1  4  Norges Bank: Historical monetary statistics for Norway. BIS central bankers’ speeches  The Norwegian economy is well equipped to tackle the challenges. The defence mechanisms of economic policy are better suited today than when oil prices fell in the mid-1980s. At that time, current oil revenues were largely spent over the government budget. When oil prices plummeted, the budget was severely tightened. Today we have accumulated savings of more than five times the government budget. In the 1980s, the banks had little equity capital. Many of them failed when faced with loan losses, which in turn amplified the economic downturn. In recent years, banking regulation has been enhanced. Banks have built up their capital levels, which puts them in a better position to fulfil their role as providers of credit during a downturn. BIS central bankers’ speeches  5  Towards the end of the 1980s, both interest rates and unemployment reached a high level at the same time. There is little likelihood that this will happen again. Since the inflation target was introduced, it has been easier for monetary policy to have a countercyclical effect. When inflation expectations are firmly anchored, monetary policy should also be geared towards stabilising output and employment. Inflation has been low and stable for a quarter century. This is now of benefit to us all. The oil price collapse in the 1980s led to a substantial current account deficit. Competitiveness had to be strengthened.
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.