The EM1 and the Commission have in their convergence reports pointed out certain conditions that they regard as not being compatible with the intention of the provisions in the Treaty. These include, inter alia, the importance of the prohibition on instructions for criteria of eligibility for election to leading bodies and the extension of the rules against removing central bank Governors from office being extended to other members of the decision-making bodies. Moreover, the objectives for ESCB's activity should be reflected in the objectives for activity of the national central bank since it will constitute a part of this system.

Below, a comparison is made between EC law and Swedish law with the aim of shedding light on the adjustments to Swedish law that need to be made.

EC law and Swedish law

According to Chapter 10, Article 5(1) of the Constitution, the Riksdag may transfer the right of decision to the EC, provided that there exists a protection of human rights and basic freedoms equivalent to that contained in the Constitution and in the European Convention regarding protection of human rights and basic fieedoms. After such a delegation has taken place, it will be the EC decision that will apply in Sweden provided that the decision is within the area where the right of decision has been transferred.

The Riksdag noted when considering the accession treaty that there is a protection of human rights and basic fieedoms in EC law equivalent to that contained in the European Convention and thatit is thereby is on a par with the protection contained in the Constitution. The Riksdag therefore considered that the conditions for transfer of power to make decisions contained in the constitution had been fulfilled (bet. 1994195:KU 17 p. 15 and 16)

Through the Act (1994: 1500) by reason of Sweden's Accession to the European Union (the Accession Act), Sweden has incorporated the

current community rules applicable at the time of accession, and transferred to EC law the right to make decisions relating to Sweden to the extent and with the effect that ensues from the treaties and other instruments listed in the act. It has not been considered possible to make a list of the powers that have been transferred but the decision on transfer has been linked to the accession treaty and the other basic treaties. Among the treaties listed there is the treaty on European Union, the Maastricht Treaty, which, inter alia, regulates the introduction of the economic and Monetary union, the EMU.

As the normgiving competence within an area has been transferred to the EC, community law has priority over national law. This principle on the primacy of community law has been established by the European Court of Justice in a number of judgments.

To sum up, Sweden has through the Accession Act incorporated the provisions on EMU contained in the EC Treaty and transferred the right to make decisions to the extent that follows from these decisions to the EC. Community legislation in this area also has a priority over Swedish national legislation therefore.

Considerations

Basic assumptions

The Riksbank is already today relatively independent as regards monetary policy, and has as its overall duty undertaken to maintain a stable price level. The formal and real independence of the Riksbank has increased, inter alia, due to the changes in the Riksbank Act introduced in 1989.

According to the working committee, there are, however, two main reasons to review the institutional framework around monetary and exchange rate policy in order to further reinforce the independence of the Riksbank. In the first place, the specific credibility problem for monetary policy and its negative consequences can be limited if the central government make it probable that deviations fiom the price stability objective will not take place. The institutional framework for monetary policy can contribute to this. By delegating responsibility for the shaping of monetary policy to an independent Riksbank with an explicitly stated price stability objective, this policy can be given the long-term perspective that creates the prerequisites for the objective to be credible.

In the second place, Sweden's membership of the EU has entailed that the conditions for monetary and exchange-rate policy have changed. As a consequence of EU membership, Sweden has undertaken to reinforce the independence of the Riksbank. According to the approach on which the institutional framework of the ESCB is based, such reforms can increase the conditions for achieving the objectives set for economic policy in the long term.

The principle of an independent Riksbank does not mean that the objectives for economic policy or their relative priorities have been changed. On the contrary, the idea is that the total goal fulfilment can be improved by enhancing the credibility of the economic policy strategy. By reinforcing confidence in long-term price stability, the possibilities for adjusting monetary policy to the economic situation in a short and medium-term perspective are increased. Credibility can accordingly create scope for carrying out stabilisation policies with the aid of monetary policy which otherwise would not exist.

In the view of the Government, there are four main aspects that of decisive importance for the Riksbank to be considered independent.

In the first place, the Riksbank should be institutionally independent. This means that no one should be able to give instructions to the central bank in monetary policy matters or its decision-making bodies other than by the shape of the statutory objective for monetary policy.

In the second place, the members of the body that formulates monetary policy should be given personal independence. Therefore, the monetary policy decision-makers should be given a long term of office, subject to strict provisions on disqualification, and only be dismissed for reasons specified in the Statute of the ESCB.

In the third place, the Riksbank should be functionally independent. This means that the Bank should be given an unambiguous role for monetary policy. The objective should underline combatting inflation and be public and given the status of law. The objectives should, of course, be compatible with the ESCB's price stability objective according to the EC Treaty.

Finally, the Riksbank should be financially independent. The Bank should have sufficient funds at its disposal to be able to carry out its assignments without being controlled by appropriations from the Riksdag or the Government.

The Government makes the following recommendations with the purpose of reinforcing institutional, personal and functional independence. Proposals are made on prohibition against instructions, disqualification rules and restrictions on the power to dismiss the monetary policy decision-makers. Furthermore, it is proposed that an objective for monetary policy should be given the form of law. As regards financial independence, the Riksbank already has a high degree of independence, and no recommendations are therefore put forward in that area. The proposals are wholly in accord with the Statute of the ESCB statute and the EU treaty as these have been interpreted by EMI.

It is also important to safeguard the possibility of insight and inspection when the Riksbank's independence is strengthened. The Riksdag should, as the authority responsible for the Riksbank, be able to evaluate activities in relation to the objectives set up by the Riksdag for monetary policy. The government also presents recommendations in this area.

Adaptation of Swedish law

Proposals made by the Government: Swedish law should be adapted in such a way that it reflects the provisions that apply in Sweden. The Constitution should outline in general terms how Sweden is governed.

Proposals in the memorandum by the Under-Secretaries for legal affairs and the Ministry Memorandum: In accordance with the Government proposal.

The Governing Council of the Riksbank support the proposal. The referral bodies support the proposal with the exception of the

Law Faculty Board at Stockholm University which pointed out that EC law has a direct effect and priority over national rules so that adaptation of Swedish law is not necessary.

The reasons for the Government's proposal: According to Article 108 of the EC Treaty, each Member State shall ensure, at the latest at the date of the establishment of the ESCB, that its national legislation including the statutes of its national central bank is compatible with the Treaty and the Statute of the ESCB.

That our national legislation is to be compatible with the requirements of EC law does not mean that all these requirements must be reproduced in Swedish legal rules. The direct effect of EC law and its priority over Swedish law make this unnecessary. On the other hand, Swedish provisions that conflict with EC law must be amended. Accordingly, the national provisions must be so shaped so as to make it possible for the EC rules which are to be applied directly to have their full effect.

The only explicit demand for a particular content in Swedish law concerning the Riksbank made by EC law is in Article 14.2 of the Statute of the ESCB, where it is stated that the statutes of the national central banks shall, in particular, provide that the term of ofice of a Governor of a national central bank shall be no less than five years. This requirement will be complied with in Swedish legislation by the provision in section 32 of the Riksbank Act.

Otherwise, it will be a matter of striking a balance between, on the one hand, interest that the Swedish Constitution should state the main lines of how Sweden is governed and the tasks and methods of work of Swedish government bodies, and, on the other hand, the interest of not enshrining a particular interpretation of EC law in the Swedish constitution.

A fundamental assumption for the deliberations of the Government has been that the Constitution should state the main features of how Sweden is governed. From an EC law point of view, no demands have been raised that the provisions should be introduced into the Constitution in order for Swedish law to be compatible with the Treaty. EC law already contains rules on the conditions for severing the Governor of the Riksbank fiom his appointment, and prohibitions for giving and taking instructions directed at the Riksbank. Since these issues have already been regulated in EC law, which is an integrated part of the Swedish legal system, it can

be asserted that there is no need for, or perhaps even that it is not appropriate, to repeat the provisions of EC law in Swedish legislation.

However, the Government's view is that, even if it is from the EC law point of view perhaps would be possible to abstain from adapting Swedish legislation, as, among others, the Law Faculty Board at Stockholm University has alleged, such an adaptation should be carried out fiom a Swedish point of view. There is nothing to object to allowing the matter of the Swedish bodies' relationship to EC institutions being regulated by EC law. However, the internal division of power between Swedish bodies should be clear from Swedish provisions.

Choice of legal form

There are no rules as to how legal provisions should be distributed between the constitution and other legislation. In the preliminary work on the Constitution and in the literature, there are, however, certain statements which can give a lead as to the assessment of how such a distribution should take place.

The Constitutional Commission (SOU 1972: 15) stated that the main tasks of an Constitution is to provide the basis for the representative and parliamentary system, and for the allocation of public functions between the parliament, the government, the executive agencies, the courts and local government.

In the preliminary materials on the Constitution (Government Bill 1973:90 p.155) the heads of ministries argued that the starting point should be that only the provisions that specify the frameworks for political and national activities should be accorded the special dignity and the special protection which inclusion in the constitution entails. According to this preliminary material, the direction and content of politics should, in principle, not be given constitutional status.

Legislation relating to the Riksbank is today contained in the Constitution, the Riksdag Act and the Riksbank Act. The Constitution has, as has been said, a special status and its purpose is to provide the basis especially for the distribution of public functions between the Parliament, Government, executive agencies, courts and local government. The Riksdag Act is not part of the constitution but has a constitutional character since amendments require a qualified majority. The Riksdag Act deals primarily with procedural issues for the Riksdag's work. The Riksbank Act is a special piece of legislation, which primarily regulates the Riksbank's organisation, methods of work and administration, etc.

A starting point for the work of the Government has been to collect provisions on the Riksbank in the Riksbank Act and in a new act on exchange rate policy. However, there are some provisions which are of such dignity and which regulate the allocation of official functions between the Riksdag, Government and the Riksbank, that they should have the character of constitutional law.

The issues which should be regulated in the Constitution are the position of the Riksbank as an agency under the Riksdag. Similarly the degree of independence which the Riksbank is to have in relation to other agencies and the Riksbank's area of responsibility should be dealt with in the Constitution.

The Government will present concrete proposals to statutory amendments in the respective sections.

The objective of monetary policy

Proposals made by the Government: The objective of monetary policy shall be to maintain price stability.

As an agency under Parliament, the Riksbank shall additionally without setting aside the objective of price stability, support the objectives for general economic policy with the intention of achieving sustainable growth and high employment.

The proposal in the Memorandum support the Government's proposal.

The Governing Council of the Riksbank support the Government's proposal.

The proposals of the Riksbank Commission are in substantial agreement with those of the Government. The Commission recommends, however, that the price stability goal shall be formulated as "safeguarding the value of money".

The referral bodies: The majority of the referral bodies accept the proposal made by the Riksbank Commission that an objective for monetary policy activity shall be specified in legislation. Several referral bodies consider that the objective of price stability should be supplemented by other objectives.

The National Institute of Economic Research considers that the objective should also include other key economic objectives provided that this does not hinder achievement of the inflation target. The Swedish Employers' Confederation and the Swedish Union of Clerical and Technical Employees in Industry consider that the objective can be

formulated as price stability with growth. The Swedish Bankers Association states that the Riksbank, without departing from the objective of price stability, should moreover contribute to meeting other key objectives for general long-term policy. The Federation of Private Enterprise proposes the wording price stability with economic ecpililhum or price stability with economic growth. The National Audit Ofice considers that the present conditions are satisfactory. According to the Administrative Court of Appeal in Gothenburg, the objective should be formulated as a general welfare objective. The Confederation of Professional Employees considers that price stability should be included as an important component in the wording of the Riksbank's operational objective but that this should not be the sole objective for activity. The Council of Governors of the Riksbank has endorsed the proposal of the commission. Some referral bodies consider that the objective should be specified in the Constitution.

The reasons for the Government's proposal

The need of objectives for monetary policy

At present, the Riksbank lacks a statutory objective for monetary policy. After Sweden went over to a floating exchange rate in November 1992, the Riksbank Council of Governors took a position in January 1993 on the direction that monetary and exchange rate policy should take. According to this position, price stability should be the general objective of monetary policy. The Riksbank defined the objective more exactly so that the change in the consumer price index from 1995 should be limited to two per cent, with a tolerance of one per cent in both directions.

According to the proposals made by the Government, monetary policy should not be delegated to an independent Riksbank without the objective of the operations being clear. An independent Riksbank must therefore be provided with a democratically based objective for operations. If no objective is formulated, there would be scope for an arbitrary shaping of monetary policy. To the end of increasing credibility for monetary policy, it should not be possible to alter this objective over easily. The objective for monetary policy should therefore be established by law. A statutory objective for monetary policy activity is accordingly an important part of the proposal to give the Riksbank an independent position and monetary policy greater credibility.

A further motive is that a far-reaching delegation of monetary policy should be combined with follow-up and control. The Riksdag as the

responsible authority for the Riksbank, must therefore be able to evaluate the operations on the basis of an objective set for the operations.

The objective of monetary policy

For a long time Sweden used a fixed rate of exchange. However, a stable exchange rate is an intermediary goal for monetary policy. The more important objective with a fixed rate of exchange is to achieve stable, low inflation on a level with trading partners. Stable exchange rates should therefore not be an objective per se for the Riksbank's monetary policy activities. Instead, the Riksbank should be given a price stability objective, i.e. the task of keeping inflation at a low, stable level.

A price stability objective can be designed in many different ways. In principle, it is possible to specify a quantified objective in legislation for the rate of inflation where both the level and the tolerance level as well as the choice of method of measurement (index) is made specific. However, there is no reason to describe the objective in excessive detail in the law. It is not appropriate to set a particular level for permissible rate of increase of prices in legislation, nor to specify the size of any interval of tolerance. Such detail would be too inflexible and would mean that the Riksbank lacked sufficient scope to adapt the objective to new circumstances.

