## Preface

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---

### Overview of mission and scope
- The Monetary and Capital Markets Department (MCM) provided technical assistance (TA) on central bank operations by means of a desk review of the proposed amendments suggested by the independent committee to the Swedish Riksbank Act, during the period February 2019 and June 2020.
- Desk review led by Mr. Ashraf Khan; conducted jointly with Mr. Asad Qureshi, Mr. Romain Veyrune, and Mr. Rudy Wytenburg.
- Additional input from Ms. Ioana Luca (IMF Legal Department) and colleagues from the IMF’s European Department, Sweden Team.
- Reviewers met with Ms. Anna Breman (Deputy Governor, Riksbank), Mr. Per Jansson (Deputy Governor, Riksbank), Mr. Eric Frieberg (Chief Legal Counsellor, Riksbank), Mr. Anders Vredin (Head of the General Secretariat, Riksbank), Ms. Pernilla Meyersson (Deputy Head of the General Secretariat, Riksbank), Mr. Thomas Hagberg (Deputy Director, Ministry of Finance), Mr. Nils Friberg (Ministry of Finance), Ms. Asa Ekelund (Senior Advisor to the Nordic-Baltic Executive Director at the IMF), and various other colleagues.
- Purpose: provide advice to the Riksbank on key issues relating to central bank operations, with a focus on governance, independence, instruments, and internal organization.
- Report scope and limitation: findings, comments, and recommendations are not representative of views of the IMF or of its Executive Board; intended to contribute to public discussion in Sweden in the context of the draft Riksbank Act; not a complete or detailed legal review; reflect selected key issues from a central bank operations’ perspective.

### Key administrative details
- Review conducted under guidance of Mr. Jihad Alwazir (Assistant-Director, MCM), and Mr. Craig Beaumont and Mr. Khaled Sakr (respective IMF Mission Chiefs for Sweden).

### Core issue (General Comments)
- Central question: whether it is possible to distinguish more clearly between instruments of the central bank used for price stability purposes (for which the Riksbank has the sole mandate), and those instruments used for financial stability purposes (for which the Riksbank has a shared mandate), and the effects of such distinction for the Riksbank’s independence and operational capacity.
- Basis of comments: All comments are based on the Draft Sveriges Riksbank Act, document titled “SOU 2019:46, version of December 2, 2019 (English translation, as provided by the Riksbank),” hereafter referred to as “the Riksbank Act” or “the Act.”

### Observations on international practice and transparency
- International practices and central bank legal frameworks do not make a clear distinction between instruments and objectives.
- The 2019 IMF Policy Paper on the Update of the Monetary and Financial Policies Transparency Code notes that central bank mandates have been expanded over the past decade.
- Recommendation from the Transparency Code: central bank should ensure proper and sufficient transparency over its mandate, including the objectives, functions, and instruments it uses, given the breadth of possible central bank objectives and instruments.

### Risks of linking instruments to objectives
- Prior consultation with institutions for which price stability is not the primary mandate (such as a financial supervisor) could create the risk of dominance of considerations other than those related to price stability, preventing selection of the most appropriate instrument and delaying response to price developments and prospects.
- Formal linking of instruments to objectives could curtail the Riksbank’s ability to assess and apply relevant instrument(s), especially in emergency and crisis situations where speed and effectiveness are crucial, including to ease cross-border liquidity access.
- Overly onerous or formal consultation procedures could critically undermine the Riksbank’s autonomy and credibility, in particular in monetary policy operations, strengthening external buffers, and access to liquidity in an emergency or crisis.

### High-level recommendation
- Amendments should place high value on ensuring the operational freedom of the Riksbank in applying relevant instruments to enable it to fulfill its mandates, balanced with strong Riksbank transparency arrangements for ex post accountability.
- Tying specific instruments to specific objectives risks ex ante limiting operational flexibility and could undermine the possibility to hold the Riksbank accountable ex post.

