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Norges Bank Working Paper 2012/16 2012 | 16 Working Paper Norges Bank’s bicentenary project Norges Bank 1999-2010 Governance and structural reforms Harald Bøhn Working papers fra Norges Bank, fra 1992/1 til 2009/2 kan bestilles over e-post: [email protected] Fra 1999 og senere er publikasjonene tilgjengelige på www.norges-bank.no Working papers inneholder forskningsarbeider og utredninger som vanligvis ikke har fått sin endelige form. Hensikten er blant annet at forfatteren kan motta kommentarer fra kolleger og andre interesserte. Synspunkter og konklusjoner i arbeidene står for forfatternes regning. Working papers from Norges Bank, from 1992/1 to 2009/2 can be ordered by e-mail: [email protected] Working papers from 1999 onwards are available on www.norges-bank.no Norges Bank’s working papers present research projects and reports (not usually in their final form) and are intended inter alia to enable the author to benefit from the comments of colleagues and other interested parties. Views and conclusions expressed in working papers are the responsibility of the authors alone. ISSN 1502-8143 (online) ISBN 978-82-7553-704-9 (online) 2 NORGES BANK 1999 – 2010 GOVERNANCE AND STRUCTURAL REFORMS Abstract In 1999 Norges Bank employed 1150 persons and had 12 regional branches located in various cities across the country. In 2010, the regional branches had all been closed and the traditional central bank staff had been reduced to a good 300 persons. In the same period, an investment management unit was developed into what is now called Norges Bank Investment Management (NBIM) with about 280 persons from 25 countries. The head of NBIM reports directly to Norges Bank’s Executive Board and is subject to oversight by the Governor of Norges Bank on behalf of the Board. Considerable changes were also made with respect to the Bank’s organisational and governance structure. This paper has been drawn up to document the Bank’s work on governance and the structural reform process in the period under review, with a view to providing a background document for the authors of the book on the history of Norges Bank to be published in connection with the Bank’s bicentenary in 2016. Keywords: Central bank organisation, central bank governance JEL Classification: E58, H44, N20 1 Preface During the period when Svein Gjedrem was Governor of Norges Bank, extensive changes to the structure of the Bank were implemented. When the new Governor took office in 1999 Norges Bank employed 1150 persons and had 12 regional branches located in various cities across the country. In 2010, the regional branches had all been closed, and the traditional central bank staff had been reduced to a good 300 persons. In a speech delivered in November 2010, Governor Svein Gjedrem stated the following1: “This is an adequate staff level. We no longer produce statistics, and we are no longer a manufacturing enterprise. We issue the currency, but we do not print banknotes or mint coins. The distribution of money has been taken over by private business.” In the same period, an investment management unit was developed into what is now called Norges Bank Investment Management (NBIM) with about 280 persons from 25 countries. The head of NBIM reports directly to Norges Bank’s Executive Board and is subject to oversight by the Governor of Norges Bank on behalf of the Board. Considerable changes were also made with respect to the Bank’s organisational and governance structure. Various editions of the Bank’s Annual Report provide an account of these changes, and the Annual Report for 2008 includes the most extensive account. A comprehensive presentation of this structural change process is not available, however. This paper has been drawn up to document the Bank’s work on governance and the structural reform process in the period under review, with a view to providing a background document for the authors of the book on the history of Norges Bank to be published in connection with the Bank’s bicentenary in 2016. The paper draws on Norges Bank’s Annual Report, a conversation with Svein Gjedrem on 7 August 2012, internal documents and my own notes and recollections. A number of colleagues at Norges Bank have provided comments on the account of the reform processes where they were involved. Any errors or omissions found in this paper remain the sole responsibility of the author. Harald Bøhn 1 Svein Gjedrem: Making use of the central bank. Speech delivered on 17 November 2010 at Norges Bank’s Symposium “What is a useful central bank?” 2 1. Outline of developments 1.1. Tasks The definition of Norges Bank’s core tasks had been the subject of internal discussion through the 1990s. The Bank’s traditional operations had been built up around the conduct of monetary policy, analyses