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3 Norges Bank and the Four Criteria

3 Norges Bank and the Four Criteria

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The Origins and Nature of Scandinavian Central Banking

5.3.2 Norges Bank as Guardian of the Currency

(Criterion II)

There is no doubt that Norges Bank, the government, and the Storting,

saw it as a main priority to restore convertibility of the country’s new currency into silver at the pre-Napoleon par value. Convertibility at par was

achieved in 1842 (since 1878 gold).

If a reasonable degree of independence from government interference

in the policies of the central bank is considered important for safeguarding the value of the currency, it should be noticed that Norges Bank

was set up as probably the least independent of any central bank, with

the possible exception of Sveriges Riksbank. In the words of the official

history of the Norges Bank (my translation): “The activities of the Bank

were decided by the Storting, and the bank has to comply with the law

passed by the Storting. In other words, it was the Storting’s bank…”16

With respect to the external value of the currency, the attitude taken by

Norges Bank in the first half of the 1870s seems quite revealing. Norges

Bank had been heavily criticized by the opposition in the Storting for

not having intervened in the foreign exchange market and for not having done anything to reduce the spread between buying and selling rates.

Norges Bank replied that it did not see it as its job to try to steer prices

on the exchange market, and (my translation): “…nor was it allowed to

act as a speculator in the foreign exchange market.”17

Criterion II has never been satisfied by Norges Bank (except, perhaps,

since 2003, see Chap. 10).

5.3.3 Norges Bank as Banker for the Government

(Criterion III)

Since Norges Bank was the only bank in the country during the first

40 years of its existence, it had no competition for government business. Also, the growth of the bank’s provincial branch network, each with


Jahn, Eriksen & Munthe (1966) Norges Bank gjenom 150 år, (Norges Bank), p. 17: “Bankens

virksomhet var fastsatt av Stortinget, og det er dettes lov Norges Bank har å rette sig etter. Den var

med andre ord Stortingets bank…”


Jahn, Eriksen & Munthe (1966) Norges bank gjennom 150 år, (Norges BanK) p. 119 “…heller

ikke måtte den opptre som spekulant på valutamarkedet.”


Norges Bank and the Four Criteria


a government appointed management, made Norges Bank the natural

choice of conduit for payments of taxes, duties, and customs. The formation of numerous private commercial banks in the second half of the

19th century does not seem to have made much difference in this respect,

except in districts not covered by Norges Bank branches.

Since its birth, the Norwegian state had held a certain percentage of the

share capital of Norges Bank. The reason was that many of the individual

shareholders originally had little faith in the prospects for the bank, and

had sold their shares to the government (there were few other buyers).

In 1863, the state increased its stake considerably. The background was

that the government had placed a large deposit with the bank in 1842 in

connection with the introduction of full silver convertibility. In 1863,

the question was raised what to do with the accumulated interest on this

deposit. After much discussion and disagreements between the government and the Storting it was finally decided to convert the amount into

shares paid for with the amount of accumulated interest.18

Its role as banker for the government did not include being a lender

to the government, except during the earliest years of its existence, and

during the Great War. Indirectly, however, Norges Bank helped finance

government expenditures by funding state banks set up to finance projects and purposes favoured by the government.19

The conclusion is that Norges Bank always satisfied Criterion III.

5.3.4 Norges Bank as Bank for the Country’s Other

Banks (Criterion IV)

Until 1857, Norges Bank was the only bank in Norway (although hundreds of tiny savings banks had been formed all over the country, like

in the rest of Scandinavia). From the mid-1890s the formation of private commercial banks gathered pace. Their number increased from

39 in 1897 to 116 by 1913. During this time, Norges Bank slashed its

own direct business with commercial customers substantially, but it did

not stop completely. In 1890, about one third of all bills discounted


Lov om Norges Bank af 6. Juni 1863.

See Steffen Elkiær Andersen (2010) The Evolution of Nordic Finance (Palgrave Macmillan),

pp. 128–32.



The Origins and Nature of Scandinavian Central Banking

in Norway were discounted by Norges Bank. By 1913, this had been

reduced to about 20 %.20 It mostly restricted itself to funding the state

banks, the commercial banks and savings banks by lending to them or

rediscounting their bills of exchange. Also, it made occasional loans to

local authorities.

During the banking crisis of 1899–1904, Norges Bank also took upon

itself the role of lender of last resort. As a result of heavy speculations in

the stock and property markets half a dozen of banks, primarily in the

Kristiania21 (Oslo) region found themselves in various degrees of trouble

and asked Norges Bank for assistance. The requests for assistance soon

outgrew the capacity of Norges Bank, so in the later cases the assistance

was given through a co-operation between Norges Bank, the government, which refinanced Norges Bank, and the larger commercial banks.22

Table 5.1 The Norwegian Banking Scene 1848–1915

Total assets Mill Kr

Norges Bank

Commercial banks

Number of banks

Savings banks

Number of savings banks

State banks

Number of state banks









































Norges Bank: The amounts shown for 1848–1900 are for outstanding loans. The

1848 amount is for 1850.