The Government therefore considers that a price stability objective should be formulated in general terms. To increase the possibility of democratic control of monetary policy, the Riksbank should specify the legislative objective so that the objective is possible to evaluate in an objective way whether the Riksbank has achieved the objective for the operations or not. That specification of detail should be made public to make possible a public debate on monetary policy.

The Riksbank Commission recommended the wording "safeguard the value of money". The working committee behind the proposals in the Ministry Memorandum has instead opted to frame the main monetary policy objective so that the Riksbank shall maintain price stability. The Government support the formula chosen by the working committee.

The phrase '@rice stability" indicates that it is the general level of prices which is meant. The objective shall not be interpreted as meaning that every individual price is to be stable. In order for a market economy to function, relative price changes must be possible.

The objective shall be interpreted in terms of change, not in absolute terms, i.e. the objective should be expressed as a target for the rate of inflation rather than for the absolute level of prices.

Practical problems arise when measuring the rate of price increases. For example, it may be difficult to take into consideration the development of the quality of goods and services included in repeated measurements which provide the basis to establish the price index. This may mean that the movements of the index systematically exaggerate the rate of inflation. For this reason, the proposed wording shall, inter alia, not be interpreted as meaning that the rate of inflation, measured as CPI or some other index, shall be zero.

Other tasks

Several EU countries now already have a fixed main objective for monetary policy which aims at maintaining price stability. It is moreover common that the main objective is combined with statutory, subordinate objectives, drafted in such a way that the central bank, without setting aside the major objective, is to support general economic policy.

The ESCB also has subordinate objectives. According to Article 2 of the Statute of ESCB, the primary objective of the ESCB shall be to maintain price stability. Without prejudice to the objective of price stability, it shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community. According to qrticle 2 of the EC Treaty, the task of the Community is to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non- inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.

The Riksbank will be part of the ESCB regardless of whether Sweden participates in the Monetary union or not. This means that the Riksbank will be subject to the objectives of the ESCB's activitys established in the Statute. It is therefore not possible to formulate an objective for activity that is in conflict with this objective.

The working committee took the view that a subordinate objective should not be included in legislation. However, there is scope for the Riksbank, to the extent that it is compatible with the overall, long-term objective of monetary policy, to support the economic policy decided upon by the Riksdag. The Riksbank Commission also made this assessment, but stated that the task of supporting the general economic policy pursued by the Riksdag did not need to be stated in law since it followed from the fact that the Riksbank is an agency under the Riksdag.

The same assessment is made in the Ministry memorandum and the Governing Council of the Riksbank agree with the assessment made by the working committee.

The Government shares the assessment made previously. Any subordinate objective should accordingly not be included in legislation. The Riksbank, as an agency under the Riksdag, should accordingly have an obligation to support the general economic policy objectives to the extent that these do not conflict with the price stability objective. This obligation does not need to be laid down in legislation.

The traditional objectives for economic policy are usually high growth, high employment, price stabili6, equitable distribution, regional balance and a good environment. Monetary policy can affect the objective of price stability and, in the short term, contribute to meeting the objectives of sustainable growth and full employment. However, objectives such as a good environment, regional balance, and equitable distribution are not especially suited as objectives for monetary policy.

There can, naturally, arise extreme situations, for example, war, natural disasters, or very substantial supply disruptions, where other mechanisms of adaptation do not work. In these situations, it is reasonable that price stability should give way to an immediate need to damp down the disturbance with the aid of monetary policy and to counteract it having permanent effects. The question is whether there is a need to introduce a legal provision that the Riksbank may depart from the statutory objective has been discussed in various contexts. However, an exceptional clause of this kind cannot foresee every conceivable situation, but would have to be expressed in very general terms, which might mean it would be difficult to apply. It would therefore seem to be difficult to combine with the EC Treaty. The Government therefore considers that it is- not appropriate to introduce an exceptional clause of this kind in legislation.

The Riksbank shall also promote a secure and effective means of payment. This is a basic duty for the Riksbank and is not a real operational objective. The corresponding task applies for ESCB. It could be argued that this task may come into conflict with the Riksbank's objective of price stability, since the Riksbank in certain situations could use the instrumental interest rate to avoid a crisis in the banking system. However, the monetary policy instruments shall, according to the Government's proposal, only be used to maintain a fixed value of money. The Riksbank has at its disposal other instruments to handle such situations, for example, the possibility of granting emergency credits (lender of last resort). However, situations may arise where a crisis in the payments system threatens the objective of price stability. In such

situations, the monetary policy instruments should be able to be used to avert a crisis.

General exchange rate policy issues

The Government's proposal: To shift responsibility for general exchange rate policy issues from the Riksbank to the Government by an amendment to the Constitution. The Government shall then decide upon the system to maintain the value of the krona in relation to foreign currencies (the exchange rate system).

The decisions on exchange rate policy issues will be included in a new Foreign Exchange Rate Policy Act.

The Riksbank may request that the Government make decisions on the exchange rate system.

The Government shall consult the Riksbank when making exchange rate policy decisions.

The proposal in the Memorandum is in accordance with the Government's proposal.

The Governing Council of the Riksbank has noothing to say against the proposal.

The proposals of the Exchange Rate Policy Commission are substantially in agreement with the proposals made by the Government. The Commission also proposes that the right of decision with respect to the application of exchange rate policy should be transferred to the Government (see Chapter 7.5). Furthermore, it is proposed that it is stated by law that the Government may not deviate from the objective established for monetary policy when making exchange rate decisions. The Riksbank is at the same time given an obligation to inform the Government whether the exchange rate policy proposed or being carried out will imperil this objective. It is also proposed that the Riksbank should have the right to make public any such notification without hindrance of the Secrecy Act.

The proposals made by the Riksbank Commission: The Commission proposed that the division of responsibility regarding intemational exchange rate agreements should be clarified by it being made clear in the Riksbank Act that international agreements and agreements with international organisations on the exchange rate system should be entered into by the Government.

The referral bodies: Practically as many referral bodies have been positive as negative to the Exchange Rate Commission's proposal to give the Government responsibility for the exchange rate system.

The Narional Debt Ofice considered that the present arrangements where the Riksdag delegates responsibility for both monetary and exchange rate policy to the Riksbank reinforced confidence in the price stability goal. The Office considered that the commission had not analysed what a functional solution could look like, but based itself on adapting Swedish legislation to the EU rules, despite there being formal demand for adaptation.

The Department of international Economics at Stockholm University stated the following, inter alia. The body that controls exchange rate policy will also control monetary policy. With free movement of capital, it is not possible to distinguish monetary and exchange rate policy. They are quite simply two sides of the same coin. If the Government is responsible for exchange rate policy, it will thereby automatically also be responsible for monetary policy. At present, Sweden has an exemplary arrangement where the Riksbank has full control of the monetary policy instruments by not only controlling the instrumental interest rate but also being responsible for the choice of exchange rate system, currency interventions, and the target values and band width when applying a fixed exchange rate: At the same time, according to the constitution, -

international exchange rate co-operation shall be based on international agreements concluded by the Government. However, this does not prevent the Riksbank deciding on the application of such agreements, for instance the central rate of exchange and the band width. The present division of responsibilities is not an obstacle for international exchange rate co-operation.

The Governing Council of Sveriges Riksbank stated, inter alia, the following. No amendment to the law is required on formal grounds as regards responsibility for exchange rate policy to adapt Swedish legislation to the EC. However, exchange rate co-operation is a central part of the co-operation within the European community. Exchange rate policy is regarded a matter of common interest. In the light of this, it appears functional that the Government makes the decision as to the exchange rate regime which shall apply for the Swedish currency in relation to other EU currencies.

Reasons for the Government proposal: According to Chapter 9, Article 12, of the Constitution, the Riksbank is responsible for exchange rate policy. The Riksbank's present sphere of responsibility includes both general exchange rate policy issues such as the choice between a floating .

and fixed exchange rate, and the choice of currencies to which the krona

is linked when a fixed exchange rate is applied. This responsibility also includes application of the exchange rate system adopted, as, for instance, decisions on the central parity rate and the band width for a fixed exchange rate or control of the exchange rate when applying a floating exchange rate.

According to Chapter 10, Article 1, of the Constitution, it is, however, only the Government that may conclude agreements with another state. In agreements of major importance, approval by the Riksdag is required pursuant to Chapter 10, Article 2. Exchange rate co-operation based on agreements with another state falls under the aforesaid provisions. The Riksbank may with the support of section 10 of the Riksbank Act enter into an agreement on co-operation with another central bank.

In the view of the Government, it is not appropriate, as advocated by the Riksbank Commission, for the division of responsibility for the choice of exchange rate system to differ depending on whether the exchange rate system is based on an international agreement or not. Neither should the division of responsibility, as advocated in the Riksbank's referral reply on the Exchange Rate Policy Commission, be made dependent on whether the system relates to a linkage of currencies within the EU or any other currency. Instead as proposed in the Ministry memorandum, responsibility for the adoption of an exchange rate system should be clearly placed in the hands of one agency. An arrangement where responsibility is shared means that neither the Government nor the Riksbank can choose an appropriate exchange rate system, where all available alternatives can be considered. Such an arrangement could entail a risk that optimal exchange rate policy decisions will not always be able to be made.

Sweden's membership of the EU means that Sweden, like the other member states, is to treat exchange rate policy as a matter of common interest. Without infringing this principle, different exchange rate systems for the krona, both within and outside the European co-operation may theoretically be possible in future.

EU's exchange rate policy co-operation is basically an international co- operation which also includes' that the central banks agree on certain operational procedures. At present, Sweden has a different arrangement to the majority of other EU countries, which may make difficult future exchange rate policy co-operation. It is true that EU membership does not raise any formal demands as regards the national division of responsibility for exchange rate policy issues.

However, the Government notes that an arrangement where the Swedish Government is responsible for the choice of system, which is to

be used to establish the value of the krona in relation to other currencies, more closely accords with the arrangements in other EU-countries.

In the view of the Government, the choice of exchange rate system does not per se entail a restriction of the possibilities available to the Riksbank to achieve the objective of price stability. This is also a conclusion shared by the Riksbank Commission and the Riksbank with respect to exchange rate systems based on international agreements. However, this conclusion should apply generally to all choices of exchange rate system. If responsibility for application lies with the Riksbank, the Government can be responsible for choice of exchange rate systems, regardless of whether they are based on international agreements or not, without problems arising for the Riksbank as regards achieving the objective of price stability.

As a result of the recommendation on the increased independence of the Riksbank, in the view of the Government, it is appropriate to confine the Riksbank's duties to what is necessary to achieve the objective of price stability.

The Government considered that, in accordance with the Ministry Memorandum, responsibility for general exchange rate policy issues be placed wholly in the hands of the Government by means of an amendment to the Constitution. That responsibility will be specified in a 'new Action Foreign Exchange Rate Policy. The Government shall accordingly decide on the exchange rate system, i.e. the choice between fixed and floating exchange rates and, in the event of a fixed exchange rate being adopted, determine the form of the arrangement to which the krona is to be linked. This applies for example if the krona is to be linked to a multilateral system such as ERM 2 or if a unilateral system is to be created. In the latter case, the Government decides which currency or which basket of currencies, the krona is to be linked to. Today, it is highly improbable that Sweden, after 1 January 1999, when the proposals are intended to come into effect, should link itself to any other fixed rate arrangement than ERM 2.

The Government's proposal means that the Government will be responsible for general exchange rate policy issues such as deciding upon the exchange rate system, regardless of whether they are based on international agreements or not.

The Riksbank will, on its part, pursuant to section 10 of the Riksbank Act; be responsible for application of the exchange rate system, decided upon by the Government. Agreements with other states in this area will be included in this authority. Even if the Riksbank, pursuant to section 10 of the Riksbank Act, has this authority, it is the Government which concludes international agreements in accordance with Chapter 10,

Article 1, of the Constitution. The Government may, however, pursuant to Chapter 10, Article 3, of the Constitution commission the Riksbank to enter into such agreements.

If an international agreement is of major importance, it is, however, also a requirement pursuant to Chapter 10, Article 2, of the Constitution that the Riksdag also approve it. It could be asserted that an agreement on a central parity rate in a fixed exchange rate system is of major economic policy significance. However, it is proposed above that the Riksbank is to have a price stability objective for its activities. This objective greatly limits the possible interval within which the Riksbank can set the central parity rate, so that such a decision will be more of a technical nature, and cannot be considered as being of major importance. Neither can it be asserted that only the circumstance that agreements on exchange rates have been concluded with a state and not with a central bank is decisive for what may be considered as being of major importance. Since these agreements thus do not require the participation of the Riksdag, the Government can authorise the Riksbank to conclude agreements with a state within the framework of its competence according to section 10 of the Riksbank Act. The Government can provide authority through an ordinance or by a special decision. If the final decision of the Riksdag is in accordance with the recommendations made here, the Government intends to give the Riksbank such authority.

The working committee has given consideration, in accordance with the Exchange Rate Policy Commission's proposal, to the introduction of a provision prohibiting the Government from setting aside the objective of monetary policy when adopting an exchange rate system. It was noted, however, in the light of what has been established above that the choice of exchange rate system does not per se affect the possibilities available to the Riksbank to achieve the objective of price stability. In the view of the working committee, a provision of this kind is therefore superfluous, as well as the obligation proposed by the Exchange Rate Policy Commission that the Riksbank should notify whether the Government's decision is in conflict with the price stability objective is also superfluous. This also applies to the Commission's proposal on the right of the Riksbank to make public such notification without hindrance of the Secrecy Act.

