bank of finland bulletin 1998 09

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Monetary policy and the economic outlook 3

Controlling foreign exchange settlement risk

by Risto Herrala and Risto Nieminen 10

Items: Breakdown of Finnish residents stock of outwardportfolio investment by country group and country,31 December 1997Publication of the Bank of Finland 13

Measures concerning monetary andforeign exchange policy and the financial markets 15

Monetary policy instruments 16

Finland in brief 20

Statistics List of tables on page S1

Charts List of charts on page S29

Bank of Finland Organization

Publisher

Suomen Pankki Finlands BankEditor-in-ChiefMatti Vanhala

Editedby the Bank of FinlandsPublication and LanguageServices

The contents of the Bulletinmay be freely quoted,but due acknowledgementis requested.

ISSN 0784-6509

BANK OF FINLAND BULLETIN

CONTENTS

Bulletin 9 98

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Printed by Libris Oy,Helsinki 1998

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Bank of Finland Bulletin 9/1998
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Monetary policy in the run-upto monetary unionThe European Central Bank (ECB) will begin toconduct monetary policy at the start of 1999 in afavourable economic environment as regards price

stability. Inflation in the euro countries has declinedto well below 2 per cent on average, and annualgrowth in total output exceeds 3 per cent. The levelof interest rates is the lowest in decades, and thegeneral government deficits have been reduced.The combination of country-specific stability pro-grammes and the Stability and Growth Pact forms acommon framework for euro-country budgetarypolicies.

Economic policies aimed at meeting the conver-gence criteria for monetary union led to some fiscaltightening whereas monetary policy in the euro arearemained easy. The prolongation and contagion ofthe Asian crisis led to declines in the prices of oiland other commodities, which in turn has damp-ened inflation in many euro countries. A gradualtightening of monetary policy over the course of1998, which was widely expected at the start of theyear, has not in fact been necessary. Against thisbackground and due to the sluggishness of theeconomic recovery in the core European countriesand widely fluctuating asset prices around the world,market expectations for the ECBs initial interest ratesetting have declined in the last twelve months bynearly 100 basis points to about 3.5 per cent.

The national central banks are responsible formonetary policy until the end of 1998, at which timenational monetary policy goals, including the Bankof Finlands inflation target, will make way for theeuro-area-wide price stability objective. The scopefor independent interest rate policies has graduallydiminished because the interest rate levels of coun-tries participating in the monetary union are to bemerged during the remaining months of the year.Another factor limiting the scope of monetary policyis the uncertainty in the international financial andcurrency markets stemming from economic crises

in Asia and Russia.Looking ahead, it appears that several eurocountries will need to significantly lower their inter-est rates toward the level prevailing in the corecountries by the end of the year, even in the eventthat the core country rates should meanwhile rise

somewhat. Furthermore, taking into account thatthe euro countries effective (trade-weighted) ex-change rate depreciated in connection with thestrengthening of the dollar as well as the temptationto let up in the efforts to consolidate public sector

finances, care must be taken to ensure that ECBmonetary policy at the start will not be too easy fromthe standpoint of the euro area as a whole.

As regards Finland, it is clear that, due to a sig-nificant lowering of interest rate expectations dur-ing the last twelve months, combined with persis-tently above-forecast economic growth while themarkka, as part of the ERM, has been depreciatingon average, there is a danger that the initial interestrate level in the monetary union will turn out to betoo low for Finland.

Although current prospects for the euro-areaeconomy do not argue for a lowering of the averagelevel of interest rates, this is what would follow if in-terest rates were to remain at present levels in thecore countries. Setting the starting interest ratelevel for the monetary union is perhaps the most im-portant decision of the ECB Council in the comingmonths. It is crucial that an area-wide and forward-looking perspective be adopted with the aim of in-fluencing the future course of the area-wide econ-omy. Experience teaches that there exists a risk, atboth the international and national levels, that mon-etary policy will be approached from the perspec-tive of current conditions and the needs of a single

country or a limited group of countries.Reflections of this nature are of course prema-ture. The ECB will decide on interest rates at theturn of the year on the basis of then-prevailing dataand economic prospects. In an atmosphere highlysensitized by international financial crises, it ismoreover clear that one of the elements that shouldbe given due consideration is the possible influ-ence on market confidence.

Inflation in Europe has slowed for external rea-sons, as import price declines have offset internalprice pressures. The twelve-month growth rate for

the harmonized measure of broad money in Europe(M3H) accelerated in the spring to about 6 percent. There are however wide differences within thearea. Recently, growth rates for the narrower mone-tary aggregates have picked up particularly incountries where interest rates have declined the

Bulletin 9 98 3

Monetary policy and the economic outlook
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4 Bulletin 9 98

most in the process of converging to a single levelfor the euro area. Continued growth in the moneysupply could lead to increased inflation pressures,especially if monetary policy were to be eased dur-

ing the final months of the year.Viewed in terms of real growth prospects for theeuro area, the average real interest rate is low. Abetter alignment of the interest rate level with theeconomic outlook would be desirable in view of thechanges that will come with the structural adjust-ments in the financial markets that are implied bymonetary union. Stability in the financial markets isamong the ECBs objectives. If ECB monetary poli-cy is easy at the start and competition in the bank-ing sector tightens across the area as a whole atthe onset of Stage Three, there is a danger that

credit expansion will accelerate. This could lead toincreased volatility of asset prices and difficulty inmaintaining financial market stability throughout theeuro area.