### Structuring objectives, governance, and currency (Detailed Comments: Chapters 2, 3, 4, 11)
- Suggest listing all objectives of the Riksbank in a single section, ideally at the beginning of the Act, to clarify upfront the Riksbank’s objectives and any hierarchy between them.
- Current drafting: Chapter 2, Section 1 lists monetary policy objectives (price stability and considerations of the real economy); Chapter 3, Section 1 lists financial system objectives (stability and efficiency of the financial system, ensuring that the general public has (broad) access to the payments system).
- Proposed language change: where Chapter 3, Section 1 notes financial system objectives should be pursued “without neglecting the price stability objective,” consider specifying that financial system objectives are “secondary” to the price stability objective.
- Listing all objectives in a single section would allow more flexibility for the Riksbank to identify instruments it primarily relies upon to achieve particular objectives and avoid a hard-cut split that leads to division of instruments.
- Role of the Riksbank in determining “exceptional reasons” (Chapter 3, Section 16 (sub 2, last paragraph)) could be clarified: suggest including non-limitative examples (such as armed conflict, or natural disasters) and indicate explicitly that it would be for the Riksbank to decide whether something is to be considered an exceptional reason, while stipulating the Riksbank would need to provide a clear overview of its arguments.
- Clarify that assessment of what constitutes “satisfactory” availability of cash (Chapter 4, Section 1: contribution to “the availability of cash to a satisfactory extent throughout Sweden”) is for the Riksbank to judge.
- Provisions for “eKrona” (Chapter 4, Section 11) should clarify applicability of other cash and currency provisions (e.g., Chapter 4, Sections 1 and 2) to electronic money; ensure amendments are future proof as far as possible.
- Governance and accountability of the governor:
  - Current Board composition: Executive Board consists of five members, which includes the governor (chair) and four deputy governors (Chapter 11, Sections 14 and 15); appointments by the General Council.
  - Concern: Chapter 11, Section 24 indicates the governor is “responsible to the Executive Board,” which is unclear since the governor is a member of the Executive Board.
  - Recommendation: more logical for the governor, as “head of the authority” (Section 24), to be accountable to the oversight body (the General Council) rather than to the Executive Board; clarify collegial decision-making arrangements versus ex post accountability.
- Summary of governance concerns:
  - Current arrangements may:
    - (i) create a possible conflict of interest (as the governor is also part of the Executive Board);
    - (ii) create uncertainty about the role of the governor (head of institution yet held responsible by deputies); and
    - (iii) create confusion about the role of the General Council (main role of oversight).

### Instruments (Detailed Comments: Chapters 2 and 3)
- Exchange rate language:
  - The addition of “without neglecting the price stability objective” in Chapter 2, Section 3 may be interpreted as assigning a task the Riksbank may not be able to achieve if an exchange rate target is determined.
  - If an exchange rate target applies, the Act should mention that the price stability objective would be subordinated to the exchange rate target as long as the exchange rate target applies.
- Central bank securities and issuance:
  - Recommendation: allow the Riksbank to issue its own instruments denominated in domestic currency; clarify that central bank securities are included in Chapter 2, Section 4. The last sentence in Section 4 states the Riksbank may “issue and trade in its own debt instruments,” but central bank securities are not explicitly listed and could be added to point 1 (deposit) as a liquidity absorbing operation.
- FX-denominated loans to domestic institutions:
  - Rationale: Swedish banks have significant FX funding and rollover risks could become challenging; this is primarily a financial stability issue but can impair monetary policy transmission.
  - Recommendation: the Riksbank should be able to provide timely foreign exchange (FX)-denominated loans to domestic financial institutions, with risk mitigation measures the Riksbank deems appropriate to protect its balance sheet, to address financial stability risks and minimize risk of impairment to monetary policy transmission.
  - Note: operational issues should be addressed in the central bank risk management framework rather than law, ensuring operational flexibility in applying relevant instruments.
- FX-denominated central bank securities and reserves:
  - Observation: central banks issuing debt securities in FX is uncommon but not restricted.
  - Recommendation/caution: not prudent to use central bank securities to build up reserves; doing so could expose the central bank to negative carry-and-redemption pressures in times of market stress and requires careful justification.
- General liquidity support and coordination:
  - The Riksbank should freely decide on provision of “general liquidity support” (Chapter 3, Section 11); understood as same type of lending operations as listed in Chapter 2, Section 4 (monetary policy) to address loss of confidence in domestic funding market.
  - Reasons against mandatory coordination with supervisors:
    - (i) general liquidity support is of the same nature as monetary operations;
    - (ii) it addresses market disruptions that could impair monetary policy transmission and the Riksbank’s ability to achieve price stability; and
    - (iii) it does not entail more risks given the collateral framework is the same as for monetary policy operations.
  - Coordination with other supervisors may be appropriate for Emergency Liquidity Assistance (ELA, Chapter 3, Section 13) when monetary policy collateral has been exhausted, requiring supervisor involvement in preparation and enforcement of funding plans.
- Modalities for intervention in securities markets:
  - Recommendation: leave modalities of central bank intervention in securities markets open (Chapter 3, Section 12).
  - Concern: current drafting seems to prescribe the central bank should intervene as a “market maker” by setting prices; it may also be appropriate to intervene as a price taker to provide liquidity for an orderly asset price adjustment.

