Principles for the management of Norges Bank’s foreign exchange reserves
Laid down by Norges Bank’s Executive Board on 23 January 2013, pursuant to the Norges Bank Act. Last amended on 26 January 2022.
1.1 In these principles, 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 of foreign exchange to, and withdrawals of foreign exchange from, the Government Pension Fund Global (GPFG).
2 Organisation of asset management
2.1 The foreign exchange reserves excluding the petroleum buffer portfolio are divided into a fixed income portfolio and an equity portfolio. The fixed income portfolio and the petroleum buffer portfolio are managed by Norges Bank Central Banking Operations (CBO). The equity portfolio is managed by Norges Bank Investment Management (NBIM).
3 The purpose of the management of the Bank's foreign exchange reserves
3.1 Foreign exchange reserves are to be sufficiently liquid to be available for use in foreign exchange market transactions or as part of the conduct of monetary policy with a view to promoting financial stability and to meet 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 4-9 below.
4 Strategic equity allocation and transfers between the equity and fixed income portfolios
4.1 The strategic equity allocation of the combined equity and fixed income portfolio is 20 percent. If the equity allocation accounts for less than 16 percent or more than 24 percent on the last trading day of the month, the allocation must be rebalanced to 20 percent on the last trading day of the subsequent month.
5 Benchmark index for the fixed income portfolio
5.1 The benchmark index for the fixed income portfolio is a market value-weighted index of all nominal government bonds with residual maturity of between one month and ten years issued by China, France, Germany, Japan, the UK and the US. The currency composition of the benchmark index shall be as follows:
- 50 percent USD
- 34 percent EUR
- 7 percent GBP
- 7 percent JPY
- 2 percent CNY
The benchmark index is rebalanced at the end of every month and is compiled by Bloomberg.
6 Investment universe of the fixed income portfolio
6.1 The fixed income portfolio may be invested in cash deposits and in Treasury bills and government bonds issued by China, France, Germany, Japan, the UK and the US.
6.2 Permitted instruments mentioned in Section 6.1 shall be denominated in CNY, EUR, USD, GBP or JPY.
7 Benchmark index for the equity portfolio
7.1 The benchmark index for the equity portfolio is a tax-adjusted version of the FTSE All World Developed Market Index, limited to euro area countries, the US, UK, Japan, Canada, Australia, Switzerland, Sweden and Denmark.
7.2 Securities issued by companies that have been excluded under the guidelines for observation and exclusion from the GPFG may not be included in the benchmark index for the equity portfolio.
7.3 Securities issued by companies with the ICB classification “60101010 Oil: Crude Producers” or “60101015 Offshore Drilling and Other Services” may not be included in the benchmark index for the equity portfolio.
8 Investment universe of the equity portfolio
8.1 The equity portfolio may be invested in cash deposits and equities listed on a regulated and recognised exchange.
8.2 Permitted instruments mentioned in Section 8.1 shall be denominated in EUR, USD, GBP, JPY, CAD, AUD, CHF, SEK and DKK.
9 Limits for the management of the equity and fixed income portfolios
9.1 Foreign exchange reserves may use financial derivatives that are naturally associated with instruments mentioned in Sections 6.1 and 8.1.
9.2 Foreign exchange reserves may not be invested in securities issued by Norwegian entities.
9.3 Sale of securities not owned by Norges Bank is not permitted.
9.4 The maximum expected relative volatility for equity and fixed income portfolios shall be 0.5 percentage point.
10 Responsible investment
10.1 Management of the equity portfolio shall follow the same principles and strategies for responsible investment as the management of the equity investements of the GPFG.
10.2 Securities issued by companies that have been excluded under the guidelines for observation and exclusion from the GPFG are excluded from the foreign exchange reserves investment universe.
11 Reporting and advising
11.1 A quarterly report on the management of the foreign exchange reserves shall be submitted to the Executive Board. The report shall provide an account of management, including a discussion of value changes and return, risk exposure and compliance with principles and guidelines. A summary version of the report shall be published.
11.2 An annual overall assessment of the strategy and investment framework for the foreign exchange reserves shall be submitted to the Executive Board.
12.1 The Governor lays down supplementary guidelines for the management of the foreign exchange reserves and for transfers between the equity and fixed income portfolios.
12.2 The Governor is authorised to depart from the principles issued by the Executive Board if warranted by security considerations. The Executive Board must then be informed afterward.
12.3 The Governor is authorised to approve departures from the principles issued by the Executive Board that are not materially important if they are warranted by considerations regarding the daily management of the foreign exchange reserves. The Executive Board must then be informed afterward.
13 Entry into force
[These principles enter into force on 23 January 2013]. The amendments of 26 January 2022 enter into force on 1 February 2022.