The business of central banking in Sweden, 1924–1939: Regime change and adaptation

This paper re-examines Swedish central banking during the interwar period (1924–1939), exploiting major regime shifts to analyze how the Riksbank adapted its core operations. Using monthly money-market data, we show that although interest rate policy broadly followed the ‘rules of the game’ after the return to gold in 1924, the Riksbank’s primary activity—rediscounting commercial bills—was largely financed through deposits from the National Debt Office, allowing domestic liquidity provision without reliance on gold flows. The Kreuger crisis underscores how the scale of emergency liquidity provision, combined with the collapse of international capital markets, strained the existing monetary–fiscal arrangement and hastened Sweden’s departure from gold. After abandoning gold in 1931 and moving to a pound peg in 1933, interest rate setting adhered even more closely to the ‘rules of the game’ than during the gold-standard period. Further, domestic rediscounting disappeared and was replaced by foreign bill purchases, placing downward pressure on the krona. These combined findings support the view that exchange-rate objectives, rather than price-level targeting, dominated Swedish monetary policy in the 1930s.