Lars Fredrik Oksendal

The impact of the Scandinavian Monetary Union on financial market integration

In the period from 1877 until the outbreak of World War I, Sweden, Denmark and Norway constituted a currency area – the Scandinavian Monetary Union (SMU). They shared the same unit of account, the gold krone. Both full-bodied gold coins and token coins of the three countries served as legal tender and circulated freely within the union. Initially set up to preserve the traditional circulation of neighbouring coins in the border regions, the central bank cooperation was extended to a mutual settlement mechanism (1885) and later reciprocal acceptance of notes at par (1901). A desire for economic integration was present under the surface of this practical approach, mirroring the predominant liberal worldview of the 1870s. For instance, the Norwegian government saw a common coinage as an instrument for ‘knitting together the three nations to a single commercial territory’. In the parliamentary debate on Norwegian entry into the union a supporter argued that ‘the real objective of unity in coin had to be to bring the countries closer together’. Thus, from the outset, the SMU was a combination of practical arrangements and lofty ambitions.

The decentralised central bank: regional bank rate autonomy in Norway, 1850-1892

Before 1893 the regional branches of Norges Bank set their own bank rates. We discuss how bank rate autonomy could be reconciled with the fixed exchange rate commitments of the silver and gold standard. Although the headquarters of the bank was in Trondhjem, we find that the Christiania branch played the key role in providing leadership in bank rate policy. Foreign interest rate impulses were important for bank rate decisions, but there was also some leeway for responding to idiosyncratic shocks facing the Norwegian economy.

The Norwegian debate on the gold standard and monetary integration in the 1870s

Abstract The origin of the gold standard and the desire for monetary integration shared the same root, the prevailing liberal worldview of Norwegian elites. The actual timing of the final move, however, was strongly influenced by fear of foreign exchange volatility in the wake of the German monetary unification rather than the fear of inflation highlighted in earlier studies. The diminished prospect for a single “world money” after the Franco-Prussian war made monetary integration a dividing issue. In 1873, the attempt by the government to safeguard some of the advantages of integration by joining the Scandinavian Currency Union (SCU) was defeated by the parliamentary majority. The opposition was based both on a more optimistic view of the prospect of even further monetary integration and on fears of political opposition to Scandinavianism and the government. However, eighteen months later, parliament conceded and Norway joined the SCU.Abstract The origin of the gold standard and the desire for monetary integration shared the same root, the prevailing liberal worldview of Norwegian elites. The actual timing of the final move, however, was strongly influenced by fear of foreign exchange volatility in the wake of the German monetary unification rather than the fear of inflation highlighted in earlier studies. The diminished prospect for a single “world money” after the Franco-Prussian war made monetary integration a dividing issue. In 1873, the attempt by the government to safeguard some of the advantages of integration by joining the Scandinavian Currency Union (SCU) was defeated by the parliamentary majority. The opposition was based both on a more optimistic view of the prospect of even further monetary integration and on fears of political opposition to Scandinavianism and the government. However, eighteen months later, parliament conceded and Norway joined the SCU.

Dividend policy in Norwegian banking before 1914

This article discusses the dividend strategy adopted by Norwegian commercial banks before 1914. Based on a unique data set covering all banks in the period 1882– 1913 as well as six other institutions for the pre-1882 period, I identify the existence of a strong bias towards the payment of high and stable dividends to shareholders. The origins of such bias lie in the specific institutional set-up of commercial banking, the expectations of shareholders and the absence of developed securities markets. Combined with a strong preference for high gearing, this feature contributed to increase the fragility of the Norwegian banking system.

Bank Rate policy in Norway, 1893–1914

Abstract The article discusses Bank Rate policy in Norway in the last two decades of the classical gold standard. The empirical mainstay is a detailed examination of rate changes. The key finding is that Bank Rate changes not were decided in accordance with a single monetary rule or criterion, but were influenced by a broader set of considerations. In particular, Norges Bank was sensitive to the needs of business and the state of domestic money market.Abstract The article discusses Bank Rate policy in Norway in the last two decades of the classical gold standard. The empirical mainstay is a detailed examination of rate changes. The key finding is that Bank Rate changes not were decided in accordance with a single monetary rule or criterion, but were influenced by a broader set of considerations. In particular, Norges Bank was sensitive to the needs of business and the state of domestic money market.

