Translating central bank independence into Norwegian: central bankers and the diffusion of central bank independence to Norway in the 1990s

ABSTRACT

The sweeping diffusion of central bank independence (CBI) as an institutional norm in many countries over the course of the 1990s has attracted a lot of interest within the discipline of international political economy. Important strands within the literature have emphasised the role of ideas and of central bank institutions in the diffusion process, although not placing ultimate explanatory weight on central bankers’ actions and activities in order to explain differences in patterns of diffusion between countries. Norway represents an outlier in the diffusion process, not reforming its central bank legislation until 2003 – six years later than the United Kingdom. The article explores this late shift to CBI by building on an ideational approach, investigating whether Norwegian central bankers’ translation strategies and actions adds more explanatory value than the mainly structural arguments dominating the existing diffusion literature. The article finds that central bank action and changing strategies actually helps us a great deal explaining why Norwegian authorities chose to alter central bank legislation when they did.

KEYWORDS:

• Central bank independence
• central banking
• epistemic community
• monetary policy
• ideas
• Scandinavia
• translation

Acknowledgments

I would like to thank Einar Lie and Lars Fredrik Øksendal for valuable comments on this article on different stages of the writing process.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Maxfield (1997), McNamara (2002), see also Marcussen (2005).

2. The Danish central bank had enjoyed considerable real and legal independence throughout the entire post-war period. The Swedish and Finnish central banks were under a degree of political dominance similar albeit lighter than that of the Norwegian central bank. The Finnish central bank eventually joined the ECB system as Finland adopted the Euro. The Swedish central bank was granted statutory independence in 1998, following a parliamentary proposal in 1997. See King (2001); Marcussen (2007).

3. This was obviously the case in most Eastern European countries after the fall of communism (Epstein 2008; Johnson 2016) and in several developing countries in Latin America and Africa (Maxfield 1997). Though of a very different character, fundamental institutional change also fostered the consolidation of CBI within the EMU.

4. Norway turned down EEC/EU membership in popular referendums in 1972 (when Denmark and the United Kingdom joined) and 1994 (when Sweden and Finland joined). Norway nevertheless participated in the European exchange rate cooperation 1973–1978, considered but eventually turned down associated membership in the EMS in 1978. In 1994, Norway also joined the European Economic Agreement allowing it to participate in EU's internal market. The EU is Norway's most important trading partner.

5. The article is based on my research on the history of the Norwegian central bank conducted 2012–2015 while writing chapters 9, 13–17 in Lie et al. (2016). In my research, I was granted access to all relevant documents in the bank's archives and access to key actors within the bank. I also benefited greatly from the gathering of documentation, interviews and key policy documents, conducted at the bank by other participants in the project at the same time, in particular by Christoffer Kleivset.

6. By ‘idea’ I understand shared norms or notions of causal relationships, see e.g. Goldstein and Keohane (1993).

7. Toniolo (1988); the term central bank is associated with the aquiesence of responsibility for broader financial (and economic) stability by the note issuing (or government debt-servicing) banks during the second half of the nineteenth century.

8. Singleton (2011).

9. McNamara (2002).

10. Haas's (1992) concept of epistemic communities inspired a lot of this literature. See also Toniolo (2005) and Lebaron (2008).

11. See also Kapstein (1992).

12. Johnson (2016) prefers ‘transplantation’ but I perceive the concepts to be closely related.

13. The study of central bankers as agents in general also seems to be increasingly popular, cf. Tognato (2014), Sørensen (2015).

14. Especially for the links between the concept of CBI and credibility and rules, see Forder (2005) and Kirshner (2003).

15. Arestis and Sawyer (2004); Singleton (2011).

16. One of the arguments for inflation targeting is that a credible inflation target against other countries with credible inflation targets also will ensure long-term exchange rate stability, as credible inflation targets by consequence will ensure parallel price growth. Contrary to a fixed rate regime, however, the floating rate allows for short-term adjustments. The ideational shift from emphasis on the costs of an unstable exchange rate for a small open economy and to accepting floating rates is also interesting and not without interest in a CBI/monetary reform perspective, cf. Straumann (2010).

17. E.g. Arestis and Sawyer (2004), on liberalisation, see Helleiner (1994). Forder (2005) claims that inflation targeting did not form the basis for the argument for CBI as such, which is perfectly true. I argue, however, that the shift to inflation targeting in many countries pressed the issue of independence.

18. Sejersted (2003); Thomassen (2014).

19. The law did not specify in what form such guidelines could be presented in order to be legally binding.

20. Formally by the government, which, however, quickly established the practice of appointing people suggested by the various party groups in parliament.

21. Lie and Thomassen (2016).

22. Lie (1995); Lie and Venneslan (2010); Lie et al. (2016).

23. The exchange rate had been devalued 10 times 1976–1986 and was thus, though it was fixed in between, not a credible peg, cf. Lie et al. (2016), ch. 15.

24. The commitment hinged on the commitment of a small circle of key politicians within the Labour and Conservative parties (which shifted government power between them 1986–1990) and was probably partly motivated by their shared ambition to join the EU in the future. The resistance against this stance, particularly within Labour, however, was so strong it could be expected to influence policy.