Budgetary policies and wage agreements willbe crucial to the maintenance of stable conditions

in the euro area, as will structural policies. The scopefor manoeuvre created by economic growth shouldbe used to generate budget surpluses, particularlyin countries where the central government is still

heavily indebted. It is essential to solidify the finan-cial position of the public sector to withstand cycli-cal fluctuations in revenues and expenditures.Implementation of ongoing reforms that increase ef-ficiency and flexibility in the labour markets and thecorporate sector will be of the utmost importance.

Achieving fiscal-monetary compatibility, withoutcompromising price stability, is one of the majorchallenges of the monetary union. With thechangeover to a common monetary policy, interestrates throughout the euro area will follow a morestable path. This in itself will mark a highly signifi-

cant and beneficial change. However, once nation-al monetary policies are out of the picture, eachcountry will have to rely on fiscal and structural poli-cies to prevent or alleviate imbalances in its do-mestic economy. At the same time, eleven coun-tries economic policies must comprise a consist-

Subdued inflation in euro countriesInflation in the euro countries has remained sta-ble at a level just under 1.5 per cent during thefirst part of the year. In Finland consumer prices,after rising faster than the average rate for eurocountries in the early part of the year, slowed inJuly to a below-average rate. The inflation gaps

among euro countries are however quite wide:Ireland, Netherlands, Italy, Spain and Portugalare already experiencing inflation rates of 2 percent p.a. or higher, while in Germany, France andAustria inflation has slowed to around 1 per centor even lower in recent months.

Finnish inflation has been buoyed by risinghousing costs as both prices and rents haverisen. In July consumer prices deceleratedsharply due inter alia to removal of the stampduty on loans and a fall in the price of coffee.Prices declined on the prior month by 0.3 percent, and the twelve-month rise was only 1.1 percent. Consumers twelve-month-ahead inflationexpectations have also declined somewhat dur-ing the summer months from the 2 per cent levelthat prevailed at the start of the year.

EU countries harmonized CPIs, June 1998

France 1.0 Portugal 2.2Austria 1.0 Ireland 2.4Germany 1.1 Euro countries 1.4Belgium 1.3Luxembourg 1.3 Denmark 1.4Finland 1.6 Sweden 1.6Spain 2.0 UK 2.0

Italy 2.0 Greece 5.0Netherlands 2.1 EU 15 1.6

Chart 1.

Euro-country CPI

12-month change%

25

20

15

10

5

0

-5

989796959493929190898887861985

1. Unweighted average2. Highest inflation rate3. Lowest inflation rate

2

3

1


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6 Bulletin 9 98

Economic growth acceleratesin euro countriesSpurred by domestic demand, the euro econo-mies continue to grow. Expectations in the con-struction sector and among consumers are morepositive than has been the case for many years,and confidence indicators are not pointing to aslowing of growth. However, we can expect onlya very modest pickup in the rate of growth in totaloutput for the current year.

In Germany the economic recovery wasmore clearly based on domestic demand duringthe first half of the year than had previously beenthe case. Total output grew at an annual rate of3.8 per cent in the first quarter, which was thehighest growth rate attained since unification.This was largely a result of substantial increasesin investment and private consumption. Accord-ing to the latest indicators, growth slowed con-siderably in the second quarter. In June the un-employment rate declined to 10.5 per cent.

In France the economy has been gaining mo-

mentum since summer 1997. Initially, the growthwas spurred by increasing exports, but graduallydomestic demand has also picked up. The Italian

economy continues on a path of sluggish growth.Spanish GDP rose 3.7 per cent p.a. in the firstquarter and is projected to continue at the samepace for the rest of the year. Economic growth inSpain is topping the EU average for the secondyear in a row. The basis of the growth is privatedemand, which has been buoyed by a substan-tial decline in interest rates and a record level ofconsumer optimism. The unemployment rate hasdeclined to 19.1 per cent and, although the rateis the highest in Europe, it is the lowest in Spainin six years.

The rapid GDP growth in Finland since thestart of the year has been spurred by exportsand industrial production. The growth rate for thefirst half of the year was over 6 per cent p.a.,which was higher than anticipated in light of the

length of the recovery to date. The industriesrecording the fastest growth in the first half (near-ly 10 per cent p.a.) were the metal and engineer-ing and electronics industries. The growth in in-dustrial production slowed considerably in Juneand is expected to remain sluggish over thecoming months.

Weakness in orders during the first half of theyear has dimmed prospects for Finnish exportsdespite the fact that the value of exports contin-ued to surge in the spring. In June the value ofexports was up by 16 per cent on the year-earli-er period. It is noteworthy that the growth in do-mestic demand is also boosting imports, whichrose 12 per cent in the first half. The balance oftrade recorded a surplus of FIM 30.2 billion forthe first half. The surplus has increased partly inresponse to an improvement in the terms oftrade, which has strengthened the economys in-come-generating capacity and companies prof-itability.

