1  The Scandinavian Journal, 1799, in The travel diaries of Thomas Robert Malthus, edited by Patricia James, Cambridge University Press (1966). 2  See Norges Bank Working Paper 23/2013, Contributions to a history of prices in Norway: Monthly price indices, 1777–1920, by Jan Tore Klovland. BIS central bankers’ speeches  1  The Storting delegated the task of supervising the monetary system to Norges Bank, which was established in 1816. The king would no longer have the authority to print money at will. At its inception, Norges Bank’s head office was located in Trondheim, a twelve-day journey from the government in Christiania, and even farther from Stockholm3, giving the central bank a geographical – and not just formal – distance from the government authorities. The value of money would be guaranteed by a stock of silver and a silver tax was introduced. But establishing confidence would take many years. The banknotes that were printed were not fully redeemable in silver until 1842. Since then, the value of Norway’s currency has been fairly stable for long periods, but we have also experienced periods of deflation, high inflation and waning confidence. The lesson has been the same every time: restoring confidence comes with a cost. Much has happened since 1814. Norway no longer lags behind other western economies. Inflation is low and stable. We have established a clear division of responsibility for economic policy and well developed institutions founded on the Constitution written at Eidsvoll 200 years ago.
The value of the Fund and its investment returns will therefore swing in tandem with equity and bond prices. This may draw a veil over the progression of the Fund’s underlying earnings. In the long run, it is the Fund’s cash flow that makes a permanent contribution to our national income. Put in simple terms: The cash flow is cash in hand, while the prices we measure in market values vary with shifting market sentiments. The cash flow is more stable than the market values as expressed by exchange listed prices. The Fund’s cash flow is therefore a good cross-check for measured capital returns. Chart 12: Cash flow from the GPFG and petroleum revenue spending over the fiscal budget The cash flow is commensurate with the actual level of petroleum revenue spending over the fiscal budget of about 3 percent of the Fund’s capital. This is reassuring because it implies that the Fund’s capital is not being depleted. The fall in yields in recent years has provided one-off price gains in bond and equity markets. Looking ahead, low long-term interest rates will feed through into lower returns. It is doubtful that equity prices will continue to advance at the same pace as seen in the past couple of years. The most likely scenario is still one where the Fund’s real return will approach 3 percent in the longer term. Above all we should recognise that future returns on the Fund are uncertain.