Agricultural prices are set in negotiations between the agricultural organisations and the state (...) In these circumstances, it is almost meaningless to talk about the central bank’s special responsibility for inflation.”39 The diminished role of the institution, which persisted well into the 1980s, must be seen in the light of mixed experiences with par policy, ambitious aims of micromanaging the economy, and the conviction that lower unemployment could be achieved by accepting higher inflation.40 At the same time, major imbalances were building up in the economy. Fiscal policy, in conjunction with credit regulation and tight political control of business investment gradually undermined the monetary system as an institution. Later in the 1970s, these problems came to the surface. Growth declined, inflation surged and unemployment rose sharply. I should add that these problems were not confined to Norway. In 1971 the Bretton Woods system collapsed. Two year later the first oil price shock occurred. At the beginning of the 1980s, the problems in the Norwegian economy had reached a pinnacle. In May 1986, the Brundtland government decided to devalue the Norwegian krone by 10 percent. As was usual on such occasions, it was said that this would be the “last time”. Less usual was that it actually was the last time. Gro Harlem Brundtland, Gunnar Berge and Bjørn Skogstad Aamo had come to a decision. Devaluation policy was consigned to the past.
BIS central bankers’ speeches  7  At irregular intervals during the past 200 years, Norges Bank has faced defining moments – crossroads – that have defined the bank as an institution. At such defining moments, the central bank becomes what it is, both in its own awareness and in that of the general public. These are situations where it sometimes became bigger than itself or took on too much responsibility, or inversely became smaller than itself and did not fulfil its role. As is so often the case, it is only in retrospect that we can fully identify the defining moments and assess the wisdom of the choices made. Norges Bank faced its first defining moment early on. When it was first established, the Bank was unknown to the public at large. The new paper money, speciedaler notes, was linked by law to a specific amount of silver.29 Despite the fact that the silver tax had secured Norges Bank a considerable silver reserve, the authorities were afraid to permit free silver redemption. The fear was that the silver fund would be emptied quickly. The notes in circulation with the promise of silver redemption far exceeded the silver value of the silver forks and silver plates that had been collected. Confidence in the new notes waned, and in 1822 the Storting adopted a long-term strategy whereby the redemption rate in silver for the speciedaler would gradually be increased. The aim – the right to full silver redemption, i.e.