The growth in construction activity slowed some-what in the first part of the year but prospects aregood for continued strong growth. Moreover,there are presently no signs of serious bottle-

necks. However, the growth of investment in pro-ductive capacity is turning out to be relativelysluggish this year. In connection with the growthin domestic demand, the volume of retail saleshas risen compared to last summer; automobilesales have been especially brisk. Moreover, con-sumers remain optimistic about a continuation ofthe strong performance of the economy.

The number of employed increased steadilyover the first half of the year, at an annual rate ofabout 2 per cent. The unemployment rate fell to10.1 per cent in June, which was nearly a per-

centage point below the year-earlier rate. As em-ployment improves, both atypical and continuousfull-time employment have increased rapidly.

Chart 2.

Total output

Change from year-earlier quarter

%

7

6

5

4

3

2

1

0

1998199719961995

1. Finland2. Euro countries, weighted by GDP share

2

1


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ness. The risk of encountering capacity limits mustnot however be understated, especially should theslowing in manufacturing prove to be temporary.Investment in new manufacturing capacity has re-mained at a fairly modest level in recent years.

Despite rapid economic growth, inflation has re-mained relatively stable and in fact slowed some-what in July. Because growth has focused on in-dustrial production, where productivity has im-proved at a record pace, cost and price pressureshave been contained. Tight competition in exportmarkets has also played a role in maintaining pricediscipline, improving cost efficiency and maintain-ing competitiveness in the industrial sector. Asharper-than-expected decline in oil and othercommodities prices in the wake of the Asian crisisand increasing international uncertainties has con-tributed to the moderate price developments. The

Asian crisis appears to be having a more pro-nounced and longer-lasting impact in slowing inter-national inflation than was forecasted in the first halfof this year. Persistently modest wage drift has like-wise contained cost and price pressures through-out the economy. Because Finland has so far had alarge pool of skilled labour for hire, bottleneckshave not yet occurred in the labour market to theextent that they would have caused substantialwage drift.

The situation regarding price and cost develop-ments is now changing as the focus of growth shiftsfrom industrial production to the service and con-struction sectors. The risk of inflation will continueto exist even if industrial production decelerates inthe latter part of the year. The Asian crisis has aconsiderably less pronounced cost-containing im-pact on domestically oriented sectors than on ex-port-oriented industries. Moreover, because thepossibilities for increasing productivity are signifi-cantly weaker for services and generally for thelabour-intensive domestic sector than for the indus-trial sector, increases in demand and productioncosts in the former can lead to a significant in-crease in overall price pressures.

With employment growth focused on low-prod-uctivity sectors, particularly retailing, constructionand transport, unemployment will approach levelsat which wage and price pressures tend to in-crease. The worsening of occupational and geo-graphic mismatches in the labour markets couldquickly lead to labour shortages, particularly in thefastest growing areas and domestically orientedsectors. Bottlenecks in domestic markets increasecost pressures on companies, which can lead tofaster rises in prices and wages than in the othereuro countries. This is the case because, due to a

lesser degree of competition in the domestic mar-kets vs the export sectors, costs are more easilyshifted to prices in the former. Even though compe-tition has heightened in recent years in the domes-tic markets, there are a number of service sectorsthat remain sheltered from competition.

Geographic mismatches in the labour marketsexacerbate the situation in the housing markets inthat migration leads to shortages in rental andowner-occupied housing in the fastest growingareas while residential and commercial propertiesbecome redundant in other areas. Besides thepopulation shifts, low interest rates and narrowingcredit margins will keep housing demand buoyantfor some time, which will in turn extend the up-trends in housing prices and construction activity.The geographic concentration of growth is alsospurring the demand for industrial and commercialconstruction. Because households and companieshave in recent years experienced a definite in-crease in their ability to borrow, it is clear that risksof overheating in the construction industry exist.Contractors offers reflect the pronounced demandpressures. The shortage of rental housing and

commercial real estate has resulted in a clear risein the level of rents in the fastest growing areas.In estimating the price and cost pressures in the

economy, one should keep in mind that despitesigns of a deceleration in manufacturing and ex-port activity, it is very difficult to forecast the magni-tude and persistence of the coming slowdown. Thepickup in domestic demand in Europe and the UScould offset the loss of markets in Asia and Russia,in which case the slowdown in industrial productioncould turn out to be ephemeral. Finnish companiescompetitiveness remains at an exceptionally highlevel, but if inflation pressures accelerate in the do-mestic markets and spread via wage drift and otherforms of factor price increases into the industrialsector, companies profitability and willingness tohire will certainly weaken at the latest when there isa reversal in the downtrend in prices of oil and othercommodities. In the EMU environment cost in-creases in the export sector will not translate intorising prices but rather into a direct deterioration inthe employment situation.

In order to ensure that prerequisites are in placefor balanced and robust growth and positive em-ployment developments over the coming years,

measures are needed that will alleviate the mis-matches particularly in the housing and labourmarkets and in general increase the flexibility of theeconomy. This means that structural policy will tosome extent replace cyclical policy as the key tool.

