The Riksbank’s balance sheet

When discussing asset management at the Riksbank, it is useful to take the Riksbank’s balance sheet as a starting point. A balance sheet consists of an assets side and a liabilities side. The assets side shows what the financing is used for. The liabilities side shows how the organisation is financed.

The Riksbank’s balance sheet

Assets

In order to fulfil its statutory objectives and its tasks, the Riksbank invests its capital in various financial assets.

Like most other central banks, the Riksbank has a gold reserve. This is in part a remnant of the days when the value of the banknotes and coins in circulation was linked to gold. The foreign exchange reserve is invested in debt securities in foreign currencies. The primary aim of the gold and foreign exchange reserves is to ensure that the Riksbank is able to achieve its statutory objectives.

In order to implement monetary policy, the Riksbank may hold so-called monetary policy assets. To steer the short-term interest rate and, by extension, influence inflation in Sweden, the Riksbank controls liquidity in the banking system using the monetary policy repo or Riksbank certificates. If the banking system needs more liquidity the Riksbank carries out a monetary policy repo; that is it lends money by purchasing securities from the banks. These securities become an asset on the balance sheet. If the banking system has too much liquidity the Riksbank issues Riksbank certificates; that is it borrows money by selling securities to the banks. The securities that the Riksbank sells to the banks in this way become a liability on the balance sheet.

Receivables from the IMF arise because the Riksbank lends money to the International Monetary Fund (IMF) which in turn lends money to developing countries and countries experiencing a financial crisis.

The Riksbank also has so-called other assets which include, for example, shares in the Bank for International Settlements (BIS) and derivatives.

Liabilities

The Riksbank and its activities are financed by the banknotes and coins in circulation, the monetary policy liabilities, the liabilities in foreign currency and the Riksbank's own capital.

The Riksbank issues the banknotes and coins that are used as legal tender in Sweden. The nominal value of these banknotes and coins is reported as a liability on the Riksbank's balance sheet. The Riksbank does not pay interest on this liability to those who hold these banknotes and coins. However, the Riksbank uses the difference between the nominal value of the banknotes and coins in circulation and the cost of cash management to acquire financial assets. These assets generate income which is called seigniorage. The seigniorage is, in other words, the return on the Riksbank's assets corresponding to the banknotes and coins in circulation, minus the Riksbank's total cash-management costs.

Monetary policy liabilities include, for example, the Riksbank certificates (see monetary policy assets above).

At present, the Riksbank also has liabilities in foreign currency in the form of loans with the National Debt Office which in turn has issued certificates and bond loans in EUR and USD on the market. These loans finance the increase in the foreign exchange reserve decided on by the Executive Board in 2009.

The Riksbank’s own capital has been built up from income accrued since the Riksbank was established, and at times even from general banking activities. These days, the Riksbank acts solely as a central bank and every year transfers some of its net income to the owner - the central government. If there are unrealised gains in the gold and foreign exchange reserves, these are reported in a revaluation account.