### Emergency Liquidity Assistance (ELA), FX swaps, and external cooperation (from Section 22)
- The funding plan that counterparties benefitting from emergency liquidity assistance would have to contract with the monetary authorities should be mentioned in Chapter 3, Section 13.
  - This plan is described as the corner stone of ELA, as it contractually defines how the benefitting institutions would repay the central bank’s emergency loans.
  - The plan would cover most of the “special terms and conditions” mentioned in Section 13.
- Chapter 10 (“The foreign exchange reserves and currency repurchasing agreements”) does not explicitly reference FX swaps despite FX swaps being defined in the Act; clarification is needed on whether FX swaps are included in Chapter 10.
- Raises question of applicability of:
  - the Memorandum of Understanding signed by the Riksbank in December 2016 with the central banks in the Nordic and Baltic countries on cooperation regarding cross-border operations; and
  - the 2016 IMF Financial Sector Assessment Program recommendation to formalize swap agreements with central banks in the Nordic countries, the U.S. Federal Reserve, and the European Central Bank (ECB) to strengthen availability of ELA in relevant currencies.
- It is crucial to strengthen external buffers and access to liquidity in an emergency or crisis so the central bank can act swiftly in the interest of maintaining stability, without the (perception of) undue influence by other institutions or parties.

### Capital, profit, and balance sheet (Detailed Comments: Chapter 8)
- Target for the Riksbank’s total equity (excluding revaluations as provided within the proposed Act) should be set relative to the size of its balance sheet, as opposed to applying an inflationary mechanism.
  - Rationale: Inflation itself may not be a good proxy for the Riksbank’s risk exposure.
  - IMF recommendations are to anchor realized capital to “monetary liabilities” to avoid the possibility of manipulation by either the government or the central bank.
- Consideration of a profit-sharing mechanism (example provided):
  - Distribute 30 percent, and retain 70 percent between the two trigger points:
    - (i) when equity is below the maximum (equity which all profits are distributed), and
    - (ii) above the recapitalization trigger.
  - Such an approach reduces the likelihood of the government pressuring the Riksbank to distribute retained reserves.
  - Another approach to consider is profit sharing above the “target level” as defined in the proposal.
- Unrealized revaluation gains should not be considered or utilized as a backstop to realized losses or realized negative equity.
  - A modern central bank’s financial strength is based on the capacity of its realized reserves to cover realized losses.
  - Revaluation reserves can and should be used to absorb revaluation losses, both of which can fluctuate significantly.
- Profit distribution formulas should be encoded in the Act and should not be discretionary.
  - The proposal indicates that profit distributions can be approved, adjusted or dismissed; if discretionary, this will impede the Riksbank’s autonomy.
- Role regarding Sweden’s obligations under IMF membership:
  - The Riksbank’s role is not clear—if to act strictly as agent to the government on such transactions, the wording could be clarified.
  - While relevant clauses appear to try to indemnify the Riksbank, the Riksbank continues to be exposed to FX revaluation risk—this may be intentional.
  - Conversely, if all transactions between the Riksbank and the Swedish Ministry of Finance are to be denominated in Special Drawing Rights (SDR)—hence eliminating the FX exposure—this should be explicitly noted.
  - The Act should be clear on which of the IMF accounts will be included in the balance sheet of the Riksbank, and more clarity about Section 7 and 8 in Chapter 6 should be provided.
  - Note: countries differ in practice as to which accounts lie in the accounts of the government versus the central bank.
- The General Council should only “adopt” the balance sheet, profit and loss account and allocation of profits upon completion of the external audit, and having received the external auditors’ report on the accuracy and completeness of the Riksbank’s financial statements.
  - Given the February deadline for adoption, it is not readily apparent whether this practice is to be followed.

