The Norwegian Government recommends that the asset management of the Government Pension Fund Global (GPFG) remains in Norges Bank

In a white paper submitted today to the Norwegian Parliament, Stortinget, the Norwegian Government recommends that the management of the GPFG remains in Norges Bank. The Government also proposes to establish a committee for monetary policy and financial stability in Norges Bank.

“The Government believes it is essential that there is broad agreement on how Norges Bank and the management of our common savings in the GPFG are organized and governed. With the submission of the white paper on a new Central Bank Act we want to encourage consensus in the Storting on the important choices in the Act. The Government intends to put forward a legislative proposal based on this white paper in spring 2019”, says Minister of Finance Siv Jensen.

The Commission on the Act relating to Norges Bank and the Monetary System, chaired by Svein Gjedrem, proposed in its report, NOU 2017: 13 New Central Bank Act. The Act relating to Norges Bank and the Monetary System and the organisation of Norges Bank and the management of the Government Pension Fund Global, that the GPFG should be managed by a separate statutory entity demerged from Norges Bank. The public hearing on the report revealed different opinions on the merits of this proposal.

“After a comprehensive assessment, the Government recommends that Norges Bank continue to be the asset manager of the GPFG going forward”, says the Minister of Finance.

Norges Bank is an institution that enjoys a high level of trust, both in Norway and internationally. Over time, the bank’s performance, both as asset manager for the GPFG and as Norway’s central bank has been good. As the country's central bank, Norges Bank has a thorough understanding of the role the GPFG plays in economic policymaking.
“Keeping the management of the fund in Norges Bank implies that the Bank will continue to have broad and complex responsibilities. We must ensure that the governance structures are well adapted to these responsibilities”, says Minister of Finance Siv Jensen.

The Government proposes to establish a policy committee in Norges Bank. The committee will take decisions on the key policy rate and advise on, among other things, the counter-cyclical capital buffer. By moving responsibility for these tasks to a separate committee, the board of the central bank can become more focused on and devote more time to the Bank's other tasks, in particular management of the GPFG.

In the white paper, the Government proposes that Norges Bank should continue to enjoy a high level of independence in carrying out its mandate as the country’s central bank. The threshold for instruction is high, but the threshold is not legally established. The Government proposes to formalize this in the new Central Bank Act. The current law states that Norges Bank has a duty to submit matters of particular importance to the Ministry before decisions are taken. The Government believes that the duty to submit should be replaced with a general duty to inform about matters of importance.

The Government also proposes a statutory provision on the central bank’s purpose and objectives. The bank’s main objective should be to maintain price stability and promote stability in the financial system as well as ensuring an efficient and secure payment and settlement system. In addition, Norges Bank should generally contribute to high and stable production and employment. This is in line with the proposals of the Central Bank Law Commission. See also the mandate for monetary policy from March 2018.

 

Background information

Norges Bank’s governance structure
The Government proposes to establish a monetary policy and financial stability committee in Norges Bank. Under the current law, the central bank’s board is responsible for setting the key policy rate and advising the Ministry of Finance on the appropriate level of the counter-cyclical capital buffer. By moving responsibility for these tasks to a separate committee, the central bank’s board can become more focused on and will be able to devote more time to the bank's other tasks, including management of the GPFG. The board will maintain responsibility for all central bank tasks outside the remit for the monetary policy and financial stability committee. This includes ensuring a well-functioning payment and settlement system, as well as other central banking activities including provision of cash and crisis preparedness.

The Government proposes that the central bank governor chair both the new policy committee and the board. The Government further proposes to continue having two deputy governors, one pertaining to the GPFG and one mainly focusing on central banking activities. The deputy governors should be members of both the policy committee, and the board. This will contribute to a flexible and robust governance structure, and is particularly important given that responsibility for central banking activities are split between the board and the committee.

The Government proposes that the monetary policy and financial stability committee should be composed of five members, the governor and the two deputy governors and two external members. Further the board should be composed of nine members, the governor, the two deputy governors, and six external members. Given its more focused role, the external members of the board can to a greater extent than today be chosen based on their expertise in areas such as risk management, asset management, and responsible investment practices.

Central bank independence
Over time, central banks, including in Norway, have become more independent. It is important to the Government that the new Central Bank Act safeguards this independence. In practice, the threshold for instructing the bank is very high, and has only been used for setting the operational objectives of the bank, including the inflation target. The Government proposes that Norges Bank should not in any other way be subject to instruction as to its activities except in extraordinary circumstances.

The Government proposes that Norges Bank’s duty to submit matters of particular importance to the Ministry of Finance before a decision is made, should no longer apply. The Bank should instead inform the ministry about matters of importance.

Read more:

• Press release 31/2017: Report of the Law Commission on the Act relating to Norges Bank and the Monetary System