Svein Gjedrem: Experiences with the financial crisis Lecture by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the Centre for Monetary Economics (CME)/BI Norwegian School of Management, Oslo, 30 September 2009. The text below may differ slightly from the actual presentation. * 1. *  *  Introduction  The last time I addressed this assembly was on 12 September 2008, only a few days before the US investment bank Lehman Brothers filed for bankruptcy. The Norwegian economy had entered a new phase. Low inflation and high growth were late in the upturn being followed by somewhat higher inflation and slower growth. Early summer the key policy rate had been raised to 5.75 per cent – a fairly normal level. It seemed that the elevated level of capacity utilisation in the Norwegian economy would gradually drift down. The economic conjuncture took a different turn. The Lehman Brothers’ bankruptcy on 15 September triggered a crisis with failing confidence in banks, counterparties and contractual partners and confidence in the future plummeted. The world economy entered into a sharp downturn. It became increasingly evident that the Norwegian economy would slow at a faster pace and to a further extent than we had envisaged. In August last year, manufacturing enterprises in our regional network reported that growth would hold up. In November, they described the turnaround as a “cardiac arrest”.
They are also a crucial part of how central banks set monetary policy. Cash is the only form of central bank money accessible by the general public. Another important term to bring in here is fiat money. Fiat money is state-backed money denominated in the national currency. Cash is a form of fiat money. Commercial bank money is only acceptable for wide scale use in the UK if it is denominated in sterling, convertible into sterling fiat money at par, and convertible on demand. Private providers of commercial money need to demonstrate they can meet these obligations so that individuals and business can have confidence in being able to regard different types of money as indistinguishable from cash, and be able to change it 1-for-1 on demand. Until recently in the UK, cash accounted for the largest number of payments (by number not value). 3 But in the UK the use of cash in transactions was declining before the Covid pandemic. With the impact of Covid and the UK lockdown, cash withdrawal volumes have dropped further. At their lowest during the UK lockdown, cash withdrawals were 60% lower in April 2020 than a year before. Even as the UK lockdown has eased, cash withdrawal volumes have remained low - in July they were around 40% lower than the year before.4 The increased use of non-cash payments places even greater importance on payments systems, which underlies the work the Bank is doing to upgrade RTGS. But, there is an increasing paradox in the area of cash.