September 8, 2017 / 12:17 PM / a year ago

Sweden expands mandate for review of central bank operations

STOCKHOLM, Sept 8 (Reuters) - Sweden’s centre-left coalition said on Friday it would expand a review of the rules governing how the central bank operates to include its balance sheet, a move analysts said could reverse an earlier plan to cut the central bank’s currency reserve.

Central banks worldwide have adopted novel policies in recent years to deal with the effects of the financial crisis. That has led to reviews of structures and legal mandates - often decades old - to clarify what powers should belong to a central bank and which should be subject to democratic control.

The wider mandate will extend the review to include issues such as the size of the central bank’s currency reserve and how much equity it should have.

“The most important implication is that the proposed reduction of the currency reserve will be delayed until at least 2019,” banking group SEB said. The bank said the reduction could even be scrapped.

In March this year, the government said it planned to limit the Riksbank’s currency reserve to about 200 billion crowns ($25.24 billion), which would mean reducing it by around 250 billion crowns. The foreign currency reserve is funded by government borrowing.

The Riksbank increased its currency reserve after the 2008-2009 financial crisis so it could provide emergency liquidity for Sweden’s banks, which have assets of around four times gross domestic product.

Governor Stefan Ingves has said the Riksbank needs a big currency reserve to offset the risks in the banking system.

At the end of last year, the government appointed a commission to overhaul the way the Riksbank’s operational mandate is set out.

It was tasked with looking at the goals and practice of monetary policy, the central bank’s role in financial stability and democratic control of the central bank, among other things.

“The government will hand over the work to strengthen the Riksbank’s financial independence to the parliament’s Riksbank committee,” Financial Markets Minister Per Bolund said in a statement.

$1 = 7.9227 Swedish crowns Reporting by Simon Johnson, editing by Larry King

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