In January 1817 it was the only bank in the country. It received deposits, but charged a fee for that service. Thus, today’s situation with depositors having to pay for keeping their money in the bank is not entirely a new phenomenon. In the 1870s Norway joined a currency union with Denmark and Sweden that lasted until the outbreak of the First World War. The Scandinavian countries enjoyed strong economic growth during this period. Large cross-border capital flows supported the industrialization of the Scandinavian countries, and financial integration driven by the gold standard and the currency union was probably a contributing factor to the favourable development. Both Sweden and Nor-way were relatively poor countries situated on the outskirts of Europe when Norges Bank was founded 200 years ago, but with the advent of industrialization in the late  BIS central bankers’ speeches  1  19th century both countries began their journeys to become two of the richest nations in the world. Economic and political developments in Norway and Sweden have also showed similar patterns in the period since the Second World War. The role of the central banks was very limited in both Sweden and Norway. The monetary policy decisions were made by the government and Norges Bank became more of a technical implementer of government policy. For much of the 1970s and 1980s, economic policy in both Norway and Sweden lacked a long term strategy and credibility. Inflation and wages soared, and lost competitiveness resulted in repeated devaluations.
At the current juncture, however, a scarcity of funding and capital is likely to make banks cautious about doing this. That was exactly what happened in Japan during its so-called “lost decade”. But there are signs that the extra reserves may be contributing to a decline in the interest rate that banks pay to borrow from each other. It will take some time before we can assess just how effective Quantitative Easing has proved to be. Our latest assessment is that the combined stimulus from policy easing and the lower value of sterling should be sufficient to lead to growth resuming as we move towards the end of the year. But the continuing drag from the financial sector means that the ensuing pickup is likely to take place relatively slowly. There is, however, considerable uncertainty surrounding that assessment. Our primary objective is, of course, to control inflation, not growth. Our target measure, the Consumer Price Index, has been running above the 2% target for the past eighteen months, reflecting in particular the surge in energy and other commodity prices during the first part of last year. But it is now dropping back, reflecting both the sharp decline in energy prices in the latter part of 2008 and the growing margin of spare capacity in the economy. We expect it soon to fall below target and it is more likely than not to remain there for the next year or two.