### Audit and oversight (Detailed Comments: Chapter 11)
- The Act should clearly state that the Riksbank’s internal audit function complies with the standards for internal auditing of the Institute of Internal Auditors.
  - Application of these standards will provide the General Council greater assurance that risks are being assessed and addressed adequately.
- Requiring that the Executive Board adopt an audit plan for the internal audit appears to contravene typical internal audit reporting relationships.
  - Recommendation: The General Council should review and adopt the audit plan of internal audit, not the Executive Board, even acknowledging the Executive Board’s hybrid set-up.
  - Ideally, the Executive Board should be responsible for taking appropriate measures based on observations and recommendations raised by internal audit.
- The Act should provide for engaging an independent external audit firm as a co-auditor along with the National Audit Office.
  - The external audit firm should be an international organization that complies with the auditing standards for external auditors.
  - The external audit function is a key component of a central bank’s governance; compliance with international standards provides the General Council with confidence in the opinion provided.

### Other detailed comments
- External experts (see Chapter 11):
  - The General Council should have the authority to call on external experts as necessary to provide an independent assessment of the Riksbank’s effectiveness in its conduct of its policy operations.
  - This would enhance (ex post) central bank accountability further.
- Real property (see Chapter 9, Section 7):
  - Requiring the Riksbank to seek authorization of the Riksdag for the sale or acquisition of real property in excess of SEK 20 million seems to overtly circumvent the accountabilities of the General Council.
- Human Resources (HR) (see Chapter 11, Section 30):
  - Consider the more broadly accepted practice of having a Human Resource and Compensation Committee (HRCC) as opposed to a Staff Disciplinary Board.
  - An HRCC is a standard sub-committee of a Board which approves HR policies, compensations levels, high-ranking hires, terminations, etc.
  - A more narrowly defined “disciplinary” board might be less conducive to an effective work environment.

*Source: Content unit 1sweea2020001 — Preface.*

### Preface ................................................................................................................

### Preface

### Overview of mission and scope
- The Monetary and Capital Markets Department (MCM) provided technical assistance (TA) on central bank operations by means of a desk review of the proposed amendments suggested by the independent committee to the Swedish Riksbank Act, during the period February 2019 and June 2020.
- The desk review was led by Mr. Ashraf Khan, and conducted jointly with Mr. Asad Qureshi, Mr. Romain Veyrune, and Mr. Rudy Wytenburg.
- Additional input was provided by Ms. Ioana Luca (IMF Legal Department) and colleagues from the IMF’s European Department, Sweden Team.
- The reviewers met with Ms. Anna Breman (Deputy Governor, Riksbank), Mr. Per Jansson (Deputy Governor, Riksbank), Mr. Eric Frieberg (Chief Legal Counsellor, Riksbank), Mr. Anders Vredin (Head of the General Secretariat, Riksbank), Ms. Pernilla Meyersson (Deputy Head of the General Secretariat, Riksbank), Mr. Thomas Hagberg (Deputy Director, Ministry of Finance), Mr. Nils Friberg (Ministry of Finance), Ms. Asa Ekelund (Senior Advisor to the Nordic-Baltic Executive Director at the IMF), and various other colleagues.
- Purpose: to provide advice to the Riksbank on key issues relating to central bank operations, with a particular focus on the central bank’s governance, independence, instruments, and internal organization.
- Report scope and limitation: findings, comments, and recommendations are not representative of views of the IMF or of its Executive Board; intended to contribute to public discussion in Sweden in the context of the draft Riksbank Act; not a complete or detailed legal review; reflect selected key issues from a central bank operations’ perspective.

### Key administrative details
- Review conducted under guidance of Mr. Jihad Alwazir (Assistant-Director, MCM), and Mr. Craig Beaumont and Mr. Khaled Sakr (respective IMF Mission Chiefs for Sweden).

---

### I. General Comments

### Core issue
- Central question: whether it is possible to distinguish more clearly between instruments of the central bank used for price stability purposes (for which the Riksbank has the sole mandate), and those instruments used for financial stability purposes (for which the Riksbank has a shared mandate), and the effects of such distinction for the Riksbank’s independence and operational capacity.

### Basis of comments
- All comments are based on the Draft Sveriges Riksbank Act, document titled “SOU 2019:46, version of December 2, 2019 (English translation, as provided by the Riksbank),” hereafter referred to as “the Riksbank Act” or “the Act.”