The Governing Council of the Riksbank states in its comment on the referral of the Ministerial Memorandum that a general right of decision for the Government on the choice of the exchange rate system would mean, even if the probability must be considered to be very slight, that decisions could be made to link the krona to the currency in a country or currencies in a group of countries not distinguished by a clear focus on

price stability in their economic policy. Such an exchange rate regime would lead to inflationary impulses on the Swedish economy which would be incompatible with the price stability objective.

In the view of the Government, the probability of a future decision to intentionally link the krona to a currency or a basket of currencies in countries with inflationary tendencies is as good as non-existent. Should this nevertheless take place, the Riksbank would be able, by means of repeated alterations of the central parity rate, to ensure that inflationary impulses on the Swedish economy do not occur. In addition, a right is proposed below for the Riksbank to initiate changes in the exchange rate regime. The Government therefore agrees with the working committee's view that an explicit legal provision is superfluous.

The choice between a floating and fixed exchange rate and the specific form of a fixed exchange rate system affects to a great degree the Riksbank's choice of monetary policy strategy. It is therefore desirable that a common view on decisions can be established between the Government and the Riksbank. The Government therefore proposes a statutory obligation for the Government to consult the Riksbank before important exchange rate policy decisions. In this way, the institutional conditions are created for a common view to be achieved. An alternative possibility would be to propose that the Government's decision should be taken in consultation with the Riksbank. However, this would mean that the Riksbank was in practice given a right of veto over such decisions which would then mean that the division of responsibility was unclear.

There may arise situations where the Riksbank makes the assessment that a chosen exchange rate regime is not functional, for example, due to the need for repeated adjustments of the central parity rate or band width. The Government therefore considers that the Riksbank should have the right to apply to the Government for comprehensive changes in exchange rate policy even though the Government has the ultimate responsibility for such changes.

Application of the exchange rate system p- - P

P p

The Government's proposal: The Riksbank shall decide on the central parity rate and the band width when applying a fixed exchange rate system and on the practical application of the exchange rate policy in a system with floating exchange rates.

The Riksbank shall also be responsible for other exchange rate policy decisions which do not fall under the area of responsibility of the Government.

The Ministry Memorandum is in accordance with the Government's proposal.

The Governing Council of the Riksbank finds it important that the Riksbank decides on the central parity rate and the band width when applying a fixed exchange rate system and on the practical application of the exchange rate policy in a system with floating exchange rates in order to safeguard the confidence for the monetary policy and the objective of price stability.

The proposals of the Exchange Rate Policy Commission: The Commission has proposed that the Government should decide on the application of the selected exchange rate system, while the Riksbank is responsible for carrying out on a continual basis the exchange rate policy decided upon by the Government. When a floating exchange rate is used, it is proposed that the Government have the right to issue general guidelines.

The referral bodies on the Commission's proposal: A large majority of the referral bodies were opposed to the proposal to give the Government responsibility for choice of central parity rates and band widths when a fixed exchange rate is applied. The recommendation to give the Government the right to issue general guidelines in the case of floating exchange rates is rejected by almost all referral bodies. The main objection is that the choice of central parity rate and band width as well as the issue of general guidelines for a floating exchange rate would mean the Government having an indirect influence over monetary policy. This would reduce thecredibility of monetary policy.

The National Institute of Economic Research, which supports the recommendations of the Commission, considers that decisions on the central parity rate and the band width in a fixed exchange rate system are of such a general nature that they should be placed in the hands of the Government. Goal conflicts may arise primarily when applying a fixed exchange rate if the Government is responsible for establishing a central parity rate and band width, which is not compatible with the objectives for monetary policy. The Institute considers that, notwithstanding the risk of a reduced credibility for the inflation target, that it is reasonable that the Government and Parliament strike the balances which may be required between different objectives and also bear the democratic responsibility for these decisions.

The Governing Council of Sveriges Riksbank makes the following statement. The application of the exchange rate system is an issue which must fall within the sphere of responsibility of the Riksbank if monetary policy and price stability are to be safeguarded. A right for the

Government to decide on the central parity rate and the band width means that there may be a risk for a goal conflict between monetary and exchange rate policy goals and that the credibility of price stability will be harmed. Moreover, the Riksdag's ability to demand responsibility for meeting the objective for monetary policy will be made more difficult since the Government can make exchange rate policy decisions which will have direct consequences for the Riksbank's ability to achieve price stability. In that way, follow-up of the Riksbank's activities may be made more difficult. An effective follow-up-is- an important component in the democratic control of the Riksbank.

The reasons for the Government's proposal: Since the exchange rate and credit market has been deregulated, the correlation between trends on these markets has been strengthened, increasing the demand for co-ordination of exchange rate and monetary policy. After the deregulations, the Riksbank only has access to one effective instrument for monetary and exchange rate policy, namely the instrumental interest rate. Sterilised currency interventions, i.e. when the Riksbank buys and sells currency at the same time as domestic liquidity is held constant by market operations, has sometimes been used to affect the exchange rate without changing the instrumental interest rate. However, experiences of these interventions show that the possible effects which can be achieved on the exchange rate are temporary and must in principle be combined with changes in the instrumental interest rate to achieve long-term effects. This means that the Riksbank can experience a goal conflict between a fixed exchange rate level and the objective of maintaining price stability, since there is only one means of achieving these goals.

The Exchange Rate Policy Commission's proposals entail that the Government decides on the central exchange rate and band width in a fixed exchange rate system while the Riksbank is made responsible for maintaining the fixed exchange rate. This proposal means that the Government must indirectly be given the right to decide over the level of the instrumental interest rate and thereby be given a certain influence also over monetary policy. In the same way, the possibility for the Government to issue general guidelines for exchange rate policy when a floating exchange rate is applied enables the Government to influence monetary policy through exchange rate policy.

The proposal of the Commission to solve this goal conflict is to specify in legislation that the Government in these decisions may not deviate from the objectives of monetary policy. Moreover, the Riksbank should be given the possibility without hindrance of the Secrecy Act, of making public notifications to the Government that the exchange rate policy pursued or proposed is in conflict with the objective for monetary policy.

In the Minisitry Memorandum the working committee notes to begin with that the EU treaty does not contain any rules on the division of responsibility in exchange rate policy matters at the national level. Sweden is therefore free within this area to adopt the institutibnal framework best suited for Swedish needs.

It is further said in the memorandum, that the decision on central exchange rates and band widths within the future exchange rate policy co-operation ERM 2, as the present ERM, is more open to departures from the usual division of responsibility in the EU than has been the case in general exchange rate policy decisions. Accordingly, both the ministers of finance and the governors of the central banks are represented when decisions on central rates are made within the framework of ERM 2, while decisions on the design of the system are made at finance minister or prime ministerial level in contexts where the governors of the central bank do not have a right to attend. This means that the arguments presented to transfer responsibility for decisions in general exchange rate policy decisions are not as strong with respect to the application of the exchange rate system.

According to the line of reasoning presented above, exchange rate policy may be said to be a part of monetary policy. The working committee's other recommendations on increasing the monetary policy independence of the Riksbank aim at improving the ability to achieve the long-term goals for economic policy. The proposal of the Commission goes in the opposite direction and therefore risks reducing the credibility of monetary policy. However, the working committee's assessment is that these negative credibility effects should be limited in the long term. It can justifiably be argued that the credibility problem would be small in the event of Sweden taking part in the now most probable exchange rate co- operation, ERM 2. In this type of multilateral exchange rate system, the central rate is, unlike in a unilateral system, the object of negotiations with other Member States and cannot be controlled by a single country in the same way. The working committee notes also that countries in the EU where the formal responsibility for decisions on central parity rates and band widths lies in the hands of the Government, have succeeded in establishing a high credibility for monetary policy. However, it should be noted that this confidence has been built up over a long period of time. In a situation where Sweden is outside of a Monetary union when it starts on 1 January 1999, it will according to the working committee be especially important that the credibility of monetary policy is high. This proposals of the Commission in this area should therefore not be implemented.

The Government share the deliberations and conclusions fiom the Ministry Memorandum in this part.

The Government notes that the present distribution of work, where the Riksbank is responsible for application of the exchange rate policy decisions has the advantage that the responsibility for price stability is clearer. In that way, the Riksdag's ability to evaluate the extent to which the Riksbank has achieved these goals is also improved.

The Riksbank's decision on the application of the exchange rate system adopted is significant for monetary policy and shall therefore take place after the customary exchange of information with the Government in accordance with section 42 of the Riksbank Act. (See Chapter 7.10).

7.6 The management structure of the Riksbank

1 The Governmentrs proposals: The Governing Council is to be given a controlling function. The Governing Council's functions are to be stated in the Riksbank Act. An Executive Board is to be created which is to decide over all monetary policy matters and to lead the Riksbank. The Executive Board shall be appointed by the Governing Council.

The Riksdag appoints members of the Governing Council, adopts the balance sheet and income statements, and decides on discharge fiom liability for the Governing Council and the Executive Board.

The proposal in the Memorandum is in accordance with the Government 'S proposals.

The Governing Council of the Riksbank support the proposal to maintain the Governing Council with the present composition and has no objection to the creation of an Executive Board. However, the Governing Council has asked for a further analyse on the relations between the Governing Council and the Executive Board and what is to be applied on members of the Governing Council when it comes to secrecy.

The proposals of the Riksbank Commission: The Commission proposed that the Governing Council should retain its responsibilities although that the composition of the Council should be changed by the introduction of strict rules on disqualification for members of the Council.

Referral bodies on the Riksbank Commission: The majority of the referral bodies approve of the recommendations of the Commission. Several referral bodies consider that the proposed restrictions in the group of persons eligible for election is rather far-reaching.

Reasons for the Government's proposals: Article 107 of the EC Treaty contains the requirement for independence for the central banks of the ESCB. Independence concerns the powers, obligations and responsibilities which central banks have been given according to the EC Treaty and the Statute of the ESCB. According to Article 105.2 of the EC Treaty, the ESCB's basic tasks are to define and implement the monetary policy of the Community, conduct foreign-exchange operations and hold and manage the official foreign reserves of the Member States, and to promote the smooth operation of payment systems (so-called ESCB- related tasks).

According to the Convergence Report, which the EM1 produced in November 1996, the Riksbank and the Governing Council do not comply with their present composition and tasks with the treaty's criteria for independence.

In order that the Riksbank's management functions shall be adapted to the EC treaty, it is therefore necessary that either the composition of the Governing Council be changed as the Riksbank Commission recommended, or that the powers of the Governing Council be amended so as to comply with the treaty.

The Riksbank Commission considered that members of parliament, government ministers, employees of the Government Office or in the central party offices, members of credit institutes, or of a body subject to inspection by the Financial Supervisory Board, or other persons with an unsuitable post for the appointment, should not be eligible for appointment as a member of the Governing Council.

The former Governor of the Riksbank, Bengt Dennis, made a special statement in the Governing Council's referral statement in which he said the following, inter alia. The Riksbank has a system of management which diverges from that normal in other central banks, i.e. the Governing Council functions as a decision-making body in operational issues as well in monetary and exchange rate policy. Alongside of a decision-making body at a central bank, there must be a controlling body. An examination of the composition of the Governing Council hill show that it has for a long time been primarily adapted to the role of a supervisory body.

In the assessment of the Government, it seems very probable that the disqualification requirement on persons who may decide in ESCB-related matters will be pitched very high. The interpretation 'of what are unsuitable posts for this task will probably not just include political assignments, but also every form of commercial work or appointment. In practice, the demands will be the same as those made on the Governor of the Riksbank. EM1 has not produced any clear interpretation of the

disqualification requirement, but refers to an interpretation to be made by the European Court of Justice.

The working committee finds in the Memorandum, taking into consideration the strict rules on disqualification that will apply, that there is reason to consider another model for the Riksbank's management than that at present applied.

One solution would be to abolish the Governing Council and set up an Executive Board with full-time members who would take over both the Governing Council and the Governor's existing powers. Another solution would be to retain the Governing Council with its present appointment procedure and restrict its tasks. This solution has been adopted in Finland. This is also the solution proposed in the Ministerial Memorandum.

The Government regards it as a great advantage to retain the Governing Council with the present composition since it provides the Riksdag as responsible institution for the Riksbank with the possibility of better insight and control than what would have been possible without a Governing Council, It is also possible in this way to avoid those making monetary policy decisions having such other assignments that may lead to conflicts of interest. At the same time, the Riksbank will be more stronger anchored in the community. The Government therefore recommends this solution.

Sections 7.7 and 7.8 contain a detailed account of the tasks of the Governing Council and the Executive Board respectively. The basic principle is thus that the Executive Board is to decide in all ESCB-related issues, while the Governing Board has a supervisory function. The detailed arrangments for the exchange of information between the Governing Council and the Executive Board in order to allow the Governing Council to carry out its supervisory function, should be an internal organisational matter for the Riksbank. It is not appropriate for legislation. To the extent that the Governing Council is a party to secret information, the appropriate provisions of the Secrecy Act apply to the members of the Governing Council.

Which matters should be dealt with by the Riksdag?

As a general starting point, the Government has not made proposals about which body within the Riksdag should be responsible for these issues in most cases, when it recommends that certain issues should be decided by the Riksdag. The working committee nevertheless wishes to state that in most cases, it would be appropriate that they are referred to the Finance Committee.

As the foremost representative of the people, the Riksdag should continue to appoint the members and deputy members of the Governing Council.

The Riksdag should also handle issues on the adoption of the profit and loss statement and balance sheet of the Riksbank. Decisions on the appropriation of the Riksbank's profits should as at present be made by the Riksdag. Since the 1989 Riksdag decision, profit has been appropriated on an objective basis. The Government assumes that this will continue to be the case.

