Norges Bank, also known as Noregs Bank, is the central bank of Norway. Apart from having traditional central bank responsibilities such as financial stability and price stability, it manages The Government Pension Fund of Norway, a stabilization fund that may be the world's largest sovereign wealth fund. The limited transparency of some SWFs makes it difficult to make accurate assessments of their assets under management.

On 31 December 2010, the bank had 590 employees. All Executive Board appointments are made by King Harald V, after a decision by the Council of State. The Chairman of the Executive Board, Øystein Olsen, who presides over the Bank, is also the acting Central Bank Governor. Both the Governor and the Deputy Governor make speaking appearances across the country on a number of occasions each year. The security force of the bank is the only non-military security force in Norway, including the police force, that is permanently armed with firearms.

History
The history of the central bank of Norway can be easily traced back to 1816, when, two years after the separation from Denmark and the union with Sweden, Norges Bank was established by Act of the Storting (the Norwegian parliament) on 14 June.

The bank then decided that the monetary unit was to be the speciedaler (rixdollar), divided into 120 skillings or five ort ("rig sort") of 24 skillings each. The Money Act of 17th April 1875 discontinued the terms daler and skilling, and it was decided that the monetary unit should be a krone, divided into 100 øre. This was done to prepare for Norway's entry, on 16 October that year, into the Scandinavian Mint Union. This union had been established between Denmark and Sweden in 1873 on the recommendation of a joint commission (in which Norway participated) to establish a common Scandinavian coin based on gold. It meant that the other countries' coins were to be legal tender on the same basis as those struck at home. The union functioned until 1914; thereafter it lacked all practical significance, but was not formally abolished until 1972.

On 1 January 1897 the seat of Norges Bank was moved to Kristiania (Oslo), and in 1906 a new headquarters building on Bankplassen was opened - for 80 employees including the workers in the banknote printing plant.

During the second world war, the seat of Norges Bank was temporarily moved to London in 1940, in that the Norwegian government-in-exile established a new board.

The bank's gold reserves were evacuated via Åndalsnes, Molde and Tromsø to London, and from there to New York and Ottawa. This gold and the bank's other currency reserves were under the control of the London board. At the same time, the bank continued its operations in Norway under the direction of the Nazis until the war was over and the London board stepped down. A commission of inquiry after the war concluded that the Bank's Oslo management had taken a firm and correct attitude towards the Nazi authorities.

In 1962, the Mint Supervisory Authority and the Royal Mint were transferred from the state to Norges Bank.

The Bretton Woods treaty system of fixed exchange rates broke down on 15 August 1971 and the Norwegian krone floated. On 21 December a new system was created, the Smithsonian Treaty, with new parities and fluctuation margins of 2.25 per cent. The Norwegian (and Swedish and Danish) kroner was devalued by 1 per cent.

On 23 May 1972 Norway joined the "European snake", in which the fluctuation margin was half of that laid down in the Smithsonian Treaty. There was thus a narrow margin of fluctuation inside a larger, and the combination was called "the snake in the tunnel".

The Smithsonian Treaty collapsed, but the European snake continued. This meant that the krone floated vis-à-vis currencies outside the snake, such as the dollar. The krone was revalued by 5 per cent within the snake on 16 November 1973.

On 10 October 1976 the krone was devalued by 1 per cent, on 4 April 1977 by 5 per cent, and 29 August 1977 by 8 per cent. The reason for this was different trends in prices and wages in the countries of the snake, and adjustments were generally made for several countries at the same time.

On 12 December 1978 Norway left the snake and instead linked the krone to a "basket" of currencies, which were weighted according to the various countries' trade with Norway.

On 2 August 1982 the weightings of the currency basket were changed in accordance with the IMF's weightings for export industry competitiveness, which meant a downwards adjustment of 3.5 per cent. On 6 September 1982 the krone was devalued by 6 per cent.

On 2 July 1984 the currency basket was calculated on a geometric average instead an arithmetic, which meant a 2 per cent devaluation, and on 22 September it was decided to keep the krone 2 per cent weaker within the applicable fluctuation margin.

A new law of 24 May 1985 on Norges Bank and the monetary system (the Central Bank Act) entered into force on 9 September 1985. The bank ceased to be a limited company and became a separate legal entity owned by the state.

On 11 May 1986 the krone was devalued by 9.2 per cent. On 1 September 1986 Norges Bank's headquarters and banknote printing plant moved to a new building at Bankplassen in Oslo.

In 1988 the Storting decided to close eight of Norges Bank's 20 regional branches, those in Arendal, Drammen, Gjøvik, Halden, Hamar, Haugesund, Kristiansund N. and Skien.

In 1990 the krone is pegged to the Ecu - the European Currency Unit, the precursor of the Euro.

Following turbulence on the international currency markets in November and December, the link to the Ecu was abandoned on 12 December 1992 and the krone floated. The same had happened to the Swedish krone, the Finnish mark, the pound and the lire earlier in the autumn.

Guidelines for the floating exchange rate regime were issued on 5 May 1994 in government regulations on the krone's exchange rate.