### Observations on international practice and transparency
- International practices and central bank legal frameworks do not make a clear distinction between instruments and objectives.
- The 2019 IMF Policy Paper on the Update of the Monetary and Financial Policies Transparency Code notes that central bank mandates have been expanded over the past decade.
- Recommendation from the Transparency Code: central bank should ensure proper and sufficient transparency over its mandate, including the objectives, functions, and instruments it uses, given the breadth of possible central bank objectives and instruments.

### Risks of linking instruments to objectives
- Prior consultation with institutions for which price stability is not the primary mandate (such as a financial supervisor) could create the risk of dominance of considerations other than those related to price stability, preventing selection of the most appropriate instrument and delaying response to price developments and prospects.
- Formal linking of instruments to objectives could curtail the Riksbank’s ability to assess and apply relevant instrument(s), especially in emergency and crisis situations where speed and effectiveness are crucial, including to ease cross-border liquidity access.
- Overly onerous or formal consultation procedures could critically undermine the Riksbank’s autonomy and credibility, in particular in monetary policy operations, strengthening external buffers, and access to liquidity in an emergency or crisis.

### Recommendation (high-level)
- Amendments should place high value on ensuring the operational freedom of the Riksbank in applying relevant instruments to enable it to fulfill its mandates, balanced with strong Riksbank transparency arrangements for ex post accountability.
- Tying specific instruments to specific objectives risks ex ante limiting operational flexibility and could undermine the possibility to hold the Riksbank accountable ex post.

---

### II. Detailed Comments: Objectives (Chapters 2 and 3), Governance (Chapter 11), and Currency (Chapter 4)

### Structuring objectives
- Suggestion: list all objectives of the Riksbank in a single section, ideally at the beginning of the Act, to clarify upfront the Riksbank’s objectives and any hierarchy between them.
- Current drafting: Chapter 2, Section 1 lists monetary policy objectives (price stability and considerations of the real economy); Chapter 3, Section 1 lists financial system objectives (stability and efficiency of the financial system, ensuring that the general public has (broad) access to the payments system).
- Proposed language change: where Chapter 3, Section 1 notes financial system objectives should be pursued “without neglecting the price stability objective,” consider specifying that financial system objectives are “secondary” to the price stability objective.

### Flexibility and operational implications
- Listing all objectives in a single section would allow more flexibility for the Riksbank to identify instruments it primarily relies upon to achieve particular objectives and avoid a hard-cut split that leads to division of instruments.

### Exceptional reasons and judgments
- Role of the Riksbank in determining “exceptional reasons” could be clarified. Chapter 3, Section 16 (sub 2, last paragraph) indicates consultation with the National Debt Office (NDO) does not need to take place if there are exceptional reasons.
- Suggestion: include non-limitative examples (such as armed conflict, or natural disasters) and indicate explicitly that it would be for the Riksbank to decide whether something is to be considered an exceptional reason, while stipulating the Riksbank would need to provide a clear overview of its arguments.

### “Satisfactory extent” and eKrona
- Clarify that assessment of what constitutes “satisfactory” availability of cash (Chapter 4, Section 1: contribution to “the availability of cash to a satisfactory extent throughout Sweden”) is for the Riksbank to judge.
- Provisions for “eKrona” (Chapter 4, Section 11) should clarify applicability of other cash and currency provisions (e.g., Chapter 4, Sections 1 and 2) to electronic money; ensure amendments are future proof as far as possible.

### Governance and accountability of the governor
- Current Board composition: Executive Board consists of five members, which includes the governor (chair) and four deputy governors (Chapter 11, Sections 14 and 15); appointments by the General Council.
- Concern: Chapter 11, Section 24 indicates the governor is “responsible to the Executive Board,” which is unclear since the governor is a member of the Executive Board.
- Recommendation: more logical for the governor, as “head of the authority” (Section 24), to be accountable to the oversight body (the General Council) rather than to the Executive Board; clarify collegial decision-making arrangements versus ex post accountability.

### Summary of governance concerns
- Current arrangements may:
  - (i) create a possible conflict of interest (as the governor is also part of the Executive Board);
  - (ii) create uncertainty about the role of the governor (head of institution yet held responsible by deputies); and
  - (iii) create confusion about the role of the General Council (main role of oversight).