The Riksdag should moreover handle issues on granting discharge from liability for the activities of the Governing Council and to the Executive Board for the administration of the Riksbank. Discharge from liability should only be refused if there are reasons to bring action for financial liability against a member of the Council or Board or if the member should be prosecuted for criminal conduct in connection with the appointment.

The matter of decisions on prosecution against a member of the Council should as at present be decided by the Standing Committee of Finance (see Chapter 9, section 8, of the Riksdag Act). The Standing Committee on Finance should also make decisions on prosecution of a member of the Executive Board.

In the view of the Government, the Parliamentary Auditors should as at present inspect the Riksbank in accordance with the Act (1988:46) concerning Audit of the Riksdag Administration etc. Allowing the Parliamentary Auditors to examine the Riksbank may, however, be called into question in a comparison with the Statute of the ESCB Statute. According to Article 27 of the Statute of ESCB, the national central banks shall be audited by independent external auditors approved by the ECB Council. However, this inspection should not prevent the Riksdag, in its capacity of responsible body for the Riksbank, also allowing its auditors to carry out an examination of the Riksbank.

An audit report should be included in a report submitted to the Riksdag to enable it to consider discharge from liability for the Executive Board and the Governing Council.

Finally, the Riksdag shall decide on the principles for remuneration to the members of the Governing Council.

The Governing Council

The Government's proposal: The Governing Council is to consist of eleven members with the same number of deputies. The period of office is to be four years. The duties of the Council include, inter alia, elections and dismissal of the Governor, Deputy Governor and the ~xecutive Board. The Governing Council is to make recommendations to the Riksdag on the appropriation of the Riksdag's profit.

The Chairman, -the Vice chairman of the Governing Council and the members of the Executive Board skall to the Riksdag submit a report of their holdings of financial instruments and other assets and liabilities.


The Governing Council of the Riksbank support the proposal regarding the Governing Council. Further, it support the proposal to extend the obligation on members of Executive Board and the Chairman and Vice chairman of the Governing Council to notify holdings of financial instruments etc. The Governing Council thinks however, that the proposal in this part should be taken into further considerations.

Reasons for the Government's proposal:

The new role of the Governing Council

The responsibility for making decisions on monetary policy issues and other ESCB-related matters (see Chapter 7.6) should, in the view of the working committee, not be placed in the hands of the Governing Council. A solution adopted for Finland's bank is to state in legislation which matters are to be dealt with by the Governing Council and decide that other matters are to be dealt with by the operational bank management (the Executive Board). This is also in agreement with the present construction of the Swedish Riksbank Act. In the view of the Government, this is a model that should be retained.

The role of the Governing Council is to serve as the Riksbank's anchorage in society. It appears therefore as self-evident that the Governing Council should be able to be elected from both within and

outside the sphere of the Riksdag. Persons elected to the Governing Council should have a broad experience of political and economic issues.

At present, seven members of the Council and an equal number of deputies are appointed by the Riksdag. In the view of the working committee, experience has shown that seven members do not make possible a broad representation of the parties represented in the Riksdag. The number of members should therefore be increased to eleven with the same number of deputies. It should be left to the Council to appoint a Chairman and a Vice Chairman from among its members.

Even if the Governing Council with the proposed institutional arrangement is not responsible for monetary policy decisions, the Governing Council will have an important insight into the monetary policy decision-making by the Executive Board. It may therefore be unsuitable to appoint as members of the Governing Council persons with executive responsibility in major companies or institutions that are directly affected by the Riksbank's policies. The present rules on disqualification in section 33 of the Riksbank Act should therefore be expanded to include not only board membership of credit institutes but also other institutions subject to the supervision of the Financial Supervisory Board. Disqualification should then also include other posts that are unsuitable for the appointment.

In order to clearly indicate the difference between the Governing Council and the Executive Board, the Governor of the Riksbank should no longer be a member of the Council and the Deputy Governors no longer deputies on the Governing Council, but only responsible for the presentation of items of business at the Governing Council.

As regards the length of the term of office, this should as at present coincide with the Riksdag's so that all members of the Governing Council are elected for a four-year period by the newly elected Riksdag.

At present, the Riksbank Act contains provisions as to how often the Governing Council is to meet. In the view of the working committee, there is no reason to specify the frequency of Board meetings by law. It should appropriately be left to the Governing Council itself to make a decision on this matter. The Governing Council should be quorate when at least eight of its members are present. Council decisions should be made by a simple majority of the members attending except decisions on severance of members of the Executive Board from their appointment which should require that eight of the members of the Governing Council support the decision.

How the Executive Board is appointed and dismissea

In the view of the Government, the Governing Council should have as its foremost task the appointment of the Governor, the Deputy Governors and other members of the Executive Board. The Governing Council should also decide on salaries and other employment benefits for members of the Executive Board.

As the Governing Council appoints the Executive Board, it is appropriate that the Governing Council also decide on removal from ofice of members of the Executive Board. The circumstances under which a member of the Executive Board may be dismissed are detailed in Chapter 7.8.

Budgets, appropriation ofprofits and the administration report

Since the management of the Riksbank is being transferred from the Governing Council to the Executive Board, responsibility for establishing the Riksbank's budget should also be shifted from the Governing Council to the Executive Board. The budget should as at present be presented for information to the Riksdag and the Auditors of the Riksdag. Moreover, it should be submitted for information to the Governing Council.

Since responsibility for setting the Riksbank's budget is to rest on the Executive Board, it is also appropriate that the Executive Board decide on proposals to the Riksdag regarding the Riksbank's profit and loss statement and balance sheet. The Executive Board shall moreover present an annual report to the Riksdag on the activities of the Riksbank (the administration report) and give an account of the exchange rate policy and monetary policy pursued and how the Riksbank has facilitated a secure and efficient payments system.

However, it is appropriate that the Governing Council in its controlling function still make recommendations to the Riksdag and the Auditors of the Riksdag regarding the appropriation of the Riksbank's profits.

Presentations to the Riksdag and referral comments

The starting point for the recommendations made by the Government is that the Governing Council and the Executive Board shall each be responsible for their respective areas of responsibility. Given this standpoint, it is reasonable that both the Executive Board and the Governing Council shall be able to make presentations and answer referrals within their respective spheres.

At present, the Governing Council can make presentations to both the Riksdag and the Government. This possibility should be retained, and also apply to the Executive Board. When a presentation is made to the

Riksdag, it introduces it as an item of business subjecting it to the usual parliamentary consideration. As regards presentations to the Government, these have hitherto occurred on very few occasions, so that it may be called into question whether there is any reason to retain this part of the provision. However, in the proposed new Exchange Rate Policy Act, it is made possible for the Riksbank to request the Government to make decisions on the exchange rate system. There are therefore good reasons for allowing this part of the provision to remain unchanged.

Administrative issues

In addition to the aforesaid issues, the Governing Council at present has the right of decision in regard to certain administrative issues. The issues that are referred to are mainly the order of work, deciding the Riksbank's organisation and making certain appointments. Moreover, there is also executive responsibility for the Riksbank's internal audit, the Audit Department.

As regards the order of work for the Riksbank and other important issues relating to the Riksbank's organisation and forms of work, it can be argued that the Executive Board should independently decide how it wishes the Bank's work to be organised. On the other hand, it can be considered that the Governing Council's role as a control organ also includes approving the main outlines of the Bank's organisation, including the overall rules laid down in the order of work, as proposed by the Executive Board. The latter solution can hardly affect the independence of the Executive Board in ESCB-related matters. No solution would seem to be incompatible with usual practice in central government agencies. In striking a balance of advantages and disadvantages with these solutions, the Government, in accordance with the working committee, has opted for recommending that the Governing Council should retain overall responsibility for the Riksbank's organisation. This is satisfied by the Governing Council deciding on the order of work.

There are, however, strong reasons for the Executive Board having the right to decide on the details of the organisation, and the persons that should be employed in leading functions. The Government therefore considers that the Executive Board should decide on more detailed instructions required for work at the Bank, and to appoint certain higher posts, as well as who in the Bank should make notification of holdings of securities pursuant to the second paragraph of section 38 of the Riksbank Act.

Taking into consideration, the Governing Council's function as a supervisory body, it would be appropriate for the management of the internal audit to remain with the Governing Council. It can per se be alleged that the internal audit is an important instrument in the hands of the executive management. The Government has nevertheless opted to recommend that responsibility for the internal audit be placed with the Governing Council as the Bank's supervisory body.

In the same way as applies in the case of the Auditors of the Riksdag, the internal audit is not to consider issues involving ESCB-related issues.

Notzjkation of securities, etc.

Members of the Governing Council and such personnel and persons appointed for specific assignments at the Riksbank as determined by the Riksbank pursuant to the second paragraph of section 38 of the Riksbank Act, shall submit a report of their holdings of financial instruments and of changes in such holdings. This obligation to notify originated in connection with the introduction of the Insider Act (1990:1342). The purpose of the liability to notify is primarily to check that the prohibition against trading in the Insider Act is complied with, and also to reinforce confidence in these officials and the Riksbank. According to the present arrangements at the Riksbank, notification shall be made to Head of the Legal Department. These notifications are also inspected by both deputy governors of the Riksbank.

Bearing in mind the position that the Riksbank and the Executive Board will obtain with this reform, it is important that there is great confidence for the members of the Executive Board and for the Chairman and Vice Chairman of the Governing Council. There is therefore reason to consider whether it is appropriate that these persons should only notify their holdings internally at the Riksbank. The Government considers that reasons of confidence argue in favour of another form of notification.

The obligation to notifl according to present conditions includes financial instruments meaning various types of securities etc, which are intended for trading on the securities market. Joint ownership rights and rights to liabilities such as simple promissory notes are not covered by the obligation to notify, however. In this context, this would seem to be a restriction which is not desirable. For example, the conditions for normal credit are directly affected by the future decisions made by the Executive Board. Accordingly, there are reasons to expand the obligation to notify to include other assets and liabilities as well.

The registration which now applies to members of parliament according to Act (1 996:8 10) on Registration of MP's Undertakings and

Financial Interests is an arrangement which better meets the demands which should be made. The purpose of this registration is to provide overall information on the MP's undertakings and financial interests to the extent that is motivated by a justified general interest. The purpose of the obligation-for the persons now under consideration is the same. However, there is reason to modify this arrangement slightly for the Riksbank.

The Government therefore recommends that the obligation to notify should apply as follows. To begin with, the obligation as at present to notify holdings of financial instruments should be retained. However, this notification should be made to another institution than the Riksbank. The notification now proposed should be mandatory and registered in a suitable way. Notified information should be public. This notification should include assets and liabilities and other financial interests which can affect confidence in the Riksbank.

Besides notification of financial instruments, there are, however, no reasons to demand that all assets and liabilities should be specified in detail, since such a liability extends further than what is required for the purpose of the notification to be considered as being met. This arrangement is also justified by considerations of personal integrity. It should therefore be sufficient that the liability to notify exists only when all specified assets and liabilities respectively together exceed a certain amount. The Government thinks that all assets and liabilities respectively exceed SEK 500.000 should be notified. Inter alia, for reasons of simplicity, smaller changes over this amount should not be notified. Notification should therefore only be required when the amount that exceeds SEK 500,000 changes by more than SEK 100,000. The aforesaid limitations do not apply for holdings of financial instruments. This is in accordance with the present situation.

According to the Government, notification according to these proposed arrangements should be made to the Riksdag which is the responsible authority for the Riksbank. Members of Parliament notify their information to the Riksdag's Secretariat of the Chamber. Another alternative would be for notification to be made to the Standing Committee on Finance which is directly responsible for the Riksbank. A third alternative would be the Parliamentary Auditors which are responsible for audit of the Riksbank. However, the Government see no reason to specify more closely in legislation which parliamentary body should receive the notification, regarding this as a matter which the Riksdag can solve itself.

The Governing Council of the Riksbank considers that the proposal requires further consideration with a view to avoiding a reporting system

that is administratively cumbersome. ~ ~ a i n s t this, it can be objected that the proposal announces a simplified notification process of certain economic circumstances which are detailed in law. Only a very restricted circle of persons are covered by the obligation to notify and the circumstances that must be notified are exclusively those where there is a justified interest that they are made public. The obligation to notify cannot therefore be regarded as being unreasonably burdensome for those subject to this notification.

Neither can it be anticipated that the proposal will be administratively burdensome for the Riksdag. It is probable that notifications will be received by the Riksdagen's Secretariat of the Chamber which at present is responsible for the voluntary notifications made by MPS. The Secretariat of the Chamber already has well-established routines for such notifications. For MPS, a computer-based register of notifications is maintained as well as an individual system of dossiers. The proposal now made will mean that the Riksdag will have a dossier system which will apply to an additional eight people, in addition to notifications fiom MPS. It is not proposed that it be made possible to set up a computer-based register such as that for notifications fiom MPS. The obligation to notify that is now proposed should not therefore not Iead to any considerable extra work for the Riksdag.

The Executive Board

The Government's proposals: The Executive Board shall consist of six members with a term of office of six years.

The Governing Council may sever a member of the Executive Board from his appointment only if he no longer meets the requirements made for him to be able to l l f i l his duties or if he has been guilty of serious misconduct. The Governor of the Riksbank may appeal to the European Court of Justice. Other members of the Executive Board may appeal to the Labour Court.

For a period of a year after a member of the Executive Board has ceased his employment, he may not carry out certain assignments or hold certain posts without the consent of the Governing Council. This waiting period does not apply to political appointments.

The proposal in the Memorandum is in accordance with the Government's proposal, except the question how members of the Executive Board shall appeal. The' Memorandum proposes that they,

except the Governor of the Riksbank, may appeal at the City Court of Stockholm.