Continued consolidation offinancial positions of central andlocal governments is necessaryThe financial position of the Finnish public sectorwill improve in both 1998 and 1999. In the contextof robust economic growth, tax revenues will be

pushed above forecasted levels by company prof-its, rising employment and a surge in private con-sumption. Declining unemployment and decelerat-ing interest costs are constraining the rise in ex-penditures. Despite persistent rapid economicgrowth, the central governments financial deficit

Bulletin 9 98 7


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8 Bulletin 9 98

World economic growthis slowing somewhat andcurrency and stock marketsare uneasyThe economic growth rate for the world economy

has slowed in recent months as a result of dete-riorating economic conditions in Asia. Reper-cussions of the crisis are, via the impact on inter-national trade, already being seen in industrialproduction in Europe but even more so in theeconomies of the non-Asian developing coun-tries.

The long-standing uptrend in the prices ofshares and other assets in the US and Europehas caused concern that this might portend over-heating. However, in July the rise in share pricescame to a halt. Share prices particularly of com-

panies whose profits are affected by the Asianand Russian crises fell, and this dragged downstock indices around the world.

Unease in the currency markets spread wide-ly in August, largely in connection with the after-effects of the Asian crisis. The countries sufferingthe most have been producers of oil and othercommodities as well as countries whose exportsdepend to a large extent on Asian markets.Russia and Norway have been especially hardhit, but Venezuela, Australia, Canada, Swedenand other countries have also seen their curren-cies depreciate. Euro currencies, on the otherhand, have remained firm. Since the start of theyear, the Finnish markka has appreciated by over7 per cent against the Norwegian krone and byover 4 per cent against the Swedish krona.

Following a whole summer of devaluationspeculation and despite a debt restructuringagreement with the IMF at the start of August, the

Russian central bank announced on 17 Augustthat the external value of the rouble would be al-lowed to fluctuate within a currency band with anupper limit 35 per cent weaker than the centralrate in the previous band. Russia also an-nounced that it was suspending all its externaldebt payments for 90 days. By 26 August therouble had weakened by nearly 30 per centagainst the dollar in the year to date. It has how-ever been difficult to get credible quotes on therouble in the currency markets. Russias mone-tary problems have also been exacerbated bythe problems in the banking sector connectedwith the rouble devaluation.

The depreciation of the Norwegian kroneagainst the Deutschemark forced the Norwegiancentral bank to raise its interest rate seven timesthis year by a total of 450 basis points. Over thelong-run, the central banks task will be to get thekrones external value back to its original level fol-lowing a period of exceptional changes. Sincethe last interest rate hike, the central bank hasannounced that its monetary policy settings willbe calibrated in conformity with this goal and thatthere will be no more rate hikes in the current se-

ries. Maintenance of stable exchange rates vsthe EU countries is still the monetary policy ob-jective of the Norwegian central bank.

The flight to quality investments has pusheddown long-term market interest rates in the USand Germany to record low levels. The yield re-quirement on the US 30-year bond is now lowerthan the Federal Reserves key policy (federalfunds) rate. In Germany interest rates have de-clined much faster than in other ERM countriesas investors have tended to prefer the superiorliquidity of German debt instruments to higher

rates of return. The differential between Finnishand German long-term interest rates has roughlydoubled from the former 20 basis points.

Chart 3.

Ten-year bond yields%

7.5

7.0

6.5

6.0

5.5

5.0

4.5

4.0

19981997

1. Deutschemark

2. French franc. Netherlands guilder3

4. Belgian franc5. Irish punt6. Spanish peseta7. Portuguese escudo8. Finnish markka9. Italian lira

2

3

57

8

9

4

6

1


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has remained substantial. Net borrowing, as meas-ured in the national accounts, is estimated toamount to nearly FIM 18 billion this year and aboutFIM 8 billion next year. Local governments consol-idated financial position is expected to record asmall deficit this year, with no significant improve-ment in sight.

It appears likely that the central governmentdeficit ratio will continue to decline even as eco-nomic growth slows in line with forecasts. None-theless, a permanent structural consolidation ofcentral government finances is a crucial prerequi-site for positive growth and employment performance.The improvement of the central governments fi-nances in 1998 and 1999 largely results from ex-penditure cuts decided in prior years, a number ofone-off expenditure cuts that affect the 1999 budg-et and, most importantly, the effects on revenues

and expenditures that would follow from the pro-jected positive performance of the economy.There is a risk that central government finances

could deviate negatively from projected develop-ments, ie if economic growth turns out to be lowerthan forecasted. It would be highly desirable in theforecasted environment of rapid economic growththat the central governments financial positionwould already in 1999 show a sizable surplus. It isnecessary to strengthen the finances of both cen-tral and local governments so as to create the lee-way that obviates the need to adopt measures that

exacerbate cyclical fluctuations during periods ofsluggish growth. It is no longer possible to financethe public sector by increasing taxation or debt.The critical issues now are the overall level of ex-penditure and the setting of priorities within the lim-its implied. This task is made more demanding bythe fact that leeway should also be created for re-ducing taxes and narrowing the tax wedge, whichare important aspects of growth and employmentpolicy. In addition there is the need to prepare forthe future expenditure burden in connection withthe changing age structure of the population.