---

### III. Detailed Comments: Instruments (Chapters 2 and 3)

### Exchange rate language
- The addition of “without neglecting the price stability objective” in Chapter 2, Section 3 may be interpreted as assigning a task the Riksbank may not be able to achieve if an exchange rate target is determined.
- If an exchange rate target applies, the Act should mention that the price stability objective would be subordinated to the exchange rate target as long as the exchange rate target applies.

### Central bank securities and issuance
- Recommendation: allow the Riksbank to issue its own instruments denominated in domestic currency; clarify that central bank securities are included in Chapter 2, Section 4. The last sentence in Section 4 states the Riksbank may “issue and trade in its own debt instruments,” but central bank securities are not explicitly listed and could be added to point 1 (deposit) as a liquidity absorbing operation.

### FX-denominated loans to domestic institutions
- Rationale: Swedish banks have significant FX funding and rollover risks could become challenging; this is primarily a financial stability issue but can impair monetary policy transmission.
- Recommendation: the Riksbank should be able to provide timely foreign exchange (FX)-denominated loans to domestic financial institutions, with risk mitigation measures the Riksbank deems appropriate to protect its balance sheet, to address financial stability risks and minimize risk of impairment to monetary policy transmission.
- Note: operational issues should be addressed in the central bank risk management framework rather than law, ensuring operational flexibility in applying relevant instruments.

### FX-denominated central bank securities and reserves
- Observation: central banks issuing debt securities in FX is uncommon but not restricted.
- Recommendation/caution: not prudent to use central bank securities to build up reserves; doing so could expose the central bank to negative carry-and-redemption pressures in times of market stress and requires careful justification.

### General liquidity support and coordination
- The Riksbank should freely decide on provision of “general liquidity support” (Chapter 3, Section 11); understood as same type of lending operations as listed in Chapter 2, Section 4 (monetary policy) to address loss of confidence in domestic funding market.
- Reasons against mandatory coordination with supervisors:
  - (i) general liquidity support is of the same nature as monetary operations;
  - (ii) it addresses market disruptions that could impair monetary policy transmission and the Riksbank’s ability to achieve price stability; and
  - (iii) it does not entail more risks given the collateral framework is the same as for monetary policy operations.
- Coordination with other supervisors may be appropriate for Emergency Liquidity Assistance (ELA, Chapter 3, Section 13) when monetary policy collateral has been exhausted, requiring supervisor involvement in preparation and enforcement of funding plans.

### Modalities for intervention in securities markets
- Recommendation: leave modalities of central bank intervention in securities markets open (Chapter 3, Section 12).
- Concern: current drafting seems to prescribe the central bank should intervene as a “market maker” by setting prices; it may also be appropriate to intervene as a price taker to provide liquidity for an orderly asset price adjustment.

*Source: Content unit 1sweea2020001 — Preface.*

### 22.      Chapter 3, Section 13 could mention the funding plan that the counterparties

### 22.      Chapter 3, Section 13 could mention the funding plan that the counterparties

### Emergency Liquidity Assistance (ELA) and funding plan
- The funding plan that counterparties benefitting from emergency liquidity assistance would have to contract with the monetary authorities should be mentioned in Chapter 3, Section 13.
- This plan is described as the corner stone of ELA, as it contractually defines how the benefitting institutions would repay the central bank’s emergency loans.
- The plan would cover most of the “special terms and conditions” mentioned in Section 13.

### Foreign exchange (FX) swaps, external liquidity, and cooperation
- Chapter 10 (“The foreign exchange reserves and currency repurchasing agreements”) does not explicitly reference FX swaps despite FX swaps being defined in the Act.
- Clarification is needed on whether FX swaps are included in Chapter 10.
- This raises the question of the applicability of the Memorandum of Understanding signed by the Riksbank in December 2016 with the central banks in the Nordic and Baltic countries on cooperation regarding cross-border operations.
- A similar question arises regarding the 2016 IMF Financial Sector Assessment Program recommendation to formalize swap agreements with central banks in the Nordic countries, the U.S. Federal Reserve, and the European Central Bank (ECB) to strengthen availability of ELA in relevant currencies.
- It is stated that it is crucial to strengthen external buffers and access to liquidity in an emergency or crisis—so the central bank can act swiftly in the interest of maintaining stability, without the (perception of) undue influence by other institutions or parties.

