One hard-won lesson was particularly important: the central bank must keep the crown and government at arm’s length and must not extend credit to government. Control of the printing press would promote economic stability and prevent unrestrained money printing to finance spending by the crown. Two hundred years later, safeguarding the value of money remains monetary policy’s main task. Responsibility for monetary policy rests with Norges Bank, but today policy is geared towards maintaining stable inflation rather than a stable currency backed by a precious metal. The Bank’s role has also changed in other areas. From being the country’s only bank, Norges Bank took on the role of the bankers’ bank, with the new responsibilities that entailed. The central bank also has a responsibility to promote robust financial markets. The core of Norway’s payment system is housed in this building. Two hundred years as a central bank in a small open economy The Norwegian economy has changed over the past 200 years. In the early 1800s, eight in ten Norwegians worked in agriculture, forestry and fisheries compared with one in forty today. But some important features have not changed. Norway is a small open economy and developments abroad have an impact at home. Our foreign trade is largely based on natural resources. In the early 1800s, fish, timber and shipping were the mainstays of our economy. In recent times, oil and gas sales have accounted for a large share of Norway’s export revenues.
The war generated substantial profits for the shipping industry and fuelled speculative behaviour resulting in a credit and asset price boom. Monetary policy did not contribute to dampening these developments. There was a sharp increase in the money supply and inflation soared. Between 1914 and 1918, the price level more than doubled. After the war, exports fell and the krone depreciated to about half of the statutory exchange rate. At the same time, the economy was faced with a banking crisis and recession. This created a dilemma for monetary policy. The prevailing view was nonetheless that the krone had to be brought back to parity. The task fell to Nicolai Rygg. The active deflationary policy pursued proved to be costly. However, Rygg stood firm in his belief that breaking the promise made in 1816 to preserve a stable value of money would entail more serious consequences:  BIS central bankers’ speeches  3  “The hardships we are facing in the transition to normal, ordered conditions are transient. No one can close their eyes to the fact that they are very serious, but the life of the people is eternal and the consequences of this decision will remain with us for generations.” Those were Rygg’s words in his annual address in 1927. A year later, in 1928, the policy of gold parity had achieved its objective. Consumer prices had fallen by more than 40 percent since 1920. But the gold standard would only survive three years.