Balanced growth, price stability and stable con-ditions in the financial markets can today best bepromoted by looking beyond monetary and fiscalpolicies and placing greater emphasis on structur-al measures. A highly useful discussion of these is-sues is contained in the OECDs latest country re-

port on Finland.27 August 1998

Key words: inflation, economic performance,monetary policy

Bulletin 9 98 9


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Settlement risks increase asforeign exchange trading increasesThe interbank foreign exchange (FX) markets arethe worlds biggest and most liquid markets. Thedaily volume of FX transactions is estimated at

about USD 1 000 3 000 billion and the averagesize of a single trade at about USD 10 million. Thereis an underlying commercial transaction in only aminor share of the trades. The total size of daily FXtrading by Finnish banks in Finland is estimated tobe about FIM 2030 billion.

Foreign exchange settlement risks are directlyrelated to the volume of FX trading. During the cur-rent decade in particular, the volume of FX tradinghas increased considerably and hence banks set-tlement exposures1 have grown very large: pay-ment flows in settlement of FX transactions and therelated risks can exceed by many times the tradingbanks own funds. At the same time, the rapid andworldwide deregulation of financial markets hasbrought new participants to the markets and weak-ened the safety nets. Although the probability ofrisk realization is still small for an individual bank,the exposures are so large that the realization of FXsettlement risks can threaten the stability of the en-tire banking system.

In their efforts to ensure system stability, centralbanks and supervisory authorities have called fora reduction of settlement risks. An important rolein fostering this development is played by the

Committee on Payment and Settlement Systems(CPSS) of the central banks of the Group of Tencountries2, working under the aegis of the Bank forInternational Settlements (BIS).

Sources of settlement riskThe parties to an FX trade agree on currency,amount, value date and accounts to be credited. Ifall goes well, each party receives an agreed cur-rency amount on an agreed account on the valuedate of the FX trade3. If either party, for insolvencyor other reasons, is unable to meet its obligations

on time, the counterparty may realize a settlementrisk, ie it may suffer a loss. Besides the size of thetrade executed, the size of the settlement risk de-pends on other factors such as the currency in-volved, the credit rating of the counterparty bank

and the routing of the payment.For a bank engaged in a foreign exchangetrade, settlement exposure starts when the bankcan no longer unilaterally cancel a payment orderfor the currency it is selling and ends when thebank is notified that it has received the currency it isbuying. The amount of exposure is the full amountof the currency being purchased. In practice, mostpayments in settlement of foreign exchange trans-actions are effected in the interim between thetrade date and the day preceding the value date, ieusually before the cut-off time agreed with the cor-respondent bank4. Weekends and public holidaysoccurring during a settlement period lengthen theduration of exposure. A bank will normally receive astatement from its correspondent bank5 on the dayfollowing the trade date and will then verify theagreed quid pro quo.

The total settlement exposure (ie the total vol-ume of unsettled trades) depends on the time re-quired for the settlement process and the volume ofFX trades. If eg a banks average daily volume ofFX trading is FIM 500 million and the settlementprocess takes three days on average, the daily set-tlement exposure is FIM 1 500 million (=3 x FIM 500

million). Shortening the settlement process by oneday would reduce the exposure to FIM 1 000 million.The choice of correspondent banks also affects

a banks risks. For a given volume of FX trading, themore centralized a banks business, ie the smallerthe number of correspondent banks, the bigger thepotential loss due to the failure of a correspondentbank. The biggest losses would be incurred if thecorrespondent bank were also the counterparty insome of the FX trades.

As soon as one of its FX trading counterpartiesfails to meet a settlement obligation, a bank en-

counters liquidity problems. Banks normally antici-

10 Bulletin 9 98

Controlling foreign exchange settlement risk

by Risto Herrala, EconomistFinancial Markets Department andRisto Nieminen, Banking SupervisorFinancial Supervision Authority

1 Settlement exposure includes all unsettled currencies pur-chased.2 Belgium, Canada, UK, France, Germany, Italy, Japan,Netherlands, Sweden, Switzerland and US.3 Value date is the agreed date on which the FX-trade-relatedpayment is executed.

4 Payment orders can be carried out eg via correspondent banks.

5 Banks normally have at least one correspondent bank in thehome country of each currency in order to effect payments in thatcurrency.


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pate incoming payments and reinvest the corre-sponding currency amounts. If a bank does not re-ceive an anticipated payment on the value day, it isforced to buy the missing currency from the mar-kets on the same value day, and only later can it ini-tiate efforts to collect its claim.

If a bank is unable to collect such a claim, itfaces a credit risk that can jeopardize its solvencyand ability to operate. If the problem counterpartyis an important player, the liquidity positions of sev-eral counterparties will be simultaneously affected,which can compound the difficulty of obtaining liq-uidity from the markets. Because some participantsmay fail to acquire additional liquidity, a situationthat started from the liquidity problems of one par-ticipant can accumulate until more and more partic-ipants are affected. A problem situation that startswith FX trading may also affect the countrys inter-

nal payment systems if a bank having liquidityproblems due to the settlement problems of a for-eign bank is unable to settle its obligations to do-mestic counterparties.