The Governing Council of the Riksbank has no objection against the proposals concerning the Executive Board except the rule on waiting period for member who resign.

The Labour Court has no objection against beeing the first and final instance.

The City Court of Stockholm has asked a number of questions regarding the proposal giving, members of the Executive Board the possibility to appeal to the City Court of Stockholm.

Reasons for the Government's proposals:

The role of the Executive Board

At present, it is the Governor of the Bank alone who determines matters of business that are not decided upon by the Governing Council. This can be natural in a situation where all important decisions are made by the Governing Council. In a situation where the Governing Council's role is strictly limited, and responsibility for monetary policy and other ESCB- related issues (see Chapter 7.6 for a definition) transferred to the Executive Board, it would seem more appropriate to introduce a more collegial decision-making procedure in which the Governor of the Riksbank is primus inter pares (Chairman). This arrangement is applied, inter alia, by the Bank of Finland and Deutsche Bundesbank, and will also apply at the ECB.

The Government has above made recommendations on the items that should be decided by the Governing Council. Other matters at the Riksbank should be decided upon by the Executive Board. However, it should for practical reasons be possible for the Executive Board to delegate the right of decision in particular matters or groups of matters to particular officials at the Bank. This right to delegate should be stated explicitly in legislation.

The number of members

One question is how big the Executive Board should be. It can be discussed whether an Executive Board consisting of a Governor and two Deputy Governors is to be regarded as sufficient. In the light of the fact that the Executive Board is to manage the Riksbank and be responsible for the major part of the tasks that previously rested on the Governing

Council, there is, according to the working committee, reason to consider an Executive Board that consists of more members.

With the intention of giving the Executive Board the requisite competence without making it unnecessarily large, the working committee recommends that the Executive Board should consist of six members. The Government find that size of the Executive Board suitable. The detailed distribution of work among its members should be decided upon by the Executive Board in the light of the members' knowledge and experience.

One of the members of the Executive Board is to be Chairman of and also Governor of the Riksbank. In addition, the Governing Council shall decide that at least one of the other members shall be Vice Chairman and Deputy Governor of the Riksbank. Should two or more Vice ChairmedDeputy Governors of the Riksbank be appointed, the Governing Council shall decide on their mutual order in the event of the ChairmanlGovernor of the Riksbank being indisposed.

It must be considered as unsuitable to restrict the Governing Council's choice of Executive Board by too narrow criteria The working committee therefore makes no recommendations as to special criteria for the members of the Executive Board, nor for the Governor of the Riksbank, but assumes that the Governing Council in its decisions will ensure that appropriate competence is represented in the Executive Board.

The terms of ofice for members of the Executive Board

The term of office for the Governor of the Riksbank is at present five years, which complies with the Treaty's requirements on a minimum period of office. The Deputy Governors of the Riksbank also have a term of office of five years. With an Executive Board of six members, the term of office should be extended to six years for practical reasons.

With the end of ensuring continuity in the Executive Board, the Executive Board should be renewed successively at regular intervals. It may therefore be suitable for a member of the Executive Board to be elected each year. On the first occasion of election, the Governing Council shall establish which of Board members are to be elected for one, two, three, four, five and six years. The working committee has considered whether the possibility of re-election should be restricted but has not found any bearing reasons for such an arrangement. Nor the Government has found any reasons for such an arrangement. The possibility of a second term of office does not of course entail any guarantee of re-election but that the Governing Council shall at each time

of appointment freely examine whether the Board member is to be re- elected.

Issues relating to disqualification

The strict rules on disqualification that apply to the Governor of the Riksbank shall apply to other members of the body that make decisions in ESCB-related issues. These rules on disqualification mean that the possibility of having other subsidiary assignments is very limited. This is a strong argument for membership of the Executive Board being a full- time employment.

However, the members of the Executive Board should be able to take on assignments that, so to speak, go with appointment to the Executive Board, such as within ESCB, IMF, G10 and BIS. In addition, Board members should be able to hold other appointments which do not entail any conflict of interest, for example, teaching appointments or voluntary, non-political activities. The Board member should notify such assignments which are not directly related to the appointment to the Governing Council.

The waitingperiod

Through their position, members of the Executive Board acquire knowledge about issues which are of exceptionally great importance for certain activities especially in the business sector, for instance the banking sector. When a member leaves his appointment, he possesses a knowledge which, if it was made use of, could be damaging to the Riksbank. The working committee has therefore found it appropriate, in accordance with practice in other countries, for example, France, to introduce a provision that a member of the Executive Board may not begin an assignment or take up a post within a certain period after completing service at the Riksbank. Even if direct knowledge of the Riksbank's monetary policy intentions becomes obsolete relatively quickly, it may be considered as generally objectionable if a member of the Riksbank's Executive Board can immediately go over to a leading position in another activity.

The Governing Council of the Riksbank has in its referral comment stated that consideration should be given to whether the provision in Chapter 1, section 6 , of the Secrecy Act, on the prohibition to reveal or use secret information on which knowledge has been obtained through employment or an assignment by an agency, can be considered as being sufficient. If the proposal is maintained, the Governing Council considers

that a legal possibility should be made available for the Governing . Council to decide on a waiting period which is considerably shorter than a year.

The Government concurs with the reasons put forward by the working committee for introducing a waiting period. The provisions of the Secrecy Act cannot be regarded as being sufficient for creating the required confidence on the part of the general public. The Government therefore proposes, as the working committee did, that members of the Executive Board shall for a period of at most a year refrain from holding appointments where their knowledge could be misused. To avoid an altogether too rigid provision, it should be possible for the Governing Council should be able to shorten this period. It is not appropriate to regulate by legislation how much the period should be shortened but it must be decided on a case-by-case basis. The Government considers that the Governing Council, taking into account above all the nature of the new assignment, should be very well able to decide how long the qualifling period should be so as not to risk knowledge obtained in the period as a member of the Executive Board being abused. Political appointments such as a member of parliament, ministers or employees at central offices of political parties are exempt from this waiting period. This should also apply for employment at the Government Office.

The Executive Board's meetings and delegation

It is appropriate that the Executive Board itself should decide upon the frequency of its meetings. The Executive Board should be quorate when at least half of its members are present. Minutes should be taken at its meetings.

The Executive Board can - in addition to what follows from the work order decided upon by the Governing Council - decide that particular issues or types of issues may be decided upon in another order, for example, by the Governor of the Riksbank or another office holder.

If, however, Sweden participates in the currency union, the right of decision in ESCB-related issues will pass to the ECB where the Governor of the Riksbank will participate as one of the members of the decision- making body. The tasks of the Executive Board will then be to administer the Riksbank within the framework of the policy decided upon by the ECB.

Removalfiom ocffice of a member of the Executive Board

The Government considers that the Governing Council shall be able to sever a member from the Executive Board from his appointment only if he no longer meets the requirements made upon him to be able to carry out his duties or if he has been guilty of serious misconduct. The concept serious misconduct which can lead to dismissal may not be interpreted as the carrying-out of a monetary and exchange rate policy unsatisfactory to Governing Council since this would infringe the requirement for an independent central bank.

According to Article 14 of the Statute of the ECBS, a decision on relieving the Governor of the Riksbank from office, can be appealed against to the European Court of Justice. According to the EMI's convergence report in November 1996, a similar protection should apply to all monetary policy decision-makers, i.e. the other members of the Executive Board. The possibility of appeal to the European Court of Justice is according to the statute, however, restricted to the Governor of the central bank. A protection against improper dismissal of other members of the Executive Board should therefore be attained by making it possible to appeal against such decisions to Swedish court. In the Ministry Memorandum it is proposed that the members of the Executive Board should appeal to the City Court of Stockholm.

The City Court of Stockholm has questioned the choice of court. The Labour Court has no objection against beeing the first and final instance.

The Labour Court is the most experienced court when it comes to these matters. The Labour Court can also, according to Article 177 of the EC Treaty request the European Court of Justice to give a ruling. In the view of the Government it is more appropriate that members of the Executive Board can appeal at the Labour Court. The Labour Court will be the first and final instance. As for the appeal by the Governor of the Riksbank to the European Court of Justice, appeal from other Board members should be submitted within two months of notification of the decision to the member who has been dismissed from his employment.

A decision to relieve a member of the Executive Board from his office, whether this applies to the Governor of the Riksbank or another member, is an exceptionally serious decision. If this takes place due to serious dereliction of duty or criminality, the action should be clearly proven. However, a certain period of investigation may be necessary. At the same time, it may in certain situations be directly unsuitable that the person in question remains in his appointment during the period of investigation. One way of meeting this situation would be to introduce a possibility to suspend a Board member in this situation. However, the Government has not found any reasons for a formal arrangement of this kind. It should be satisfactory, in such an unusual situation, to allow the person in question

to continue his employment with other duties during the period of investigation.

7.9 The prohibition against instruction

The Government's proposal: The prohibition for agencies to determine how the Riksbank should decide in matters concerning

, monetary policy should be included in the Constitution. A corresponding provision that a member of the Executive Board may not seek or take instructions when he carries out monetary policy tasks is to be included in the Riksbank Act. The Riksbank's decision concerning the application of the exchange rate system is of considerable importance for the Riksbank's possibility to achieve the objective of stable prices and with that the monetary policy and shall therefore be covered by the prohibition against taking instructions.


The Governing Council of the Riksbank support the proposals. The Riksbank Commission and the recommendations in the

Memorandum by the Under-Secretaries for legal affairs are in substantial agreement with the recommendations of the Government.

The referral bodies approve the recommendations with the exception of the Law Faculty Board at Stockholm University, which has pointed out that EC law has a direct effect on and precedence over national rules, so that adaptation of Swedish law is not necessary, and the Scania and Blekinge Court of Appeal which has drawn to attention that Chapter 11, Article 7, of the Constitution contains a general prohibition against any public authority, including the Government, the Riksdag or the decision- making body of a local government determining how an administrative authority shall decide in a particular case, for example on the application of the law. The Court of Appeal points out that the Riksbank is an executive authority and its actions in the field of foreign exchange and monetary policies must be assumed to be guided by the law. The proposal for 'a prohibition against instruction would therefore seem to be unnecessary in the view of the Court of Appeal.

The reasons for the Government's proposal: From Article 107 of the EC Treaty, it follows that the Riksbank may not seek or take instructions fiom the Government or any other organ. The actual article has the following wording:

"When exercising the powers and canying out the tasks and duties conferred upon them by this Treaty and the Statute of the ESCB, neither the ECB, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Community institutions or bodies, from any government of a Member State or fiom any other body. The Community institutions and bodies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision- making bodies of the ECB or of the national central banks in the performance of their tasks."

There is no explicit prohibition against instruction in the present legislation on the Riksdag. It may per se be open to discussion whether a legal prohibition is necessary. At the same time, it can be noted that, according to the preliminary legal materials of the current legislation, it would seem to be possible to influence the Riksbank's credit and monetary policy (Government Bill 1973:90 p.354). The working committee considers that there should be an explicit legal prohibition against instruction for reasons of clarity. The Government support that assessment.

In Sweden the formal possibilities for the Government to influence the Riksdag are restricted since the Riksbank is an agency under the Riksdag. According to section 42 of the Riksbank Act, the Minister appointed by the Government should be consulted prior to the Riksbank making a major monetary policy decision. This co-ordination procedure will be discussed in more detail in Chapter 7.10.

What does the prohibition against instruction entail?

There are good grounds for assuming that the EC Treaty's provisions on prohibition against instruction shall not be interpreted as meaning that it rules out a dialogue on economic policy between the Government, the Riksdag or the Riksbank and other external bodies or persons. Instead the provision aims at giving the monetary policy decision-makers such integrity that they independently and without external pressure can make monetary policy decisions.

The prohibition against instruction includes any monetary policy decisions. It naturally includes decisions on instrumental interest rate changes but also the de tds of the statutory goal for monetary policy and the choice of monetary policy strategy which is to take place within the framework of the Government's decision on the exchange rate regime. The latter refers for example to the choice between direct inflation goals

or intermediary goals (for example, control of the quantity of money) for monetary policy. Also the Riksbank's right of decision on central rates of exchange and band width are of great importance for the Riksbank's possibility to achieve the objective of stable prices and with that the monetary policy. These decisions are thus covered by the prohibition against instruction. Also tasks outside the area of monetary policy which according to the Treaty fall to the ESCB are covered by the prohibition, since the Riksbank will be a part of ESCB. These ESCB-related tasks are shown in Chapter 7.6.

How should the prohibition against instruction be regulated?

The prohibition against instruction includes as mentioned above a large number of tasks which are carried out by the Riksbank or more exactly the Executive Board. The Riksbank is an agency under the Riksdag and its duties are outlined in legislation. If the Riksdag wishes to change the Riksbank's tasks, a legal form is thus required.

By the requirement for legal form, it is possible for the ECB to put forward its points of view on the legal proposals that may contain impermissible instructions. This has its basis in it being incumbent on every Member State according to Article 105.4 of the EC Treaty to obtain the ECB's points of view on proposals for legal rules in the ECB's area of authority.

In Chapter 11, Articles 2 and 7, of the Constitution, the courts and executive agencies have been ensured protection against instructions from the Riksdag and public authorities, including the Government, with respect to the application of rules of law and the exercise of authority in relation to the individual and the application of law. These provisions bring to mind the provisions of the Treaty regarding the prohibition against instruction for the national central banks, and aim at guaranteeing independence in the application of the rules of law. A similar independence shall be ensured to the Riksbank with respect to its exercise of monetary policy. An explicit provision that aims at guaranteeing the Riksbank independence in relation to the Riksdag and the Government should therefore be incorporated in the Constitution in the same way.