A monetary history of Norway, 1816-2016

This book provides a broad overview of monetary developments in Norway over the past 200 years, using a rich variety of graphical illustrations based on a unique data set of historical monetary statistics, which will be documented and made available on the Norges Bank website (in English) at http://www.norges-bank.no/en. Throughout the book, Norways monetary developments are anchored in a historical context and in the development of monetary thinking. Through their analysis of the historical data, the authors provide new insights and comparisons to other Scandinavian countries, along with an excellent examination of the development and character of the banking and financial system in Norway.

Letting the Anchor Go: Monetary Policy in Neutral Norway During World War I

For later generations, August 1914 has become a watershed in monetary history. In a matter of days, the belligerent and neutral countries of Europe alike suspended the gold standard. The international monetary regime that had served the world economy for close to four decades was no more. Everywhere domestic fiat money became the order of the day. Even more importantly, the war brought a fundamental change in the priorities of monetary policy: National objectives triumphed over monetary stability. (Work in progress)

Multilateralism and domestic policy in the early 1950s: Explaining the case of Norwegian ambiguity

ABSTRACT In the 1950s, Norway was among those countries most reluctant to embrace the ongoing process of currency and trade liberalisation. Both trade liberalisation, the establishment of the European Payments Union (EPU) and the plans for the reintroduction of currency convertibility were met with ambiguity. This ambiguity contrasts both the general image of Norways traditional liberal foreign economic policy and the expected approach of a small open economy. This article argues that the origins of ambiguity were deeply rooted in the political economy of post-war Norway, and a result of the meeting between grand domestic ambitions, external constraints derived from this set of ambitions and, importantly, the set of prevailing economic beliefs that influenced both domestic policy and international orientation.ABSTRACT In the 1950s, Norway was among those countries most reluctant to embrace the ongoing process of currency and trade liberalisation. Both trade liberalisation, the establishment of the European Payments Union (EPU) and the plans for the reintroduction of currency convertibility were met with ambiguity. This ambiguity contrasts both the general image of Norways traditional liberal foreign economic policy and the expected approach of a small open economy. This article argues that the origins of ambiguity were deeply rooted in the political economy of post-war Norway, and a result of the meeting between grand domestic ambitions, external constraints derived from this set of ambitions and, importantly, the set of prevailing economic beliefs that influenced both domestic policy and international orientation.

Inflation Targeting: Overcoming the Fear of Floating, 1998–2016

Introduction By the end of the 1990s, Norway had entered the arguably most prosperous period in its recorded history. The catchphrase ‘richest country in the world’ gained ground and Norway frequently topped international indices of human development. The prosperity or, to be quite precise, the part of its newfound prosperity that made it depart from the northwest European mean originated in the development of the global economy. The rise of China and other Asian tigers rendered Norway with, on one hand, declining import prices for many manufactured items and, on the other hand, a fabulous increase in oil prices, the countrys most important export. Between 1998 and 2013, terms of trade improved by 101 per cent. Only once before had Norway been exposed to a positive terms of trade shock of this magnitude. The sharp improvement in the first years of World War I, however, had soon been arrested. The novelty of 1998–2013 was both its strength and its durability over time. Norway ran a double-digit trade balance surplus (in relation to GDP) for more than a decade. Only in the last half of 2014 did a marked weakening of terms of trade set in as a result of plummeting oil prices. For fifteen years, Norwegians experienced substantial, but rather effortless, real welfare gains in a time when the Western Hemisphere suffered the worst economic backslash since the interwar period. Windfall prosperity coincided with important changes in the monetary policy framework. In 1986, as discussed in the previous chapter, Norway had restored the monetary anchor and adopted a fixed exchange rate regime. In the following years it had taken part in the great moderation, which brought inflation rates down at home and abroad. Under the managed float following the end of the ERM peg in 1992, price stability had gradually come to the forefront of policy. By the autumn of 1998 the fixed exchange rate regime had run its course and in January 1999, Norway de facto moved to inflation targeting. Two years later Norges Bank was officially given an inflation target mandate.