Settlement risk, which is a part of banks overallcredit risk, has seldom led to significant credit loss-es for banks, partly due to the short duration of theexposures. A bank will monitor a counterpartys fi-nancial condition and lower its settlement risk limitsif the counterpartys condition deteriorates. If coun-terparties are monitored effectively, FX settlementrisk realizations will derive mainly form sudden, un-expected events.

Progress in developing methods forcontrolling settlement risk is slowAlthough a great deal of attention has been paidto FX settlement risks since the failure of theBankhaus Herstatt in Germany in the 1970s, devel-opment of means of reducing them has been slow.Recently, progress has been enhanced by the pub-lication in 1996 of the CPSS Allsopp Report6, whichproposed a comprehensive international strategyfor reducing FX settlement risk.

The report urged individual banks to take rap-

id steps to reduce FX settlement risks, industrygroups to provide risk-reducing services and cen-tral banks, working with supervisory authorities, totake measures at the national level to promoteprogress in the private sector. From the viewpoint ofan individual institution, improving the control ofsettlement risks and reducing them requires the de-velopment of its own internal procedures, such asback office procedures and limit systems, as wellas effective use of external services, such as corre-spondent and netting arrangements.

In addition to the G-10 countries, many other

countries have acted to implement the strategy setout in the report. Central banks have promoted risk

control via publicity and increasing cooperationwith supervisory authorities. In addition, superviso-ry authorities have published guidelines on thecontrol of settlement risks and have includedbanks internal control of settlement risks amongtheir areas of inspection.

In a follow-up report, published this year, theCPSS presented its assessment of internationalprogress in the control of FX settlement risks7.According to the report, the major international in-stitutions engaged in FX trading and monitored bythe CPSS have made progress in controlling theirFX settlement risks. Risk awareness has increasedat all organizational levels, risk measurement hasimproved, and clear responsibility (extending tohigh levels) for managing such risk has been es-tablished. There has been some reduction in expo-sures via shortening of durations and netting ar-

rangements. Despite the encouraging progress,the CPSS considers that much still needs to bedone to achieve sufficient control of settlement risks.

The Bank of Finland and the Financial Super-vision Authority have worked together in assessingthe situation regarding Finnish banks and havesupported the development of methods of control-ling settlement risks. A seminar was arranged forthe banks in spring 1997 to look at international de-velopments and to plan a national strategy to im-prove the management of settlement risks. Themajor banks management of settlement risks wasinspected in autumn 1997.

In Finland the banks situation accords with de-velopments among the international institutionssurveyed by the CPSS. Finnish banks are wellaware of FX settlement risks and have ongoing pro-jects aimed at exposure assessment and reduction.While the level of risk management varies to someextent across banks, Finnish banks on average arestill lagging behind the banks covered in the CPSSsurvey in terms of risk management and the use ofexternal services. Many Finnish banks need to en-hance their efforts to develop the settlementprocess for FX transactions and to make better use

of external services.The autumn 1997 inspection also covered con-centration of counterparties, and the findings sug-gested that the counterparties for the biggest set-tlement exposures of Finnish banks were largelyoverlapping. In terms of volume, nearly half of theinternal limits of the inspected banks (banks tenbiggest exposures) were imposed on less than tencounterparties. Nordic banks account for a consid-erable share of these limits. If just one of thesebanks were to fail or encounter a serious distur-bance, all the Finnish banks could suddenly face

liquidity problems.

Bulletin 9 98 11

6 Settlement Risk in Foreign Exchange Transactions, ReportPrepared by the Committee on Payment and Settlement Systemsof the Central Banks of the Group of Ten Countries. Basle, March1996.

7 Report on the Strategy to Reduce Foreign Exchange SettlementRisk, CPSS, Basle, July 1998.


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12 Bulletin 9 98

Efforts by industry groups toreduce settlement riskWhile individual institutions have been developingtheir own operations, industry groups have initiatedservices for reducing FX settlement risk. Bilateralnetting services have long been provided eg byFXNET, Valunet and SWIFT Accord; multilateral net-ting services have been provided by London-based Exchange Clearing House (ECHO).

An important new initiative is the CLS Bank,which is expected to start operations in New York inthe latter half of year 2000. It was set up by the in-ternational banks known as the G-20 banks, whichoperate via the company, CLS Service Limited(CLSS). A bank that engages in FX trading will holdaccounts at the CLS Bank in the currencies inwhich it trades, which will enable the CLS Bank tointernally effect simultaneous and interdependent

currency transfers between the counterparties to atrade8. This arrangement eliminates the risk of aloss of principal in an FX settlement. Liquidity risk,however, remains with the counterparties. TheCLSS group also includes the above-mentionedprovider of multilateral netting services, ECHO.

Another initiative to reduce settlement risk is theproject on the so-called contract for difference(CFD). Under such an agreement, the two counter-parties agree that a single payment will be madebetween them in the net value of their mutual FXtrades in a predetermined currency. The net valueis the market gain or loss that would have resultedfrom all the included FX trades. This reduces thevolume to be settled and the settlement exposureto just a fraction of what they would otherwise be.Application of this model is based on the findingthat the bulk of FX trades are often carried out foreither hedging or speculative purposes, in whichcase there is no need to acquire any liquidity in theinvolved currencies.