However, the prohibition against instruction in the EC Treaty is not only directed at those giving instructions but also means that members of the Riksbank's decision-making bodies with regard to monetary policy, according to the proposal of the Executive Board, may neither request nor take instructions. In the event that an instruction reaches a member of the Executive Board of the Riksbank, this provision aims at preventing him fiom complying with the instruction. The provision shall also hinder

Board members from actively seeking instructions. This part of the instruction prohibition, which does not regulate the internal distribution of power between agencies, should be included in the Riksbank Act, where the other provisions on the Executive Board and its responsibilities are collected. If a member of the Executive Board violates the prohibition against instruction, it should be deemed to be such a serious dereliction of duty that it constitutes grounds for dismissal.

Openness and insight

The Government's proposal: In order to guarantee insight into and control of the Riksbank's activities in the sphere of monetary policy, the Bank shall inform the Government of all important monetary policy decisions. Furthermore, the Chairman and the Vice Chairman of the Riksbank Governing Council shall have the right to attend the meetings of the Executive Board but without the right to make proposals or vote. The Riksbank shall produce a report on the monetary and exchange rate policies pursued at least twice a year.

The Ministral Memorandum proposal is in accordance with the Governmental proposal.

The Governing Council of the Riksbank support the proposals. The Council considers that the Executive Boards voluntary should be able to make it's minutes public and that the matter should be discussed again.

Reasons for the Government's proposals

The need for openness and insight

An independent central bank cannot act in a political vacuum. It is important that monetary policy has a democratic basis. Since delegation of responsibility for monetary policy to an independent Riksbank is based on a Riksdag decision, the Riksdag is able to recall the decision on delegation of responsibility for monetary policy. Without control and evaluation of the activity, there may arise situations when the Riksdag would regard recall of the delegation as the only solution. A change of the institutional framework of monetary policy may create expectations of a change in the direction of monetary policy. It is therefore important to give the Riksdag a possibility of controlling the activity within the framework of the institutional form in order to avoid drastic measures. The possibility for the Riksdag to evaluate the Riksbank's activities in a

meaningful way assumes that a clear objective has been set for monetary policy.

It can per se be argued that the Riksbank has a democratic basis when the Riksdag has established an objective for its activity and decided upon the institutional framework for its independence. In order to create guarantees that the Riksbank will abide by the objective set, there may be reason to introduce possibilities of sanctions which can be imposed without changing the institutional framework for monetary policy. In the final analysis, such a sanction would entail that those responsible for the shape of monetary policy would be removed from office if the Riksbank deviates from the set objective. In order for such consideration to take place without arbitrariness, the effects of monetary policy on price stability must be isolated. Those responsible for monetary policy should not be held to account for deviations caused by disturbances outside their control. In applied economic policy in general, it is, however, difficult even retrospectively to establish whether a particular decision has been correct or not. There could therefore arise a risk that the general public would conceive of such an examination as being based on political considerations, whereupon its independence could be called into question with a negative impact on credibility and the price stability objective as a result. It may therefore be problematic to incorporate strong sanction possibilities in an institutional framework for an independent central bank unless the criteria for assessment have been set very clearly.

The EC Treaty moreover entails limits as to the extent to which removal from office can be applied. In principle, it is only possible to dismiss a monetary policy decision-maker if he or she no longer complies with the requirements made on the person with respect to being able to carry out his or her duties, for example, a long period of illness, or being guilty of crimes or gross dereliction of duty.

However, control and evaluation of the activities of the Riksbank can be achieved without the ultimate sanction needing to be available. The working committee therefore proposes in the following a number of measures to ensure public supervision of the Riksbank's activity.

InformationJi.~ the Riksbank to the Government

According to the present section 42 of the Riksbank Act, the Riksbank shall consult with the minister appointed by the Government before making decisions of major importance. The purpose of the existing provision on consultation may be assumed to be to ensure that the Government has insight into, and also a certain possibility of influencing the decisions of the Riksbank in monetary policy issues (see the report

The Riksbank and the National Debt Office, SOU 1986:22 p.98). The main rule is that consultation shall take place and that the Riksbank may refrain from this consultation only if there are exceptional reasons for so doing. Even this wording aims at indicating the importance that consultation takes place.

As stated in Chapter 7.9, it may be assumed on good grounds that the prohibition against instruction, shall not be interpreted in such a way as to exclude a dialogue between the Riksbank and, for example, the Government. The decisive issue is whether a national body has any form of formal mechanism, which ensures that its view affects the final decision. An explicit statutory duty for a central bank to consult a political body should constitute such a mechanism and would therefore be incompatible with the EC Treaty and the Statute of the ESCB. The Swedish provision on consultation that is obligatory in principle between the Riksdag and the Government before decisions of major monetary policy importance, ought therefore need to be adjusted in order not to conflict with the prohibition against instruction in the Treaty.

Even if consultation cannot take place, it is of great weight that the Government in as good time as possible is informed of the more important monetary policy decisions. In the view of the working committee, a formal arrangement for exchange of information should therefore be established.

The alternatives which are closest at hand are either to change the provisions on consultation so that they are adapted to the prohibition against instruction or to give the Minister of Finance, for instance, the right to be present at the meetings of the Executive Board, although without voting rights. The right of presence of the Minister of Finance exists, inter alia, in Germany and Spain. A similar construction is included also in Article 109b of the EC Treaty which allows the Chairman of the Council and a member of the Commission to attend the ECB Council's meeting without the right to vote.

Such a right of attendance does not tally, however, with Swedish constitutional and legal traditions, especially as the Riksbank is an authority under the Riksdag. The working committee therefore considers that the most appropriate is to take the existing provision on consultation as a basis and amend it so as not to conflict with the prohibition against instruction.

The working committee therefore recommends that the Riksbank shall inform the Government before all important monetary policy decisions. The Government finds the working committee proposal suitable.

The Riksbank's right of decision as regards the application of exchange rate policy includes for instance the decision on the central parity rate and

the band width. These decisions have a major importance for monetary policy, inter alia, for the choice of monetary policy strategy, and should therefore be subject to the requirement for the duty of information.

This information should, as previously, be given under flexible forms, for example, by telephone calls with the Minister of Finance. By this consisting of one-way information, the Riksbank is not obliged to take into consideration the points of view of the Government. Through this construction, the contacts between the Government and the Riksbank are adapted in matters relating to monetary policy decisions to the prohibition against instruction at the same time as the independence of the Executive Board in relation to the Government is safeguarded.

The right of attendance for the Governing CounciI at meetings of the Executive Board

The working committee considers that it is of value that the Riksbank's activities are characterised by the greatest possible openness and insight. The Chairman and Vice Chairman of the Riksbank should therefore be given the right of attendance and speaking at the meetings of the Executive Board. However, they shall not have the right to make proposals or to vote. The purpose of this recommendation is primarily to give the Governing Council the possibility to follow the discussions on the Executive Board and in that way to gain a greater insight into how monetary policy is carried out. The disqualification rules proposed for the Executive Board, see section 7.7, should be sufficient to avoid conflicts of interest. The representatives of the Governing Council who are present at the meeting of the Executive Board should in addition be covered by the secrecy rules that apply to the Executive Board. A right to attend in the form now proposed should be compatible with the EC treaty.

Written reports and public question sessions

The best way to achieve increased openness is of course to have full insight into the Riksbank. However, the Riksbank carries out such activity that full insight could damage Sweden's interests and this is therefore not possible. However, the Riksbank can be instructed to inform the general public about its activities.

The working committee finds a provision should be included in the Riksbank Act that the Executive Board at least twice a year should produce a written report to the Parliament on monetary policy. In this way, Parliament, which is the responsible authority for the Riksbank, and

the general public can be provided with general information on monetary policy activities. The Government supports this solution.

This report should be public to serve as the object for discussion in broader circles and should be have a content similar to the present inflation reports. However, its content and design should not be regulated in detail. In all probability, needs change over time. Above all, a change of monetary policy strategy can entail radically different requirements on the content compared with the existing design.

It is important that the management of the Riksbank are able to inform the Riksdag and the Governing Council regularly on the policies carried out. As the Riksbank is an authority subject to the Riksdag, it is natural that a request of the Governor of the Riksbank to inform the Riksdag about monetary policy should be heeded. The Governing Council of the Rikbank supports this opinion. In addition, the Finance Committee, as is already the case at present, can summon the Governor of the Riksbank or another representative of the management for discussions and exchange of information. Such information can take the form of public hearings.

These reports, exchanges of information and hearings should provide a good basis for a public debate on the Riksbank's activities and thus contribute to good insight into how the Riksbank carries out monetary policy.

Publication of the Executive Board's minutes

To further increase insight in the Riksbank's activity, the minutes of the Executive Board could be published some time after its meetings. This is a solution which exists, inter alia, in the United Kingdom.

The Executive Board shall according to the division of work proposed, be responsible for monetary policy. According to Chapter 3, section 1, of the Secrecy Act (1980:100), the tasks of the Riksbank for monetary policy can be covered by secrecy. An obligation for the Executive Board to publish everything relating to monetary policy also entails that secret information must be made public. Publishing secret information on monetary policy would conflict with Chapter 3, section 1, of the Secrecy Act.

An obligation to make public the minutes of the Executive Board would also conflict with the provision in Chapter 2, section 1, of the Secrecy Act on foreign secrecy. According to this provision, secrecy applies to information concerning another state or an international organisation if it can be assumed that it would disturb Sweden's international links if the information was revealed.

On the other hand, it would seem to be the case that if the information in the minutes is not secret according to the Secrecy Act, then it must be provided in accordance with the principle on open access to information. This entails that as soon as minutes have become a public document that they must be given to the person who makes a request for the document (cf Chapter 2, sections 7, 12 and 13, of the Freedom of the Press Act).

To introduce an obligation for the Executive Board to make its minutes public entails that a quite new order is created which is a clear departure from the principles on which the Secrecy Act is based. The working committee has not found any substantial reason to introduce such changes in the Secrecy Act and therefore has not made any proposals in this area. The Government shares this assessment. This conclusion need not exclude a proposal being put forward on a later occasion.

The Governing Council of the Riksbank considers that the Executive Board voluntarily should be able to make it's minutes public and that the matter should be discussed again. The Government welcomes such an initiative from the Riksbank and can find no objections to such an activity, unless the matter is examined according to the Secrecy Act.

Note issue

Assessment by the Government: The provision on the issue of notes in Chapter 9, Article 13, of the Constitution should in the case of a Swedish participation in the Monetary union, be adapted to the actual conditions. There is no reason to change the provision at this moment. A proposal on an amendment to the Constitution should therefore be submitted to Parliament in connection with a Swedish participation in the Monetary union.

The Ministerial Memorandum recommendation is in accordance with the Government's assessment.

The Governing Council of the Riksbank has no objection against the recommendation in the Memorandum.

The recommendation by the Under-Secretaries for Legal Affairs: Even if it were possible from the point of view of EC law to refrain from making constitutional amendments, the provision in Chapter 9, Article 13, of the Constitution should be changed to avoid it, in the event of a Swedish participation in the Monetary union , giving a misleading picture as regards, inter alia, the ECB's sole right to allow issue of bank notes.

The referral bodies: The majority of the referral bodies have approved the recommendation of the Under-Secretaries for Legal Affairs.

The Law Faculty at Stockholm University and the Law Faculty at Lund University have claimed that the Riksbank as the national central bank will participate in the ECB's note issue and retain the Swedish national responsibility for note issue. It is therefore not necessary to amend Chapter 9, Article 13, of the Constitution in the event of Swedish participation in the Monetary union . The Governing Council of the Riksbank considers that the matter should rest until there is full clarity on how the provision in the EC treaty on the right to issue notes is to be applied. The Federation of Swedish Industries has put forward the view that the matter should wait until the Riksdag has taken a decision on Swedish participation in the Monetary union .

Reasons for the Government's assessment

EC law and note issue

According to Article 105a of the EC Treaty, the European Central Bank, the ECB, shall have the sole right to issue notes in the community. The ECB can delegate the issue of notes to the national central banks. Only notes issued by the ECB and the national central banks will be legal tender. Coins may, according to Article 105a.2 be issued by the national central banks to the extent approved by the ECB.

According to the provisions in the EC Treaty, the ECB's sole right to allow note issue according to Article 109k.3 shall not be applied to member states which do not participate in the Monetary union.

Decision-making competence

According to Article 2 of Sweden's Accession Treaty, the provisions of the basic treaties are binding on Sweden from the date of accession, and shall be applied on the conditions which these treaties and the act of accession specifies. Sweden has no exemptions or transitional provisions as regards the Economic and Monetary Union, EMU, but has in a declaration attached to the minutes of the negotiations, stated that "a final Swedish position relating to the transition from the second to the third stage will be taken in the light of future events and in accordance with the provisions of the Treaty". By the Act (1994:1500) concerning Sweden's Accession to the European Union (the Accession Act), Sweden has incorporated our own Accession Treaty and the basic treaties and the so- called secondary law that had been adopted by the EC prior to 1995 (section 2) and transferred the right of decision to the EC (section 3).

According to section 2 of the Accession Treaty, the Maastricht Treaty, inter alia, applies in this country with "the effects" that follow on from Sweden's Accession Treaty. According to section 3, the EC may make decisions which apply in this country "to the extent and with the effect" that follows from the various treaties.

Sweden has thus through the Accession Treaty accepted the provisions on the Monetary Union. These provisions have been incorporated into Swedish law and the decision-making competence handed over to the EC. The right to decide on note issue in Sweden will accordingly belong to the ECB in the event of a Swedish participation in the Monetary union.

