Norges Bank to purchase NOK and sell foreign currency to fund transfers to the government
Norges Bank’s Executive Board has decided to purchase NOK to fund the transfer of dividends to the government for the 2024 financial year.
The government owns Norges Bank and holds deposits in its government treasury account with the Bank. Norges Bank’s profit for the year and the interest on the government’s deposit account are transferred to the government annually.
Previously, government debt was issued to prevent transfers to the government from increasing banks’ deposits in Norges Bank.
Norges Bank’s Executive Board has decided to purchase NOK by selling foreign currency from the foreign exchange reserves to fund the transfer of dividends to the government in 2025, which means that the transfers will not influence the long-term level of banks’ deposits in Norges Bank.
The earnings for 2024 and the associated transfer of dividends from the transfer fund are set in Norges Banks annual financial statements, which will be published in February 2025. The earnings as of November 2024 indicate that the transfer will amount to NOK 27 billion.
The NOK purchases will be evenly distributed over the period between March 2025 and February 2026. The transactions will be executed on the trading days on which Norges Bank carries out foreign exchange transactions on behalf of the government. NOK purchases to fund transfers to the government and foreign exchange transactions on behalf of the government will be executed in the market as a daily net amount.
The interest paid on the government treasury account for 2024 was offset by government borrowing in 2024. The total interest paid on the treasury account in 2025 will be known at the end of the year and handled in connection with the transfers in 2026.
The decision to purchase NOK to fund the transfer to the government applies to the 2024 financial year. The next decision concerning the funding of transfers to the government will be made prior to the Executive Board’s consideration of Norges Banks annual report and financial statements for 2025. The assessment will take into account the long-term level of banks’ deposits in Norges Bank and the need to hold foreign exchange reserves.
For more information, see Q&A.
Questions and answers
Why is Norges Bank buying NOK to fund transfers to the government?
Norges Bank is owned by the government, which has deposits in its account with Norges Bank. Norges Bank transfers its profit and pays interest on the government’s account. Most of Norges Bank’s profit is return on the foreign exchange reserves.
Until now, profits and interest have been transferred to the government by Norges Bank, creating new money credited to the government’s account. The funds are considered government revenue and spent through the central government budget. When disbursing eg pensions, the government first transfers deposits from its account with Norges Bank to private banks’ accounts with Norges Bank. Private banks then credit pensioners’ bank accounts. When the government spends transfers from Norges Bank through the central government budget, banks’ deposits in Norges Bank increase.
In the period to end-2024, the government has offset this increase by issuing government bonds equal to the transfers from Norges Bank. When the government borrows, money leaves the banking system and enters the government’s account. These funds have remained in the government’s account with Norges Bank. The net effect of the transfers from Norges Bank to the government has therefore not been an increase in banks’ deposits in Norges Bank, but rather an increase in the government’s deposits in Norges Bank and a corresponding increase in government debt.
In 2024, the Ministry of Finance decided that the government will no longer issue government debt to neutralise the transfer of interest and dividends from Norges Bank. The decision was made on the basis of recommendations from a working group on government transactions and the money market.
When Norges Bank buys NOK for transfer to the government by selling foreign exchange reserves in the market, it drains liquidity from the banking system and ensures that the transfers do not increase banks’ deposits in Norges Bank.
Who decides how Norges Bank funds transfers to the government?
Norges Bank’s Executive Board decides how to fund transfers to the government. The government stipulates rules for how the size of the transfers is calculated, while the interest terms for the government’s account are set in an agreement between Norges Bank and the Ministry of Finance.
How are transfers from Norges Bank to the government calculated?
The Guidelines for provisions and allocations of Norges Bank’s profit or loss describe how profit transfers are calculated. Norges Bank’s profit, and therefore also transfers to the government, will fluctuate over time and depends particularly on the return on the foreign exchange reserves.
The interest terms for the government’s deposits are set out in an agreement between Norges Bank and the Ministry of Finance.
Over the past ten years, annual transfers to the government have averaged slightly below NOK 20 billion.
Where can I find information about Norges Bank’s transfers to the government?
Information about Norges Bank’s transfers to the government can be found in Norges Bank’s annual report. Developments in Norges Bank’s balance sheet are published in monthly reports. You can also read about developments in Norges Bank’s foreign exchange reserves in quarterly reports on the management of foreign exchange reserves.
When will the amount of NOK Norges Bank will purchase to fund transfers in 2025 be published?
The amount that will be transferred to the government will be determined in connection with the publication of Norges Bank’s annual report and financial statements for 2024, scheduled for 25 February 2025.
What kind of foreign exchange transactions does Norges Bank carry out?
Norges Bank converts foreign currency and NOK on behalf of the government. In addition, there are also foreign exchange transactions to fund transfers from Norges Bank to the government. None of these transactions have any connection to monetary policy or seek to influence foreign exchange markets.
How will Norges Bank carry out NOK purchases to fund transfers?
The purchase amount will be distributed evenly over the trading days on which foreign exchange transactions on behalf of the government can be executed in the period between 1 March 2025 and 1 March 2026.
The need for foreign exchange transactions on behalf of the government and the need to buy NOK to fund transfers to the government will be calculated and communicated as separate amounts but executed in the market on a net basis.
The need to exchange currency in connection with the funding of the transfers to the government will not change in the period between 1 March 2025 and 1 March 2026.
What influence will these NOK purchases have on the krone exchange rate?
NOK purchases to fund transfers to the government do not aim to influence the exchange rate. The amounts transferred to the government are small compared with daily turnover in the foreign exchange market and the purchases will be spread out over time to influence the market as little as possible.
As with foreign exchange transactions on behalf of the government, Norges Bank will give priority to transparency and predictability when carrying out the transactions.
Why does Norges Bank keep foreign exchange reserves and who decides the size?
The foreign exchange reserves are Norges Bank’s contingency funds in international currencies. They are to be available for use in foreign exchange market transactions as part of the conduct of monetary policy with a view to promoting financial stability or to meet Norges Bank’s international commitments.
Under the Central Bank Act, Norges Bank determines the amount of the official foreign exchange reserves and how these shall be invested.
Contact:
Press telephone: +47 22 31 60 60
Email: presse@norges-bank.no