25. Skånland (1993).

26. Kleivset (2012a).

27. It was also given some significance in government discussions that a continued exchange rate target against the ECU would make it easier in the future to join the EMU, should Norway join the EU. The subsequent no majority in the late 1994 referendum ruled out this option for overseeable future.

28. This and the next few paragraphs are based on chapter 17 in Lie et al. (2016).

29. The term inflation target was avoided, however.

30. Kleivset (2012b).

31. The prescription was introduced together with a fiscal rule, governing the use of money from Norway's sovereign wealth fund over the state budget. StortingsmeldIng [Report to the parliament] 29 2000–2001 Om retningslinjene for den økonomiske politikken [On the guidelines for economic policy].

32. Odelstingsproposisjon [Proposition to Odelsting] 81 2002–2003 Om lov om endringer i sentralbankloven og finansieringsvirksomhetsloven og om opphevelse av valutareguleringsloven og penge- og kredittreguleringsloven [On adjustments of the central bank law and various other laws].

33. Cf. Straumann (2010).

34. The shift occurred shortly after the centre coalition government had shifted parliamentary support from Labour to the right-wing parties in the autumn of 1998. The economically liberal right-wing Progress party had become the dominant party to the right after the 1997 elections. The party supported CBI and inflation targeting.

35. Frykten for økt makt i sentralbanken, Aftenposten 24.1.1998.

36. Siv Jensen, Stortingets spørretime [Parliamentary question time] 24.3.1999, Stortingsforhandlinger [Parliamentary negotiations], 2479. Similar interpellations followed.

37. This is also supported by the conclusion of the 2000 report NOU 2000: 21 En strategi for sysselsetting og verdiskaping.

38. See e.g. Nasjonalbudsjettet [The National Budget] 1999, 95–99; see also Thomassen and Øksendal (2017).

39. Interpellation by MP Siv Jensen, Stortingets spørretime [Parliamentary question time] 24.3.1999, St. f., 2479. Similar interpellations followed.

40. The coincidence with the establishment of the ECB's formulation of its inflation target in October 1998 might raise the question whether this played a role in the introduction or acceptance of inflation targeting in Norway. An inflation rate regime identical with ECB's would in theory allow for long term exchange rate stability with the Euro, thus in a way complying with the existing prescriptions emphasising exchange rate stability. ECB's inflation target is however not referred to as a ‘reason’ for changing target in interviews or key documents. The efficiency or feasability of the existing exchange rate target was not affected by the ECB's declaration of inflation target.

41. Skånland (1979).

42. The reports are gathered by Christoffer Kleivset as part of the work with his documentation memo (Kleivset 2012a) on behalf of Norges Bank as a part of the bank's history project. These are kept in loose-leaf binders in Norges Bank's archive and will in the following be referred to as ‘Documentation NBA’.

43. Ask/NTE/JK/279 15.12.93 øka. Documentation NBA (author's translation).

44. Kleivset (2012b).

45. Kleivset (2012a); Kleivset and Berg (2014).

46. Skånland (1993, 11).

47. Interviews with Kjell Storvik and the then head of the Economics Division, Jan F. Qvigstad.

48. Kleivset (2012b, 19).

49. Kleivset (2012a, 24).

50. The handful of economists at the Norwegian school of economics in Bergen who vocally advocated inflation targeting and a more independent central bank in the 1990s were not referred to in key policy documents.

51. Christiansen and Qvigstad (1997).

52. This impression is based on conversations with the then deputy governor Jarle Bergo, head of the Economic Division Jan F. Qvigstad, Svein Gjedrem and Gjedrem's successor as Secretary General, Tore Eriksen, see also Kleivset (2012b).

53. Kleivset (2012a, 34).

54. «Yngve sjef over renta», Dagbladet 24.11.1997.

55. PM Talepunkter for KS i hovedstyret jfq 9.12.1998, documentation NBA; see also Kleivset (2012b).

56. Norges Banks beretning [annual report] 2000:16; Den økonomiske politikken i 2000, letter from Norges Bank to the Ministry of Finance 21.10.1999, available from Norges Bank's website.

57. «Gjedrem-effekten», Dagens Næringsliv 6.1.1999; Cf. Kleivset (2012a).

58. Lie and Venneslan (2010).

59. PM Norges Banks rådgiverrolle [On Norges Bank's role as an advisor to the government]: særlig om forholdet mellom hovedstyret og sentralbanksjefens uttalelser, notat til ledergruppen fra B. Nyhagen 12.10.1995, Documentation NBA.

60. Skånland (1998, 7).

61. Conversation with Kjell Storvik, cf. also Lie and Venneslan (2010); Skånland (2004).

62. Interview with Svein Gjedrem.

Additional information

Notes on contributors

Eivind Thomassen

Eivind Thomassen is a doctoral research fellow in history at the University of Oslo. He is doing research on the history of Norwegian state oil company Statoil. He has previously co-authored books on the history of the Norwegian central bank (2016) and on institutions in the Norwegian system for wage coordination (2017). His research interests include economic policymaking and the power of economic ideas and experts.