In 1997 Norges Bank was entrusted with the management of the Government Petroleum Fund.

A new settlement system between Norges Bank and the banks was commissioned. Norges Bank's settlement system (NBO) means settlement several times a day, with a facility for separate settlement of large sums. This was a step towards greater security and reliability in payments transfer.

In 1998 the replacement of the coin series was completed, the first complete replacement since 1875.

In 2000 the Act relating to Payment Systems, etc., enters into force. The Act introduces authorisation and supervision of payment systems and assigns these responsibilities to Norges Bank.

Den Kongelige Mynt (the Royal Mint) in Kongsberg is spun off as a separate limited company as of 1 January.

Norges Bank's Supervisory Council decides to close the regional branches in Bodø, Fredrikstad, Hammerfest, Vardø and Ålesund.

Norges Bank establishes an office in London to further develop the Bank's investment management activities.

The new Regulation on Monetary Policy was established by the Council of State on 29 March 2001. Norges Bank shall set the key rate with a view to maintaining low and stable inflation. The inflation target is set at 2½ per cent.

Together with other banks, Norges Bank establishes Norsk Kontantservice AS (NOKAS) on 1 July. The company will be responsible for cash handling for banks in Norway as well as for some of Norges Bank's statutory responsibilities in the area of cash handling. At the same time, Norges Bank's remaining regional offices are closed.

Den Kongelige Mynt AS (the Royal Mint) is sold to Samlerhuset AS Norge and Mint of Finland. The shares are transferred to the new owners on 30 June 2003.

An agreement concerning the sale of Norges Bank's shares in NOKAS is signed with Hafslund Sikkerhet AS on 9 December 2005. The shares are transferred to the new owners on 6 January 2006.

Norges Bank’s Printing Works was closed down in June 2007 in accordance with a decision taken by the Executive Board in 2002. From 2008, Norwegian banknotes will be delivered by commercial security printers in France and the UK.

Organization
Norges Bank shall promote economic stability in Norway. Norges Bank has executive and advisory responsibilities in the area of monetary policy and is responsible for promoting robust and efficient payment systems and financial markets. Norges Bank manages Norway’s foreign exchange reserves and the Government Pension Fund Global.

Norges Bank’s activities are regulated by the Norges Bank Act of 1985. The Act states that Norges Bank shall be an executive and advisory body for monetary, credit and foreign exchange policy. The Bank shall issue banknotes and coins, promote an efficient payment system domestically as well as vis-à-vis other countries, and monitor developments in the money, credit and foreign exchange markets. The Act authorizes the Bank to implement measures customarily or ordinarily taken by a central bank.

The Government has defined an inflation target for monetary policy in a regulation pursuant to the Norges Bank Act.

Norges Bank’s responsibilities in managing the Government Pension Fund Global (GPFG) are regulated by means of regulations issued pursuant to the Act relating to the Government Pension Fund Global and a separate management agreement with the Ministry of Finance.

Objectives
Organisation of the bank’s operations is based on clearly defined core activities. Norges Bank shall:

• Promote price stability by means of monetary policy;
• Promote financial stability and contribute to robust and efficient Financial infrastructures and payment systems;
• Manage the portfolios of the GPFG and the bank’s own foreign;
• Exchange reserves in an efficient and confidence-inspiring manner.

Fundamental values
Norges Bank must be well managed and pursue a goal-oriented approach, as consistent as possible with international best practice.

The Bank must show the willingness and capacity to adapt to changes and to secure the confidence of the external community.

Norges Bank must be prudent in its use of resources.

It is Norges Bank’s objective to be a lean and efficient specialist enterprise with a strong focus on its core responsibilities.

Financial Stability
Financial stability implies a financial system that is robust to disturbances and is capable of ensuring funding, executing payments and distributing risk efficiently. Experience shows that financial instability builds up in periods of strong credit growth and asset price inflation.

Norges Bank promotes financial stability through:

• Oversight of the financial system, analysing risk factors and assessing the financial stability outlook;
• Prevention, by providing advice about the formulation of regulations, exercising licensing authority for interbank systems, ensuring a reliable supply of cash and the secure operations of Norges Bank’s settlement system;
• Preparedness for the management of a crisis in the financial sector that could threaten financial stability.

Monetary Policy
The Government has defined an inflation target for monetary policy in Norway. Norges Bank's conduct of monetary policy shall be oriented towards low and stable inflation.

The operational target of monetary policy shall be annual consumer price inflation of close to 2.5 per cent over time. Monetary policy shall also contribute to stabilizing output and employment.

In general, direct effects on consumer prices resulting from changes in interest rates, taxes, excise duties and extraordinary temporary disturbances shall not be taken into account. In real time it will always be difficult to determine which price movements are permanent and those which only have short-term effects on the CPI. There is no one indicator that provides a precise picture of underlying inflationary pressures in all situations.

Useful links

Currency of Norway:

Norwegian krone

List of Central Banks:

Central Banks

Official website of Norges Bank:

www.norges-bank.no

Norges Bank Act/Legislation:

www.norges-bank.no

Financial Supervisory Authority of Norway:

www.finanstilsynet.no