Although the nominal krone exchange rate has depreciated this year, the competitiveness of Norwegian industries is still rather weak. The krone has now reverted to around the level prevailing in the mid-1990s, while labour costs in manufacturing rose by 13 per cent5 more than among our trading partners in the same period. The developments in the krone exchange rate proved to be reversible, but the loss of competitiveness and jobs caused by relatively high wage growth in Norway is difficult to recoup. A precondition for a considerable improvement in competitiveness is probably that real wage growth is lower than productivity growth in the business sector for a period. Experience shows that this occurs in periods when there is excess capacity in the economy. This means that changes in competitiveness over time  4  Q. Farooq Akram (2003): “Reelle likevektsvalutakurser for Norge” (Real equilibrium exchange rates for Norway) in Norges Bank’s Occasional Papers, no. 31 (Norwegian only). 5  Wage figures for trading partners have been revised since the publication of “Report on monetary policy in 2003 – the first eight months”. BIS Review 53/2003  5  depend on real economic factors and on aspects of wage formation and cannot be controlled by monetary policy. However, with flexible inflation targeting, the social partners can normally expect low wage growth to have a greater impact on competitiveness because it can result in a weaker krone.
For a review of Norway’s monetary history, see Eitrheim, Ø., J.T. Klovland and L.F. Øksendal (2017). A monetary history of Norway, 1816-2016, Cambridge University Press. 7 Deposit money is also reduced when customers withdraw cash. However, since cash is part of the money  supply, the total money supply in the economy does not change. 8 8/9  BIS central bankers' speeches  8 In isolation, diversification reduces banks’ funding risk. Increased use of wholesale funding may lead to slower  growth in the money supply than in credit. Banks also hold liquidity portfolios containing highly liquid securities that can be sold to compensate for deposit withdrawals. This also reduces banks’ risk. 9 For a more detailed explanation of how money is created by banks, see “Money creation in a modern economy”,  Bank of England Quarterly Bulletin2014/Q1, and Bernhardsen, T., A. Kloster and O. Syrstad (2016) “Alternative virkemidler i pengepolitikken – Den nødvendige monetære økosirk” . Staff Memo12/2016. Norges Bank (Norwegian only). 10 Lehman Brothers was an investment bank and did not accept customer deposits. However, as the bank issued  short-term paper and took part in repurchase agreements, which are included in M3, Lehman Brothers created money. The closure of Lehman Brothers led to investor flight from money market funds, very high money market volatility and higher demand for cash from US bank customers. 9/9  BIS central bankers' speeches