How Germans (Hitler) influenced Norway Central Bank Monetary Policy in World War II….

An amazing paper on the topic by Harald Espeli of Norges Bank. Most papers on war economics focus on the rising government deficits etc. This one shows how the more powerful enemy can lead to problems for central banks and monetary policy as well.

In nut shell, Norges Bank was a fairly independent CB till WW-II. In WW-II Germans took over Norway and its economy as well. They started circulating their own currency apart from Norwegian Krone leading to a much higher money supply and inflation. What was even more damaging was the loss of central bank independence which became a long term problem. It was only in 1990s after a huge crisis in Norway did the central bank get back its lost independence.

The Norwegian central bank seems to have been more accommodating to German wishes and demands than the central banks in other German occupied countries in Western Europe. This led to a permanent damage to the reputation of the central bank.

Since the 1980s, international research on the development of central banks has been fundamentally  influenced by the theories of central bank independence and has mostly focused on the period since 1950.(Cukierman 1992, Crowe and Meade 2007) Central bank independence is difficult to square with foreign occupation. In such cases it would be more meaningful to ask to what extent central banks were able to maintain some kind of independence, if any, from the occupant. The purpose of this paper is to analyse the agency of Norges Bank (the Norwegian central bank), during the German occupation, 1940-45. We will concentrate on 1940 when the most central decisions were made.

Norges Bank’s directors, including Governor Nikolai Rygg, chose to stay in their positions during the occupation. The Germans found no reason to relieve them of their duties. The directors were willing to go far in accommodating to German demands.  They believed that the alternative – their potential replacement – would be worse for the country, and for the economy, the monetary and financial system, as well as for the central bank itself as a private company with 17 per cent of the shares owned by the state. The most important decision made by Norges Bank during the occupation – that gave the Wehrmacht unlimited  access to the Bank’s printing press for bank notes – was not the result of direct German pressure, however. This decision was made after instruction by the provisional governmental body in the occupied areas, the Administrative Council, on 24 April  1940. Thus the central bank’s loss of independence in relation to the government after liberation was not as dramatic it might seem.

Earlier research on Norges Bank being less independent was put on Labour party’s explicit aim in 1945 to subordinate the central bank to the Ministry of finance. However, the paper shows the problem started much earlier with Norges Bank’s meek surrender to the rampant Germans in WW II

Fascinating account of World War II and central banking.

One Response to “How Germans (Hitler) influenced Norway Central Bank Monetary Policy in World War II….”

  1. Writing Central Bank and Monetary History « Mostly Economics Says:

    […] Interesting classification between first and second volumes – economic historians vs economic analysis of mon history of Norway..First one just looks at the history of how thing developed etc. The second one analyses the monetary history with economic analysis..Both should be a great read. Some papers are already out on the project. I even covered one of them in my blog. […]

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