The whims of French kings were replaced by parliaments that were accountable to the people. It is no coincidence that the name of the most prominent great power’s monetary unit – the pound – reflected a measure of weight: the value of a pound of silver. 10 Credibility hinged on orderly government finances and a stable political situation, which contained seignorage temptations and in turn strengthened public confidence in the value of money. A number of conditions need to be in place to enable a central bank to keep its promise! When Norges Bank was established in 1816, the government sought to ensure credibility by establishing a tax-financed silver fund. A par value against silver for the new paper money – the speciedaler – was announced. However, the market value of the speciedaler was considerably below par value – the authorities in our young country were in a difficult financial situation and had not yet established confidence. It was not until 1822 that the authorities were able to establish a more orderly system when the Storting adopted a longterm strategy whereby the silver value of the speciedaler would gradually increase to par value. 11 This goal was reached in 1842, twenty years later, bearing witness to long-termism and persistence in policy implementation. And persistence was rewarded. The rest of the 1800s and the period to the Second World War were generally characterised by price stability and strong growth in the Norwegian economy, even though there were also periods of weaker growth.
BIS central bankers’ speeches  7  Conclusion Let me conclude. In Norway, inflation has on average been somewhat below, but close to, 2.5 percent in recent years. Activity has been close to a normal level and unemployment has remained low. At the same time, house prices have risen sharply since the 1990s and household indebtedness is at a historically high level. Against this background, it has been appropriate to keep the key policy at the chosen level in order to dampen the build-up of financial imbalances. When assessing various considerations, Norges Bankmust pursue the primary objective of monetary policy – low and stable inflation. If financial imbalances build up further, it will be appropriate to assess the level of the countercyclical capital buffer for banks. Banking regulation and supervision must be the first line of defence against shocks to the financial system. At the same time, we cannot proceed under the assumption that new regulations will eliminate the risk of financial stress. A robust monetary policy should therefore take into account the risk of financial instability. Monetary policy will then also contribute over time to stable economic developments in line with Norges Bank’s mandate. 8  BIS central bankers’ speeches