Guidelines for the management of Norges Bank's foreign exchange reserves
Laid down by Norges Bank's Executive Board on 23 January 2013, pursuant to Section 10, first paragraph, and Section 24 of the Norges Bank Act. Last amended 27 January 2016.
1.1 In these guidelines, foreign exchange reserves refer to that portion of Norges Bank's foreign exchange assets that are available to and controlled by the monetary policy authorities and that can be used for foreign exchange market transactions . In addition, foreign exchange reserves include a petroleum buffer portfolio used for transfers to, and withdrawals of foreign exchange from, the Government Pension Fund Global (GPFG).
2 Organisation of asset management
2.1 Foreign exchange reserves other than the petroleum buffer portfolio are divided into a fixed-income portfolio and an equity portfolio. The fixed-income portfolio is managed by Norges Bank Central Banking Operations (CBO). The equity portfolio is managed by Norges Bank Investment Management (NBIM). Transfers between equities and fixed-income are decided by the Governor of Norges Bank. The petroleum buffer portfolio is managed by CBO.
3 The purpose of the management of the Bank's foreign exchange reserves
3.1 Foreign exchange reserves shall be available for transactions in the foreign exchange market as part of the conduct of monetary policy or in the interest of promoting financial stability and for meeting Norges Bank's international commitments.
3.2 The aim of the management of foreign exchange reserves is the highest possible return within the risk limits outlined in Sections 4 and 5 below, and the current risk management framework set out in guidelines issued by the Governor of Norges Bank (cf. Section 7.1 below).
4 Investment universe
4.1 Foreign exchange reserves may be invested in cash deposits, money market instruments, bonds, short-term paper and equities quoted on a regulated exchange. Fixed-income instruments shall be denominated in USD, GBP, EUR or JPY.
4.2 Foreign exchange reserves may be invested in financial derivatives that are naturally linked to instruments mentioned in Section 4.1.
4.3 Foreign exchange reserves may not be invested in instruments that have been excluded from the investment universe of the GPFG.
4.4 Foreign exchange reserves may not be invested in instruments denominated in NOK or issued by Norwegian entities.
5 Management framework
5.1 Foreign exchange reserves shall be invested in a manner permitting at least SDR 10bn within a single trading day to be used in transactions as described in Section 3.1 without realising any appreciable losses.
5.2 Fixed-income instruments shall be held primarily in the form of liquid securities.
5.3 Equity exposure shall not be greater than 45 percent of the market value of foreign exchange reserves other than the petroleum buffer portfolio.
5.4 Leverage may be used to promote efficient asset management, but not to increase the exposure of foreign exchange reserves to risky assets.
5.5 Reinvestments of cash collateral may not be made to increase the exposure of foreign exchange reserves to risky assets.
5.6 Sales of securities the Bank does not own (short sales) are permitted only if the Bank has access to securities through an established borrowing arrangement.
6 Requirements for valuation, performance measurement and measurement and control of risk
6.1 Valuation, performance measurement and measurement and control of risk shall be in compliance with international standards, techniques, approaches and methodologies.
7.1 The Governor lays down additional guidelines for the management of foreign exchange reserves. The guidelines shall as a minimum contain a detailed specification of the investment universe, supplemental risk limits and reporting requirements.
7.2 The Executive Board shall be kept informed of all material changes to the Governor's guidelines for foreign exchange reserves, including all changes to the investment universe, benchmark indices, risk limits and liquidity requirements.
7.3 Changes requiring submission to the Ministry of Finance under the Norges Bank Act shall be submitted to the Executive Board for a decision.
8.1 A quarterly report on the management of the Bank's foreign exchange reserves shall be submitted to the Executive Board. The report shall provide a comprehensive account of management, including a discussion of changes in the value of and return on assets, risk exposure and compliance with the guidelines. A summary version of the report shall be published.
8.2 An annual overall assessment of the strategy and investment framework for the Bank's foreign exchange reserves shall be submitted to the Executive Board.
9 Entry into force
These guidelines enter into force on 1 December 2016.