The outlookMuch work remains to be done to promote the con-trol of FX settlement risk. One reason for this is theglobal character and complexity of the problemsinvolved. Thus eg the establishment of internation-al institutions for settling FX trades has proven to bea slow process. Nonetheless, the crucial factor de-termining the rate of progress is the desire of the in-volved institutions to upgrade their own risk man-agement.

The development of risk management has un-doubtedly been hampered both in Finland andelsewhere by the fact that the introduction of theeuro and the problems linked to the year 2000 com-pete for banks resources. Facing fierce competi-tion, some banks are reluctant to commit to hugeinvestments so long as there are no binding stand-ards imposed on them. The discussion in Finland

has revealed that smaller banks may be inclined topostpone large investments in new systems longenough to see how the FX markets and banks roletherein are changing with the adoption of the euro.

Banks need to continue their efforts to reduceFX settlement risk, and industry groups should con-tinue to develop their risk-reducing services. In co-operation with the Basle Committee on BankingSupervision and in accord with a CPSS proposal,authorities will enhance their efforts by setting stand-ards for banks on the prudential control of FX set-tlement risk. The Bank of Finland and the FinancialSupervision Authority are taking part in internation-al cooperative efforts to improve the effectivenessof risk management while continuing to monitorprogress among Finnish banks and informing themof international developments.

3 September 1998

Key words: foreign exchange settlement risks,monetary stability, CPSS

8 Referred to as continuous linked settlement, this is a means ofaccomplishing payment vs payment (PVP). Payments are execut-ed only when the payments for both bought and sold currenciescan be settled simultaneously.


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Breakdown of Finnish residents stockof outward portfolio investmentby country group and country,31 December 1997

The Bank of Finland is participating in a portfolio in-vestment1 survey coordinated by the IMF. This isthe first time that data on Finnish residents stock ofinvestment in foreign-issue marketable securities(excl. derivatives) is being collected and brokendown by country. Over 30 countries are participat-ing in the survey. The survey data from all the par-ticipating countries will be compiled during the firsthalf of 1999, after which the participating countries

will exchange data in order to determine the debtbreakdown by country.

Bulk of portfolio investment directed towardEU countries. Two-thirds of the stock of outward

portfolio investment (about FIM 41.8 billion) was inEurope. Roughly, 30 per cent of the stock was in theeuro area, 31 per cent in other EU countries and 5per cent in other European countries. Investment inNorth America totalled FIM 8.6 billion, in othercountries about FIM 6 billion, and in internationalorganizations about FIM 6.3 billion. The major hostcountries were Sweden, the US, Germany and theUK, whose combined share was slightly over 50per cent.

The breakdown of portfolio investment by sharesand bonds by country did not differ significantlyfrom the breakdown of total investment by country.

Bulletin 9 98 13

Items

Country Shares Bonds Money Totalmarket

instruments

EU COUNTRIES 11 208 25 533 1 496 38 237Netherlands 1 022 1 026 0 2 048Belgium 290 299 0 589Spain 268 276 54 598Ireland 13 623 0 636UK 2 103 3 527 709 6 339Italy 235 1 524 188 1 947Austria 56 255 0 311Greece 0 98 0 98Luxembourg 2 014 23 209 2 246Portugal 26 55 0 81France 1 041 2 223 0 3 264Sweden 2 633 8 798 153 11 584Germany 948 5 816 183 6 948Denmark 559 989 0 1 548

OTHER EUROPEANCOUNTRIES 1 445 1 286 835 3 566Iceland 0 48 187 235Latvia 8 0 0 8Lithuania 18 0 0 18Norway 699 965 648 2 312

Switzerland 688 200 0 888Russia 5 51 0 56Estonia 27 22 0 49

NORTH AMERICA 2 425 6 048 101 8 574Canada 21 891 0 912US 2 404 5 157 101 7 662

1 Pursuant to IMF instructions, portfolio investment is defined to in-clude not only trade in securities with maturity in excess of oneyear but also in money market instruments and derivatives.

Country Shares Bonds Money Totalmarket

instruments

CENTRAL ANDSOUTH AMERICA 0 506 80 586Cayman Islands 0 464 80 544Mexico 0 25 0 25Venezuela 0 17 0 17

AUSTRALIA AND OCEANIA 97 1 859 623 2 579

Australia 95 1 734 623 2 452New Zealand 2 125 0 127

ASIA 1 719 1 052 69 2 840South Korea 8 0 0 8Philippines 19 0 0 19Hong Kong 336 0 0 336Indonesia 23 0 53 76India 11 0 0 11Japan 1 082 875 0 1 957China 23 92 16 131Malaysia 33 58 0 91Singapore 104 0 0 104Taiwan 67 0 0 67Thailand 13 27 0 40

International organizations 29 6 263 0 6 292

Total* 16 923 42 547 3 204 62 674

* The figures are slightly different from those presented in FinlandsBalance of Payments due to a difference in calculation methods.