of and measures to secure financial stability, and the production and distribution of banknotes and coins. Investment management was in the early stages of development. Many of the services provided to the rest of the organisation were delivered by the Bank’s internal administration. Eight regional offices had been closed in 1988-1989, and a number of tasks, particularly at the regional offices, were discontinued in the 1990s. Support functions were downsized. The discussion about what Norges Bank’s core tasks should be continued after Svein Gjedrem took office as Governor of Norges Bank. Before his appointment, he had followed developments in Norges Bank from his post at the Ministry of Finance. He had noted that the Bank’s activities were wide-ranging and saw a need for greater focus on core tasks. In Gjedrem’s view, Norges Bank should primarily be a public institution with core functions linked to the field of economics. This was not compatible with a situation in which most of Norges Bank’s employees were engaged in pure bank tasks or manufacturing. After he took office as Governor of Norges Bank, Gjedrem was nonetheless surprised at the wide spectrum of activities. He also observed that a large number of matters, ranging from the material to the trivial, were submitted for consideration by the Executive Board and the Supervisory Council, a practice which could only be deemed as lacking in efficiency. To him, the Bank’s activities seemed to be without a clear sense of direction and purpose, and without sufficient focus on core tasks.2 The basis for the discussion about Norges Bank’s core tasks was 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 coin, promote an efficient payment system domestically as well as vis-à-vis other countries, and monitor developments in money, credit and foreign exchange markets. The Act enables the Bank to implement any measures customarily or ordinarily taken by a central bank. The Bank’s task of managing the Government Pension Fund Global is stipulated by regulation and is set out in a separate management agreement with the Ministry of Finance. 2 This and the preceding paragraph are based on a conversation with Svein Gjedrem, 7 August 2012 3 Based on the above, the conclusion was drawn that Norges Bank’s primary objective would be to promote economic stability in Norway. This would naturally include: promoting price stability through monetary policy, promoting financial stability and contributing to robust and efficient financial infrastructures and payment systems, and performing efficient and sound portfolio management of the Government Pension Fund Global, Norges Bank’s foreign exchange reserves and the Government Petroleum Insurance Fund. Thus, the Bank’s core tasks were defined as monetary policy, financial stability and investment management. Through the period 1999-2010, the resources allocated to the performance of core tasks were increased, particularly with respect to investment management. In pace with the growth of the Government Pension Fund Global from NOK 170 billion at the end of 1998 to more than NOK 3 trillion in 2010, the staff of Norges Bank Investment Management (NBIM) was expanded from 40 in 1998 to 280 in 2010. In the first decade, NBIM was organised as the investment management area of the Bank, reporting to the Governor of Norges Bank in line with the other operational areas. In order to more clearly reflect NBIM’s particular function in the execution of a mandate issued by the Ministry of Finance, the head of NBIM has reported directly to the Executive Board since 2008. The Governor of Norges Bank is responsible for oversight on behalf of the Executive Board. The organisation of investment management at Norges Bank is described in more detail in Section 2. Resources were also augmented for work related to the conduct of monetary policy and analyses of financial stability. In the same period, non-core activities were considerably reduced, resulting in a leaner organisation with a sharp reduction in overall costs. If some tasks had been maintained it might have put the Bank at risk of contravening the Norges Bank Act. In other cases, other institutions were considered to be better suited to the task. 4 The main changes were the following: The Royal Mint was established as a separate company in 2001 and sold in 2003. Banknote production was discontinued in 2007. The first purchase of banknotes from abroad took place in 2008. Cash handling was spun off to form a new company (NOKAS) owned by Norges Bank and a number of private banks in 2001. As a result, the Bank’s tasks such as the operation of central bank depots and banknote destruction were largely outsourced. Norges Bank sold its 33.5 percent interest in NOKAS in January 2006.
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