1930s Swedish financial crisis revisited—central banking and the lender of last resort

Kerstins Rum Session 1: Central banking – a science or an art? organized by Lars Fredrik Øksendal and Anders Ögren


Liang Zhao


During the 1930s financial crisis, Central bank of Sweden (Riksbank) actively intervened the liquidity of banks and the market through a range of monetary operations. The monetary policies combined with the devaluation of currency, was regarded as a crucial factor that led to the quick and strong recovery of Sweden. By making use of the balance sheets of the whole banking system, this paper explores the detailed content of monetary policies before, during and after the 1930s crisis of Sweden, and provides new evidence on the monetary stance and policy goals. The main findings are: 1) Since early 1931 Riksbank changed its role in lend of last resort from a channel to a real supplier of liquidity. However, after leaving gold standard, Riksbank started to be cautious in expanding money supply unless in urgent need of bailout.2) The rising in the deposit reserve ratio of banks offset the expansionary monetary policies and thus the actual money circulated in the market was even in contraction in most of the time under the study. 3)The reserve and currency value, instead of domestic monetary demand, were the main goals of monetary policies after leaving gold standard.


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