Note issue in Sweden

The Government wish to point out that the proposals in this report to the Council on Legislation do not entail any taking of position as to whether Sweden shall take part in the monetary union.

Chapter 9, Article 13, of the Constitution lays down that only the Riksbank has the right to issue notes and coins. According to section 5 of the Riksbank Act, the Riksbank shall decide upon the design of the notes and coins issued by the bank. According to section 5 second paragraph, the notes and coins issued by the Riksbank are legal tender.

The constitutional rule on note issue is intended to safeguard the payment system and value of money by preventing others than the Riksbank from issuing Swedish notes. However, this provision would be misleading in the view of the Government in the event of Swedish participation in the Monetary union , taking into consideration that the ECB has the sole right to permit issue of notes and to decide on the form of the issue of coins and that the ECB and other central banks can issue notes in the Monetary union .

The Government considers therefore, like the Memorandum by the Under-Secretaries for Legal Affairs, that the provision on note issue in Chapter 9, Article 13, of the Constitution should be amended according to what applies. However, as stated in Chapter 7.2, there is no unconditional demand that an amendment to the Constitution come into force at the same time as Swedish entry into the Monetary union . However, a proposal for amendment to the Constitution should be submitted to Parliament in connection with a Swedish entry into the Monetary union .

Coming into force

The Government's proposal: The new Foreign Exchange Rate Policy Act and the changes to the law which the Government proposes are to come into force on 1 January 1999. The new Governing Council and Executive Board are, however, to be appointed in December 1998.

The Memorandum proposal is in accordance with the Government's proposals.

The Governing Council of the Riksbank has supported the proposal. Reasons for the Governments proposal: The Government proposes,

inter alia, changes in the Constitution and the Riksdag Act. According to Chapter 8, Article 15, of the Constitution, constitutional laws shall be adopted by means of two identically-worded decisions. The second decision may not be taken until a general election has been held following the first decision, and the newly-elected Riksdag has been convened. The Riksdag Act is adopted in the same way. In the latter case, a possibility is also provided for the Riksdag to make a single decision provided that at least three-quarters of those voting and more than one half of the Members of Parliament are in agreement.

The proposals concerning the Riksbank which the Government has put forward should come into force at the latest on 1 January 1999, when the Monetary union will start, regardless of whether Sweden participates or not. The next general elections to the Riksdag take place in autumn 1998. The second decision on the amendment to the Constitution and the Riksdag Act is to be taken when the newly-elected Riksdag has been convened. The newly-elected Riksdag shall accordingly elect members of the Governing Council of the Riksbank and the Governing Council shall in turn appoint the Executive Board in accordance with the new rules. In order for the new organisation to function on 1 January 1999, the Riksdag must appoint members to the new Governing Council in December 1998 and the new Governing Council in turn must appoint the Executive Board before the end of 1998. These matters can appropriately be regulated in the transitional provisions to the Riksbank Act.

Constitutional remarks

8.1 Proposed amendments to the Constitution

Chapter 9, Article l1

This provision is new and indicates that it is the Government that has responsibility for general exchange rate policies. The content of this provision is that the Government is, inter alia, responsible for agreements on the exchange rate system. In certain cases, the Riksdag's approval is- required, which follows on from Chapter 10, Article 2, of the Constitution, inter alia, international agreements which are of greater weight even if these entail exchange rate policy decisions. When it otherwise concerns the distribution of responsibility for exchange rate competence between the Government and the Riksbank, this is shown by the special act on foreign exchange rate policy and section 10 of the Riksbank Act.

Since this provision is intended to establish the division of responsibility between the Government and the Riksbank within an area which affects the Riksbank to a high extent, the provision has been introduced in the same chapter of the Constitution which otherwise lays down the Riksbank's area of responsibility.

Chapter 9, Article 12

First paragraph

As a consequence of the general responsibility for exchange rate policy decisions pursuant to Chapter 9, article 11, of the Constitution being placed with the Government, which will be evident fiom Chapter 7.4, the provision in the first paragraph of this article, making the Riksbank responsible for exchange rate policy, has been deleted. The word "credit policy" has been replaced by "monetary policy" since the term monetary policy after deregulation of the credit market and in accordance with international language use, is a more adequate expression than credit policy.

The task of the Riksbank is to promote a safe and efficient system of payment is now laid down in section 4 of the Riksbank Act.

The prohibition against instruction has been introduced as a link in the endeavour to strengthen the independence of the Riksbank and has been dealt with in more detail in Chapter 7.9. In the new first paragraph, it has accordingly been clarified that no agency may decide how the Riksbank should decide in matters concerning monetary policy. The Government is also an authority. That part of the prohibition against instruction which prohibits members of the Executive Board from seeking or taking instructions has been incorporated in section 4 1 a of the Riksbank Act.

Second paragraph

As is shown in Part 7.6, the executive management function at the Riksbank is carried out by an Executive Board while the Governing Council's tasks mainly consist of appointment of the Executive Board and supervision of the Riksbank and certain related tasks. These functions concerning the Riksbank have been considered as being of such importance that they should be covered by constitutional law. In the second paragraph, it is therefore provided for that the Riksbank shall have eleven members of the Governing Council and that its activities are led by an Executive Board. The Governing Council is elected as in the current procedure by the Riksdag, while the Executive Board is appointed by the Governing Council. It is clear from the Riksdag Act that the period of office for the Governing Council, as at present, is the same as the Riksdag's period of office, i.e four years.

Third paragraph

As is the case today, it is the Riksdag that grants the Governing Council discharge from liability, but this task has also been extended to cover the Executive Board. In the new third paragraph, it is stated that if the Riksdag refuses to grant a member of the Governing Council or Executive Board discharge from liability, he is thereby severed from his appointment or his employment. The cases in which discharge from liability is denied are shown in section 49 of the Riksbank Act.

In the same paragraph, it is stated that the Governing Council may sever a member of the Executive Board from his appointment only if he no longer fulfils the demands that are made upon him to carry out his responsibilities or that he is guilty of serious dereliction of duty. This provision underlines the independent position of the Governor of the Riksbank and other members of the Executive Board. It shall not be possible to remove someone from their post due to the content of the policies carried out.

One ground for dismissing a member of the Executive Board is that he or she no longer conlplies with the requirements placed on the person for them to carry out their responsibilities. In addition to the criteria of eligibility for election listed in section 33a, of the Riksbank Act, it is conceivable that a member of the Board may be unable to carry out his duties because of illness. It shall then be a matter of an illness which is expected to last for a long time.

The other ground for dismissing a member of the Executive Board from his responsibilities, is that the person in question is guilty of serious dereliction of duty. This may be a matter of the person in question having been guilty of grossly neglecting their tasks as a Board Member, for instance by seeking or taking instructions, by being guilty of criminal conduct, either related to the Riksbank or through other crirninality of a serious nature, which can lead to reduced confidence in the Riksbank. It should also be possible to dismiss a member who is under suspicion of such a crime.

Fourth paragraph

In the new fourth paragraph, a reference is made to legislation. Provisions on the elections of Board Members and the appointment of the Chairman and Deputy Chairman of the Governing Council are contained in section 31 of the Riksbank Act. The provisions on disqualification for these persons are contained in section 33 of the Riksbank Act. The provisions on the composition of the Executive Board are contained in section 32 of the Riksbank Act, and the provisions on disqualification provisions in section 33a of the Riksbank Act. The provisions on the Riksbank's operations are contained in the Riksbank Act, and the new Act on Foreign Exchange Rate Policy.

Proposed amendments to the Riksdag Act

Chapter 3, section 8

In a new fourth paragraph, the Executive Board is given the possibility of making representations to the Riksdag. The motivation for this has been given in Chapter 7.7.


The second paragraph, which includes provisions on the appointment of the Deputy Governors and states that these are to be deputies for the Governor of the Riksbank in the Governing Council in the mutual order decided upon by the Governing Council, has been deleted since the Governor of the Riksbank is no longer a member of the Governing Council. It is sufficient that it is clear in the Riksbank Act that it is the Governing Council that appoints the members of the Executive Board, including the Governor and Deputy Governors of the Riksbank. This issue therefore does not need to be included in the Riksdag Act.


This section contains provisions on prosecution against certain office- holders. The first sentence of the first paragraph has been changed so that it is the Finance Committee that is also to decide on prosecution of members of the Executive Board of the Riksbank. From this follows that the Riksdag has the responsibility for both the prosecution of a member of the Executive Board and the decision to grant a member discharge of liability. The present second paragraph contains a possibility for the Riksdag to decide whether this prosecution rule shall not applied for offences which have been committed in the handling of an issue concerning the import or export of currency. Since the Governing Council shall no longer handle such procedures, the second paragraph has been amended, so that it now relates to the Executive Board. Furthermore, the supplementary provision, 9.8.1, has been deleted.

8.3 Proposal on an Foreign Exchange Policy Act

Section 1

This section draws attention to the fact that, according to the Constitution, it is the Government which is responsible for general exchange rate policy issues. Section 2 explains the meaning of this in detail.

Section 2 ,

Here it is stated that it is the Government that decides on the exchange rate system, i.e. whether Sweden is to have a fixed or floating exchange

rate, and the system that is to be used to set the value of the krona in relation to foreign currencies. The Riksbank has accordingly no longer the right to conclude agreements with other central banks on exchange rate systems. The Riksbank's tasks and authorities are shown in the Riksbank Act.

Section 3

This provision makes it possible for the Riksbank to request the Government to make a decision on the exchange rate system. This aims at making it possible for the Riksbank to bring to the Government's attention that the existing exchange rate system is not functioning and to propose changes in this system or request the Government to make a decision on a new exchange rate system.

Section 4

In order for the Government to make a decision on an exchange rate system, it is required that the decision is preceded by consultation with the Riksbank. The Government's obligation to consult aims to the greatest possible extent to satisfy the need of information that exists for both the Riksbank and the Government before decisions are made on the exchange rate system.

Proposed amendments to the Sveriges Riksbank Act (1988: 1385)

Section 4

This provision has been changed as a consequence of the proposed division of competence as regards exchange rate policy. Furthermore, the term credit policy has been replaced by the term monetary policy (cf the comment to Chapter 9, Article 12, of the Constitution). The Riksbank's exchange rate policy tasks are shown in section 10.

In a new second paragraph, an objective for the Riksbank's activities has been introduced. This provision and its more exact content has been dealt with in Chapter 7.3.

The task of the Riksbank to promote a safe and efficient payment system retains in this section. No change of substance is envisaged with regard to this task, since it shall be carried out without the overall goal on maintaining price stability being set aside.

Section 10

This provision which in its present wording states that it is the Riksbank that determines the exchange rate system and the application thereof, has been given a new content. In the section, it is stated that the Riksbank is responsible for application of the exchange rate system, which the Government has decided upon pursuant to section 2 of the Foreign Exchange Rate Policy Act.

The word application has the same content as previously. According to the motivation (Government Bill 1986/87:143, p. 66), this word was selected with the idea of being able to cover tasks in different exchange rate system. The word application, for instance, includes determining the choice of the central rate and the band width, i.e. the permissible deviation around the selected rate in the event of some form of fixed exchange rate, and to determine the central parity rate and other conditions for another country's currency which takes part in a multilateral exchange rate arrangement. In the event of Swedish participation in ERM 2 or a similar system, a decision on participation should then be made by the Govemment while the setting of central rates and band widths should be the responsibility of the Riksbank. The fact that it is the Riksbank that decides on the application of the chosen exchange rate system also means that it is the Riksbank that will deal with the floating rate independently if a floating exchange is applied. Decisions on application of the exchange rate system are made by the Riksbank's Executive Board, which follows from the third paragraph of section 4 1 of the Riksbank Act.

The tasks and measures which the Riksbank is to undertake relating to the application of the exchange rate system are stated primarily in sections 1 1 - 1 6.

Section 20

For editorial reasons, the word credit policy has been replaced by monetary policy (cf the comment to Chapter 9, Article 12, of the Constitution).

Section 29

In this section which states that the Governing Council may make a presentation to the Riksdag or Government if a matter arises concerning a constitutional change or another measure on the part of the State, it has

been added that the Executive Board may also make such representations within its sphere of responsibility. In a new second paragraph, it is stated that the Governing Council and the Executive Board shall consult one another before making such a request, which shall be seen as a pure exchange of information. This consultation does not imply any restriction of the respective body's freedom of decision.

Section 31

The new composition of the Governing Council and its changed duties are shown in Chapter 7.7. In this section, it is underlined in the first paragraph that the Riksbank has a Governing Council with eleven members which are elected by the Riksdag, as is already-evident from Chapter 9, Article 12, of the Constitution. From the second paragraph, it follows that the Executive Board per se chooses the Chairman and Deputy Chairman.

Section 32

This section includes provisions on the Riksbank's Executive Board. In the first paragraph, it stated that the Riksbank's activities are led by an Executive Board consisting of six members and that these-are appointed by the Governing Council for a period of six years. The Governing Council is also to appoint one of its members to be Chairman of the Executive Board. This person shall also serve as Governor of the Riksbank. Furthermore, the Governing Council shall appoint at least one Vice Chairman of the Executive Board who shall also serve as Deputy Governor.

The second paragraph provides that if a member leaves his post ahead of time, a new member shall be elected for the remainder of the period of office. As is evident from Chapter 7.8, the members' period of office shall be staggered in order to obtain the requisite continuity in the management of the Riksbank. To achieve this, a transitional provision has been introduced relating to the first election after this act has come into effect.

From the third paragraph, it is clear that the Governing Council in the event of several Deputy Governors having been appointed, shall also decide the mutual order that these shall serve in the stead of the Governor in the event of the latter being indisposed.

