The Swedish krona, sometimes referred to as the Swedish crown, is the monetary unit of many countries, including Denmark, Norway and Sweden. The eleventh-most-traded currency in the world, the Swedish krona is divided into 100 öre. It's symbolised by kr and has a currency code of SEK. The Sveriges Riksbank, also known as the Swedish National Bank, Bank of Sweden or Riksbanken, is responsible for issuing Swedish banknotes and coins denominated in the krona.
There are currently numerous krona-denominated banknotes and coins in circulation. Banknotes have values ranging between 20 and 1,000 krona, while coins have denominations between 1 and 10 krona.
The History Of The Swedish Krona
Before the krona was adopted, Sweden used various monetary units. In 1701, the nation's central bank started printing "transfer bills," which gained this particular name because they were moved from one party to another as a result of the two entities performing some transaction. The use of these bills was not without problems, as they were sometimes cut in half when shipped over long distances. Also, while the notes contained space specifically so users could add their name and the amount of any transaction, many merchants were reluctant to supply such information.
During the reign of King Charles XII, which lasted between 1697 and 1718, Sweden's government minted more than 40 million emergency coins to pay for several wars. The monarch embarked upon the Great Northern War three years after rising to his position as king in an effort to expand his territory. The plan backfired, resulting in Sweden suffering a weakened position in the Baltic Sea and the king dying in 1718.
The nation also suffered significant inflation because of the high number of coins that were minted. Sweden used old canons to mint copper plate coins between 1714 and 1716, and printed emergency copper coins between 1715 and 1719.
Because of his wars, Charles XII went down in history as "Alexander of the North." Shortly after he died, Sweden minted its final emergency coin, which displayed the legend "hope."
The Riksbank founded Tumba Bruk in 1755 to produce currency that would be difficult to counterfeit. Printed in Stockholm, the first Tumba paper banknotes made use of embossed stamps and watermarks.
In the 1770s, King Gustav III enacted several reforms, ranging from implementing freedom of the press to banning the use of torture in legal inquiry. He pursued these changes after creating a new constitution in 1772 and taking the power back from the Riksdag, the Swedish parliament. His changes extended to the monetary system. Johan Liljencrantz, finance minister under Sweden's monarch, enacted a reform which consolidated the coinage down to a single item: the Riksdaler.
The simplicity offered under the 1776 reforms didn't last long, as the Estates created the National Debt Office in an effort to bring Sweden's debt under control. Under this government office, the one type of riksdaler became three.
Scandinavian Monetary Union
Sweden and Denmark formed the Scandinavian Monetary Union in 1873, and Norway became a part of this coalition two years later. The idea was to unite Scandinavia behind a single currency.
Once this alliance was established, Sweden began using the krona as its currency. Pursuant to the formation of the Scandinavian Monetary Union, Sweden started using the coins of Norway and Denmark as legal tender.
The new monetary system created by the formation of the Scandinavian Monetary Union resulted in Sweden tying gold to the krona at a fixed rate. The region's currency maintained this fixed rate for roughly 40 years, but this relationship was altered when World War I began.
During the war, the krona's value relative to gold fluctuated both higher and lower than the fixed rate, and sometimes the two remained at par with each other. Following the war, Sweden once again took up the prewar parity between gold and the krona. By doing so in 1922, the nation became the first European nation to effectively return to this parity between the krona and the precious metal. Sweden returned to the fixed relationship between gold and the krona de jure in 1924.
While attempts were made to restore certain elements of the union both during and following World War I, Sweden ceased to be a part of the previously held alliance after the global financial crisis of 1931. After the Scandinavian Monetary Union dissolved, Sweden continued to use the krona.
Gold Standard Abandoned
The Swedish krona experienced substantial exchange rate fluctuations after the Northern European nation dropped the gold standard in 1931. The nation opted to eliminate this tie between the krona and gold after the currency encountered market speculation. Sweden initially attempted to maintain a currency peg, but these efforts did not produce the desired results. The country's foreign exchange reserve dropped to kr30 million from kr300 million over the course of three months.
Amid this situation, the nation adopted a floating exchange rate for the krona, resulting in the currency plunging 30%. The Riksbank obtained a new objective of maintaining price stability, as Minister of Finance Felix Hamrin announced that the central bank should make an effort "to use all the available instruments to maintain the Swedish krona's domestic purchasing power."
Additional Pegs And Adjustments
Sweden pegged the krona to the British pound in 1933, and then the nation opted to tie its currency to the U.S. dollar in 1939 due to significant inflation in the U.K. During this time, the Riksbank maintained its objective of using monetary policy to ensure price stability, and opted to revalue the krona 14.3% in 1946 and then devalue the currency 30.5% in 1949.
Bretton Woods System
In 1944, delegates from 45 countries met at a conference held in Bretton Woods, N.H. In an effort to ensure nations did not harness the same policies that helped trigger the Great Depression, representatives developed an economic framework for countries present at the conference.