### Detailed comments: Capital, profit, and balance sheet (Chapter 8)
- The target for the Riksbank’s total equity (excluding revaluations as provided within the proposed Act) should be set relative to the size of its balance sheet, as opposed to applying an inflationary mechanism.
  - Rationale: Inflation itself may not be a good proxy for the Riksbank’s risk exposure.
  - IMF recommendations are to anchor realized capital to “monetary liabilities” to avoid the possibility of manipulation by either the government or the central bank.
- Consideration should be given to a profit-sharing mechanism (example provided):
  - Distribute 30 percent, and retain 70 percent between the two trigger points:
    - (i) when equity is below the maximum (equity which all profits are distributed), and
    - (ii) above the recapitalization trigger.
  - Such an approach reduces the likelihood of the government pressuring the Riksbank to distribute retained reserves.
  - Another approach to consider is profit sharing above the “target level” as defined in the proposal.
- Unrealized revaluation gains should not be considered or utilized as a backstop to realized losses or realized negative equity.
  - A modern central bank’s financial strength is based on the capacity of its realized reserves to cover realized losses.
  - Revaluation reserves can and should be used to absorb revaluation losses, both of which can fluctuate significantly.
- Profit distribution formulas should be encoded in the Act and should not be discretionary.
  - The proposal indicates that profit distributions can be approved, adjusted or dismissed; if discretionary, this will impede the Riksbank’s autonomy.
- Role regarding Sweden’s obligations under IMF membership:
  - The Riksbank’s role is not clear—if to act strictly as agent to the government on such transactions, the wording could be clarified.
  - While relevant clauses appear to try to indemnify the Riksbank, the Riksbank continues to be exposed to FX revaluation risk—this may be intentional.
  - Conversely, if all transactions between the Riksbank and the Swedish Ministry of Finance are to be denominated in Special Drawing Rights (SDR)—hence eliminating the FX exposure—this should be explicitly noted.
  - The Act should be clear on which of the IMF accounts will be included in the balance sheet of the Riksbank, and more clarity about Section 7 and 8 in Chapter 6 should be provided.
  - Note: countries differ in practice as to which accounts lie in the accounts of the government versus the central bank.
- The General Council should only “adopt” the balance sheet, profit and loss account and allocation of profits upon completion of the external audit, and having received the external auditors’ report on the accuracy and completeness of the Riksbank’s financial statements.
  - Given the February deadline for adoption, it is not readily apparent whether this practice is to be followed.

### Detailed comments: Audit and oversight (Chapter 11)
- The Act should clearly state that the Riksbank’s internal audit function complies with the standards for internal auditing of the Institute of Internal Auditors.
  - Application of these standards will provide the General Council greater assurance that risks are being assessed and addressed adequately.
- Requiring that the Executive Board adopt an audit plan for the internal audit appears to contravene typical internal audit reporting relationships.
  - Recommendation: The General Council should review and adopt the audit plan of internal audit, not the Executive Board, even acknowledging the Executive Board’s hybrid set-up.
  - Ideally, the Executive Board should be responsible for taking appropriate measures based on observations and recommendations raised by internal audit.
- The Act should provide for engaging an independent external audit firm as a co-auditor along with the National Audit Office.
  - The external audit firm should be an international organization that complies with the auditing standards for external auditors.
  - The external audit function is a key component of a central bank’s governance; compliance with international standards provides the General Council with confidence in the opinion provided.

### Detailed comments: Other
- External experts (see Chapter 11):
  - The General Council should have the authority to call on external experts as necessary to provide an independent assessment of the Riksbank’s effectiveness in its conduct of its policy operations.
  - This would enhance (ex post) central bank accountability further.
- Real property (see Chapter 9, Section 7):
  - Requiring the Riksbank to seek authorization of the Riksdag for the sale or acquisition of real property in excess of SEK 20 million seems to overtly circumvent the accountabilities of the General Council.
- Human Resources (HR) (see Chapter 11, Section 30):
  - Consider the more broadly accepted practice of having a Human Resource and Compensation Committee (HRCC) as opposed to a Staff Disciplinary Board.
  - An HRCC is a standard sub-committee of a Board which approves HR policies, compensations levels, high-ranking hires, terminations, etc.
  - A more narrowly defined “disciplinary” board might be less conducive to an effective work environment.

*Source: 1sweea2020001 - 22.      Chapter 3, Section 13 could mention the funding plan that the counterparties*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1sweea2020001.pdf_