Section 33

This section lays down the criteria for eligibility for election to the Governing Council of the Riksbank. In the first paragraph, it is stipulated that the Governing Council may not be a government minister, a member of the Executive Board, a board member or deputy member of the board of a bank, or any other company subject to inspection by the Financial Supervisory Board, or hold any assignment which makes him unsuitable for the appointment. Among the posts that are unsuitable for a member of the Governing Council are employment at the Riksbank. Neither may a member of the Council be a minor, a bankrupt, or have a trustee.

The third paragraph states when the Riksdag is to relieve a member of his responsibilities. There is no statutory obligation on a member of the Governing Council to inform the Riksdag on, for instance, when an assignment has been taken on.

Section 33a

This section contains the criteria for eligibility for election as a member of the Executive Board of the Riksbank. The rules are more stringent than for the Governing Council. According to the first paragraph, a member of the Executive Board may not be a Member of Parliament, a government minister, be employed at the Government Office, be employed at central level by a political party, be a member or deputy member of the board of a bank or another company, which is subject to supervision by the Financial Supervisory Board, or hold any post or assignment which makes him unsuitable for the employment.

Furthermore, a member of the Executive Board may not be a minor, be bankrupt, or have a trustee pursuant to Chapter 11, section 7, of the Code relating to Parents, Guardians and Children.

he third paragraph states that a member of the Executive Board who takes such employment or assignment which may conflict with the provisions in the first paragraph shall notify this to the Governing Council. If the Governing Council find that the member has taken up such employment or taken on such an assignment as to make him unsuitable as a member of the Executive Board, the member shall either resign from his employment as a member of the Board or resign from the other employment or assignment. In other cases, he is considered as no longer meeting the requirements posed for the employment as a member of the Executive Board and can then be removed from his employment pursuant to section 33b.

The fourth paragraph states that a member of the Executive Board after a completed assignment may not have a particular employment or assignment for a period of a year after termination of service on the Board without the permission of the Governing Council. The motive for this is stated in Chapter 7.8. This waiting period is not intended to entail a general prohibition against engaging in business activities, but is rather only to be applied in the case of employment or assignments which, in the view of the Governing Council are unsuitable and for a period of at most a year. The wording of the provision permits the Governing Council to decide on a shorter waiting period than a year. Exempted from the waiting period are political appointments and employment at the Government Office.

Section 33b

This section is new, and refers as regards the right of the Governing Council to sever a member of the Executive Board fiom his appointment, to Chapter 9, Article 12, of the Constitution.

The second paragraph contains provisions on appeal against the decision of the Governing Council to sever a member of the Executive Board from his appointment. According to Article 14.2 of the Statute of the ESCB, a central bank governor has the right to appeal against a decision to dismiss him to the European Court of Justice within two months of notification or service of the decision. For rule of law considerations, a provision has been introduced that the time for appeal shall run from service of the decision.

Appeal to the European Court of Justice is restricted to the Governor of the Central Bank, but there should be a corresponding protection for other members of the Executive Board. It has therefore been made possible for these persons to within the same period of time bring up.a case at the Labour Court, which then has the possibility of requesting a statement from the European Court of Justice, according to Article 177 of the EC Treaty.

According to the third paragraph the Labour Court may declare a decision on removal from employment invalid.

In the fourth paragraph, it is sfated that if an appeal has not been made within the time prescribed the party has lost the right to appeal.

Section 34

This provision states for the sake of clarity that the Executive Board shall also have its seat in StockhoIm.

Section 35

According to the first paragraph, the Riksbank shall decide which Departments are to be established, which means that it is the Executive Board and not the Governing Council that makes these decisions.

In the second paragraph, it is stated, according to what has been presented in Chapter 7.7, that the activities of the Auditing Department shall be supervised by the Governing Council.

In the third paragraph, only the language has been changed.

Section 38

In the first paragraph, it is stated that the Governing Council decides on its work order. The motivation for this has been discussed in Chapter 7.7.

The changes in the second paragraph entail that the Chairman and the Deputy Chairman of the Governing Council and the members of the Executive Board shall not notify holdings of financial instruments to the Riksbank. The holders of these positions shall instead notify their holdings to the Riksdag (see section 39a).

Section 39

A new second paragraph states that it is the Governing Council that determines the salaries and other benefits of the members of the Executive Board.

Section 39a

This is a new section. This provision includes an obligation for the Chairman and Deputy Chairman of the Governing Council, and the members of the Executive Board, to notify their financial circumstances to the Riksdag. This information will be public.

The first paragraph means that the postholders now mentioned will in future notify their financial instruments to the Riksdag. There is no change in substance in this part.

Furthermore, the obligation to notify is expanded for these persons to include other financial circumstances as well their holdings of financial instruments. This assessment is to take place on the basis of market value. It should normally be possible to accept the value which, before deductions for tax purposes, has been taken up in the most recent tax declaration as the basis for assessment of the market value of non-market

listed participations in trading companies and other legal entities. If a business property has been acquired a short time before the obligation to notify, the purchase sum should normally be decisive unless there are special circumstances. Such a circumstance which ought to lead to a departure from the purchase sum is if it involves a transfer between closely-related persons and the purchase sum is less than the property's assessed tax value. In doubtful cases, a standard estimate of value should be made at 133 per cent of the tax assessment value. In valuation of benefits according to agreements with previous- employers, the assessment should be made on the basis of the discounted value of the benefit. In support of the calculation, it should be possible to take some guidance from Section 16 of the Act (1997:323) relating to State Wealth Tax. Credits and other liabilities should be taken up at the nominal amount. Addition to that the terms for credits and other liabilities should be notified. Accordingly there is an .obligation to notify changes in the terms of a credit. As an example on such change in terms on change fiom [rorlig-floating] to [fast-fixed] interest rate could be mentioned.

From the second paragraph, it follows that notification only needs to be made if the total value of the notifiable assets and benefits exceeds SEK 500,000. When making this estimate, an overall assessment of the person subject to notification's assets and liabilities shall be made. Holdings of financial instruments shall, however, be notified without limitation of time.

Furthermore, notification according to the third paragraph, shall be made every time a change takes place which means when the total value of assets or liabilities, is increased or .decreased by more than 100,000 kronor in relation to the threshold which most recently entailed the obligation to notify. For financial instruments, there is no such threshold. If a change entails that the SEK 500,000 threshold is no longer exceeded, then this means that there is no longer any obligation to notify.

According to the fourth paragraph, the main rule applies that notification shall be made when the assignment or employment begins. Thereafter, notification shall take place at the latest four weeks after the event that causes the obligation to notify. The same respite period applies for changes according to the third paragraph.

Section 40

As regards members of the Executive Board, only the Governing Council shall be able to decide upon dismissal from their appointment. Therefore, these members have been excluded in the first paragraph fiom the Staff Disciplinary Board's area of competence.

Section 41

In the first paragraph, there is a very detailed statement of which decisions according to the law shall be made by the Governing Council. In a new second paragraph, the right of the Governing Council is clarified to answer referrals within their sphere of responsibility. All other issues shall be decided by the Executive Board to the extent that the Executive Board does not decide to delegate certain issues to the Governor of the Riksbank, or another official according to the provisions made in the third paragraph.

Section 41a

This paragraph is new and takes up the part of the prohibition against instruction which relates to members of the Executive Board. The prohibition for agencies to instruct the Riksbank on monetary policy issues has been included in the Constitution for the reasons given in Chapter 7.9 (c.f. Chapter 9, section 12 of the Constitution). The purpose ef this provision is to clearly mark that the Riksbank's decision-makers are independent as regards forming monetary policy in accordance with the goals of the Riksbank's activities which are shown in law.

Section 42

Changes in this section have been made taking into consideration the proposed prohibition against instruction. As has been developed in more detail in Chapter 7.10, the reason for this adaptation is that there is a conflict between the prohibition to receive instructions and having consultations. By the consultations being changed to a one-way duty to provide information, the contacts between the Government and the Riksbank are changed so as not to conflict with the prohibition against instruction.

The decision regarding the application of the exchange rate system, such as changes in the central exchange rate or band width are of such importance that the Riksbank shall inform the Government in advance of these decisions.

Section 43

This section includes provisions on the meetings of the Executive Board and its quorum. Issues relating to the severance of a member of the

Executive Board fiom his appointment are, in the light of the strong and independent position the Board members are to have, of such dignity that it should be requirement that eight of the members of the Governing Council are agreed on such decisions. Other decisions are made by simple majority of the Council members present, the Chairman having a casting vote, according to the Adplinistration Act (1986:223).

Section 44

This section regulates the meetings of the Executive Board and its quorum.

The matter of the right of attendance for the Chairman of the Governing Council-and the Vice Chairman, which is taken up in the third paragraph, has been commented on in Chapter 7.10.

Section 45 '

This section has been amended only to the effect that it now also relates to the Executive Board's meetings.

Section 46

This section has been amended only to the effect that it now also relates to the Executive Board's communications to the Riksdag or the Government.

Section 47

Taking into consideration, the new management organisation, the budget shall be set by the Executive Board. The budget may not be set so that it makes impossible a fulfilment of the demands made on the Riksbank in its capacity of membership of the ESCB.

The budget shall as previously be submitted for information to the Finance Committee and the Riksdag's auditors, and now also to the Governing Council.

Section 48

A provision that the Executive Board shall report to the Riksdag's auditors has been introduced in this section which includes the provisions on the Riksbank's accounts. This amendment has been brought about by the Executive Board being responsible for the Riksbank's budget.

However, it is appropriate that the Governing Council as a supervisory body shall still make proposals on the appropriation of the Riksbank's profit.

Furthermore, the term credit policy has been replaced by the term monetary policy, which, after deregulation of the credit market, is a more adequate expression. Finally, the Riksbank has been made responsible for producing a report on how it promotes a safe and efficient payment system.

Section 49

The first paragraph regulates, inter alia, the allocation of the Riksbank's profits. Moreover, guidelines on this subject have been provided by the Riksdag (FiU 88/89:27).

The second paragraph states that it is the Riksdag that grants the Governing Council and the Executive Board discharge from liability. A provision has also been introduced which regulates the conditions under which discharge from liability may be refused. This covers cases where there is reason to make a claim against a board member for financial liability or in the case where the member has been guilty of criminal actions in connection with the assignment and should be prosecuted for this.

Section 50

In a new first paragraph, a provision has been introduced that the Riksbank at least twice a year shall submit a written report to the Riksdag on monetary policy. The motive for this has been stated in Chapter 7.10. In addition to the written report, it is natural that the Riksbank's management is available to provide its view on the Riksbank's policies in other ways.

Section 55

This section has been deleted. The provision on to decide on prosecution is in Chapter 9, Section 8 of the Riksdag Act.

Section 56

The decision of the Riksbank according to this Act may be appealed against only to the extent and in the order stated in the Act (1989:186) on Appeal against Administrative Decisions by the Riksdag's Ofice of

Administration and Services and agencies. Decisions by the Governing Council decision to dismiss a member of the Executive Board from his employment have been exempted from this appeal procedure. These are instead regulated in section 33 b.

Transitional provisions

In order that the Riksbank's present operational management is to be able to carry out its duties, it is stated that they shall be responsible for management of the Riksbank until the election of a Governing Council and Executive Board has taken place in accordance with the new regulations (cf Chapter 9, Article 12, of the Constitution).

The provision on the periods of office of the members have been commented on in connection with section 32 .

A transitional provision concerning the right to prosecute is not necessary. Section 55 has been deleted, which means that only the Finance Committee has the right to prosecute members of the Governing Council and the Executive Board.

Proposed amendments to the Act (1 992: 1602) relating to Foreign Exchange and Credit Regulation


In this paragraph, the Governing Council has been replaced by the Executive Board since the tasks in questions shall devolve on them in fbture.

Section 1

Proposed amendment to the Act (1989: 185) on Fees etc. for Commissions at the Riksdag, its Agencies and Bodies

As regards other Council Members and deputies, the words "who is not an official at the Bank" have been deleted since the Council Member according to the criteria for being eligible for election shall not be an employee of the Bank.

Section 2

This section has been changed only to the effect that the provisions on the Governor and Deputy Governor of the Riksbank have been deleted. According to section 39 of the Riksbank Act, it is now the Governing Council that sets the salary and other employment benefits for members of the Executive Board.

8.7 Proposed amendments to the Act (1986:765) concerning Instructions for the Riksdag's Ombudsmen

Section 2

In this paragraph, the Governor and Deputy Governor of the Riksdag have been replaced by members of the Executive Board. It is the Executive Board that is to exercise the decision-making powers of the Riksbank according to the Act (1 992: 1602) concerning Foreign Exchange and Credit Regulation.

Proposed amendments to the Act (1 957:684) on the Payments System in Conditions of War

Section 2 and section 4

In this sections the Governing Council has been replaced by the Executive Board since it is the Executive Board that is to manage the Riksbank.

Proposed amendments to the Act (1988:46) on Auditing of the Riksdag Administration

Section 3

In this provision, the assessment of the auditors has been extended also to relate to whether discharge of liability shall be extended to the Executive Board. (cf Chapter 9, Article 12, of the Constitution)

Section 3

Proposed amendment of the Act (1 989: 186) relating to Appeal against Administrative Decisions by the Riksdag's Office of Administration and Services and agencies.

This provision has been changed since the Governor and Deputy Governor of the Riksbank will constitute part of the Executive Board of six members. This decision should apply to all members of the Executive Board.

Documents

The status of the Riksbank - European Central BankProvisions on exchange rate policy issues will be included in a new Foreign Exchange Rate Policy Act. The Riksbank shall determine