Commercial banks: The amounts shown for 1848–1880 are for outstanding


Savings banks: the amount shown for 1848 is the average of 1845 and 1850.

State banks:

Kongeriket Norges Hypotekbank, est. 1851, and Arbejderbruk-og Boligbank, est.


For a summary in English on the Norwegian state banks, see Steffen Elkiær

Andersen: “The Evolutiion of Nordic Finance” (Palgrave Macmillan, 2010),

pp. 128–32.


Norges Statistiske Sentralbyrå: Historisk Statistikk, 1994

H. Skånland: Det Norske Kredittmarked siden 1900 (Statistisk Sentralbyrå, 1967),

p. 75


Jahn, Eriksen & Munthe, Norges Bank gjennom 150 år”, Norges Bank 1966, p. 141.

Kristiania was renamed Oslo in 1925.


This pattern was also seen in Denmark during the banking crises of 1906–08 and 1922–26.



Norges Bank and the Four Criteria


This course of events confirmed the role of Norges Bank as a “bank for

the banks” by 1914, in spite of its continuing, but limited, commercial


By 1914, Criterion IV was mostly  fulfilled. At least, the conditions

for having a “central bank” at all would seem to have been satisfied since

about 1890 (see Chap. 1 and Table 5.1).

In conclusion, Criterion I was fulfilled from the birth of Norges Bank

(apart from a few transitory problems), and Criterion II was never satisfied. Criterion III was automatically fulfilled from the start, and Criterion

IV was mostly met by 1914. Thus, by 1914, Norges Bank could almost

have been considered a “central bank”.


The Scandinavian Currency Union



The Formation and Workings

of the Scandinavian Currency Union

By the mid-1860s, the interest in switching from the predominantly silver

standard to a new gold standard, or a bimetallic standard, was spreading

throughout Europe, including the Nordic1 countries. The background

was the declining price of silver relative to gold. It became increasingly

difficult to maintain the traditional 15½:1 price relationship between

silver and gold.

In the Nordic countries, the first of a number of meetings of economists and bankers took place in Göteborg in 1863. The currency standard was one of the subjects discussed at this meeting, but only in terms

of silver. When the second meeting was held in Stockholm in 1866, opinions had changed. The economists and bankers concluded that a switch

to a gold standard was recommendable. They also advocated that a common Nordic currency based on gold should be introduced. The source


The term “Nordic” is used here, because Finland also participated in these discussions.

© The Editor(s) (if applicable) and The Author(s) 2016

S.E. Andersen, The Origins and Nature of Scandinavian Central

Banking, Palgrave Macmillan Studies in Banking and Financial

Institutions, DOI 10.1007/978-3-319-39750-4_6



The Origins and Nature of Scandinavian Central Banking

of inspiration was the Latin Currency Union formed the previous year.

Over the next few years, discussions in the Nordic countries continued

in an atmosphere where the thought of a common Continental currency

system centred on the French 20 franc gold coin was gaining weight, but

as a bimetallic standard. In particular, it had been recommended by a

Swedish committee set up in 1869.

The Franco–Prussian War 1870–71 and the German decision to adopt

its own gold standard put an end to any ideas of a common Continental

currency. It took another 110 years and two world wars to revive that

idea. Or, put somewhat differently, in spite of two world wars, the idea of

a common Continental currency was revived, but it took about 120 years

to do so, and another 10 years to implement it.

When in December 1871 Germany decided to switch to gold, a similar move by the Nordic countries appeared urgent. The reason for the

urgency was that one of the consequences of the German unification and

switch to gold was that the Hamburgische Bank would be closed in its

centuries-old form and incorporated into a new Reichbank now being

planned. The Hamburgische Bank had been based on the banco accounting unit defined in silver. It had been a traditional source of finance for

much of Scandinavia’s business community until this time, when local

banking facilities scarcely existed. Therefore, the Scandinavian noteissuing banks had kept large reserves of silver in Hamburg. It was feared

that, in connection with the winding down of the Hamburgische Bank,

its silver reserves would be sold on the market thereby depressing the

price of silver and the value of the silver reserves held by the Scandinavian

note-issuing banks.

In Denmark, the Nationalbank recommended a swift transition to

gold (my translation): “The faster such a transition can take place, the

better we can safeguard ourselves against the loss the bank would suffer in

connection with the conversion of the silver bullion to gold.”2

A nine-member committee (Den Skandinaviske Mønt Commission)

was set up in the summer of 1872, with three members from each of


“Jo hurtigere en sådan Overgang skete, des bedre ville man sikre sig mod det Tab, som der for

Banken ville være forbundet med Sølvbarrenes Omsætning til Guld.” Direktionsprotokol Nr. 2,

pp. 317–18, Sag. 1386. National Archives.

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