Swedish Central Bank Boosts Dollar Holdings in Reserve Shift

The Swedish Central Bank Riksbank on Tuesday increased its exposure to dollar assets in the foreign exchange reserve to 70%, from previously 62%. At the same time, the share of assets in euros is reduced from 22% to 17.5%.

The Riksbank’s decision is part of a new strategic allocation of the gold and foreign exchange reserves, which includes a few new euro zone countries being introduced into the foreign exchange reserves.

The Swedish Central Bank also said that the other foreign reserves will contain assets in the currencies, the pound sterling unchanged at 5%, the Australian dollar unchanged at 5% and the Norwegian krone at 2.5% (previously 3%) until further notice.

Even the assets in Norwegian currency are reduced slightly, to 2.5 percent from the previous 3%. At present, the Danish krone and Canadian dollar are not included in the foreign exchange reserves.

In addition, the current currency hedging will be maintained. In this way, the Riksbank achieves a good balance between contingency preparedness, risk and return. The change means that the Riksbank is expected to increase its earnings slightly.

The Riksbank has a foreign exchange reserve to provide liquidity support to banks operating in Sweden, as well as to be able to intervene in the foreign exchange market. The foreign exchange reserves therefore consist mainly of liquid assets such as government bonds in US dollars and euros, Riksbank said.

The Riksbank’s strategic allocation aims to achieve a balance between contingency preparedness, risk and reward.

Slight Increase in Returns

The expected return is slightly raised by increasing the share of US dollar assets and in addition to German government bonds denominated in euro, including French, Spanish and Italian government bonds in the foreign exchange reserves. The composition of the euro-denominated bonds is 10% German bonds, French bonds for 5%, Spanish bonds for 2% and Italian bonds for 0.5%.

In September 2023, the Riksbank decided to hedge $8 billion and $2.16 billion to maintain sound risk management and reduce currency risk. The Riksbank has decided that the current currency hedging will remain unchanged, which means that around a quarter of the size of the foreign exchange reserve will continue to be hedged.

The Riksbank’s gold and foreign exchange reserves are primarily managed on the basis of the Riksbank’s contingency needs. The gold volume in the Swedish Central Bank’s reserve remains unchanged at 125.7 tons.

The operational management of the foreign exchange reserves is decided in a strategic allocation each year, or when needed. Among other things, this strategic allocation involves a trade-off between contingency preparedness, return, risk and sustainability.