Under the Bretton Woods system, the U.S. pegged its dollar to gold, and the other member nations in turn fixed their currencies to the greenback. The agreement held the nations would only be able to change these predetermined exchange rates under certain conditions. More specifically, countries could change their pegs to right a "fundamental disequilibrium" existing in the balance of payments. Also, the International Monetary Fund, created to help maintain global monetary stability, would need to approve.
Sweden joined this system in 1951 and remained part of the negotiated agreement until it broke down in 1973. The efficacy of the Bretton Woods system relied on the member nations following the rules they had agreed to. When some of the largest countries belonging to the system stopped coordinating their economic policy in the face of rising inflation, the system collapsed in 1973.
Numerous events led up to this dissolution of the system, including the greenback's difficulty maintaining its peg in the 1960s and an unsuccessful attempt to reimpose the U.S. dollar's fixed exchange rates. The major currencies lost their pegs by March 1973.
Sweden became part of the currency snake in 1973, an alliance whereby European Commission members and their affiliates fixed their exchange rates within a certain margin against other nations but permitted a floating exchange rate relative to countries outside of this consortium.
Pursuant to this agreement, the central banks of member nations were responsible for ensuring that the fluctuations of affected currencies were limited to 2.25%. Several nations left within the first few years of the snake's existence, as they faced challenges from differing policies, sharp volatility in oil and a weak dollar. Sweden left the snake in 1977 and emphasized concerns that its overvalued currency was undermining the competitiveness of the Northern European nation's goods.
Before Sweden announced it was leaving the currency snake in August 1977, some had speculated the Riksbank would devalue the krona 10%. That year, Sweden ended up devaluing the currency twice, decreasing its value 6% and then later 10%.
The Riksbank decided in 1977 that going forward, the krona would be linked to a basket of important trading currencies. The central bank continued to devalue the nation's currency, reducing its value 10% and 16% in 1981 and 1982, respectively. In 1992, Sweden decided to let the krona float.
The eurozone introduced the euro, or common currency, on January 1, 1999. At the time, the euro replaced the European currency unit, which was conceived by the European Economic Community in March 1979.
At the time of report, Sweden has not joined the eurozone. In 2003, 81.2% of the nation's citizens participated in a referendum where 56.1% voted against joining the consortium. This figure compared to 41.8% who voted for the nation to become part of the eurozone.
Swedish monetary policy falls under the jurisdiction of the Sveriges Riksbank. This policy has the objective of maintaining price stability, and the SNB has taken such a statement to mean that it should aim for a low, steady rate of inflation of 2% annually.
Economy of Sweden
Sweden's GDP was US$571.1 billion in 2014. The nation's population was 9.69 million, and therefore Sweden had a GDP per capita of nearly US$60,000. The Swedish economy exports a range of goods and enjoys a trade surplus. Machines, wood products and vehicles rank among the nation's top exports. In addition to being competitive in terms of manufacturing and other goods, the nation's communication technology and information sectors have benefited from healthy expansion.
Finansinspektionen, Sweden's financial supervisory authority, is tasked with helping the nation's financial system remain efficient and stable while ensuring consumers are adequately protected. All companies that participate in the Swedish financial markets receive authorisation from Finansinspektionen, and the entity also supervises and monitors them. As a result, it supervises nearly 2,000 businesses including stock exchanges, credit institutions, brokers and insurance companies.
Major Krone Currency Pairs
Investors interested in the Swedish krona can trade SEK/USD, SEK/AUD, SEK/EUR, SEK/GBP, SEK/CAD, SEK/DKK, SEK/NOK and SEK/INR. However, the most-traded currency pair is SEK/EUR.
Krona Bills and Coins
Sweden, which has used the krona since the 1870s, was scheduled to receive new bills and coins in 2015 and 2016. Certain notes and coins were scheduled to be taken out of circulation in 2016 and 2017.
The Riksbank announced that new banknotes with values of 20, 50, 200 and 1,000 krona would enter the money supply on October 1, 2015. In addition, 100- and 500-krona bills would become legal tender on October 3, 2016. These units of currency featured public figures including a singer, a writer and a poet.
As for coins, the nation was scheduled to introduce coins worth 1, 2 and 5 krona on October 3, 2016. The 1- and 2-krona coins featured King Carl XVI Gustaf's picture, while the 5-krona coin displayed his monogram.
Older banknotes with values of 20, 50 and 1,000 krona are scheduled to become invalid as of June 30, 2016. Exactly one year later, on June 30, 2017, coins with denominations of 1, 2 and 5 krona, as well as 100- and 500-krona banknotes, are slated to exit the money supply.
The Swedish Krona Around The World
The Swedish krona is not currently pegged to any currencies. Due to an accession treaty negotiated in 1994, Sweden became a part of the European Union. Pursuant to this agreement, Sweden was obligated to take up the euro upon meeting certain conditions.
However, the nation asserted that it would need to participate in ERM II, a currency regime, before adopting the euro. and that it had no obligation to take part in ERM II.
Swedish voters rejected the common currency's use in a referendum that took place September 14, 2003. Voter turnout was high at 82.6%, and this outcome surprised many as the proponents of Sweden adopting the euro managed to gain the support of the major parties, business entities and national newspapers.
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Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…