Gold and foreign exchange reserve
The Riksbank manages Sweden’s gold and foreign currency reserve. According to the Sveriges Riksbank Act, Chapter 7, paragraph 2, “it is contingent upon the Riksbank to hold assets in foreign currencies, foreign receivables and gold.”
The gold and foreign exchange reserve consists, as the name implies, of gold and securities denominated in foreign currency, as well as Special Drawing Rights with the International Monetary Fund (IMF). The main purpose of maintaining a foreign exchange reserve is to be prepared for foreign exchange interventions. In addition, the Riksbank must be able to provide credit for the purpose of maintaining to banks and financial companies facing liquidity problems in order to safeguard financial stability.
The primary purpose of the management of the gold and foreign exchange reserve is to ensure that the Riksbank can carry out these tasks. If these tasks are fulfilled, the Riksbank should also aim its management at generating the best possible risk-adjusted return.
The foreign exchange reserve, excluding Special Drawing Rights with the IMF, is mainly invested in government-guaranteed securities – bonds – denominated in six currencies. The choice of currency allocation is primarily determined by which currencies enable the Riksbank to carry out its tasks. Given that this criterion is met, the Riksbank may also invest in other currencies in order to spread the exchange risk.
The currency allocation of the foreign exchange reserve (1)
Like most other central banks, the Riksbank also owns gold. Although this is primarily a consequence of the historical importance of gold, the holding can be regarded as an ultimate collateral to use in a crisis situation if other assets are not accepted. Nowadays, the gold holding is also justified as it contributes further diversification to the total financial asset portfolio. The size of the Riksbank’s gold holding is governed, like those of many other central banks, by the agreement signed between a number of central banks, and which regulates the possibility to sell gold.
(1) The codes in the diagram are abbreviations of the following currencies: USD – US dollar; EUR – euro; GBP – pound sterling; CAD – Canadian dollar; AUD – Australian dollar; and NOK – Norwegian kronor.