Outward portfolio investment by country (market value at 31 Dec 1997, mill. FIM)


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14 Bulletin 9 98

The biggest exception was the Asian countries: thestock of investment in shares issued in these coun-tries was about 10 per cent of the total stock ofshare investment whereas the stock of portfolio in-vestment in Asian countries was only 4.5 per centof the total stock of portfolio investment. The break-down of the stock of investment in money market in-struments by country differed from the breakdownby shares and bonds in that the stock of investmentin the UK, Norway and Australia was about 62 percent of the total.

Insurance companies and special credit insti-tutions are the largest investors. Other finan-cial institutions2 accounted for about 75 per cent ofthe stock of Finnish residents outward portfolio in-vestment, ie about FIM 47.4 billion. Outward portfo-lio investment by banks was FIM 7.6 billion, mutual

funds about FIM 3.6 billion, households about FIM3.1 billion, and enterprises about FIM 0.9 billion.

Publication of the Bank of Finland

The doctoral dissertation byAntti Ripatti, Demandfor Money in Inflation-Targeting Monetary Policy,has been published in the Bank of Finland Series E(E:13).

In order to study the role of money in an infla-tion-targeting regime for monetary policy, the inter-est rate and money are compared as monetary poli-cy instruments. The theoretical part of the studybuilds on a dynamic stochastic general equilibriummodel that combines the money-in-the-utility-func-tion approach with sticky prices. Preference andtechnology shocks are the driving forces of theeconomy. It is shown that conditioning the interest

rate on the expected future technology change canbe used to achieve constant inflation or constant in-flation expectations. The assumed adjustment costsin money demand lead to an equilibrium in whichinflation can be controlled by money growth withouthaving information on the current state of the econ-omy. The trade-off between money and the interestrate as a monetary policy instrument depends onthe parameter stability of the technology changeprocess relative to that of the money demandfunction.

Experiments are done with the parameter stabil-ity of the demand for money using Finnish monthlydata for 19801995. The steady-state-utility func-tion parameters of the model of narrow money(M1), estimated with cointegration techniques, arestable; whereas in the model of harmonized M3(M3H) the parameters are not stable. The theoreti-

cal model fits the M1 data. The adjustment cost pa-rameters of the M1 model describing the dynamicsof the demand for money could indicate the occur-rence of technological improvements in bankingand payments during the sample period. These re-sults suggest that from the Finnish viewpoint M1would be a more appropriate intermediate targetfor monetary policy than harmonized M3. Due tosmall sample problems, we compare parameters ofthe theoretical model estimated using the GeneralizedMethod of Moments and Full Information MaximumLikelihood method. The process driving the forcingvariables is approximated with vector autoregres-sion. Both the GMM and FIML parameter estimatesare reasonable and the differences are negligible.The cross-equation restrictions implied by the ratio-nal expectations hypothesis are clearly rejected.

Helsinki 1998. ISBN 951-686-581-X. ISSN 1238-1691.

Key words: demand for money, monetarytransmission, money-in-the-utility-function,sticky prices, technology shock, GMM, FIML

2 Includes insurance companies and special credit institutions.


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1997

SEPTEMBERTender rate. On 15 September, the Bank ofFinland raises its tender rate from 3.00 per cent to

3.25 per cent. In addition, the interest rate onbanks excess reserves is raised from 1.00 percent to 1.25 per cent.

NOVEMBERMoney market tenders. As at 3 November,the Bank of Finland shortens the maturity applied inits money market tenders from one month to twoweeks. The normal settlement day for these tenderswill be the banking day following the trade day.Liquidity credit. As at 3 November, the Bank ofFinland shortens the maturity applied in its liquidity

credit from seven days to one day. The Bank ofFinland also abolishes the limits on collateralizedliquidity credit.

1998

JANUARYFinnish deposit guarantee scheme revised.The Finnish deposit guarantee scheme is revised

as from the start of 1998 by amendment andextension of the Act on Credit Institutions(1229/97). All deposit banks must now belong toa common deposit guarantee fund. Instead ofthe previous full coverage, the guarantee is nowlimited to a maximum of FIM 150 000 perdepositor/bank.

MARCHTender rate. On 19 March, the Bank of Finlandraises its tender rate from 3.25 per cent to 3.40per cent. In addition, the interest rate on banks

excess reserves is raised from 1.25 per cent to1.40 per cent.

APRILAbolishment of stamp tax on lending. Parliamenthas abrogated the stamp tax as it applies tolending and mortgages, effective with respect toagreements concluded on or after 29 April 1998.

Bulletin 9 98 15

Measures concerningmonetary and foreign exchange policyand the financial markets


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The Bank of Finlands monetary policy objective is to sta-bilize the inflation rate at about 2 per cent. This corre-sponds to the price stability objectives of the major ERMcountries. Finland joined the Exchange Rate Mechanism(ERM) of the European Monetary System on 14 October1996. The central rate for the markka is presently FIM6.01125 per ECU and the corresponding central rateagainst the Deutschemark is FIM 3.04. The Bank ofFinland is responsible for ensuring that the markkaremains within the 15 per cent fluctuation margin vs theother ERM currencies.

The Bank of Finlands instruments of monetary policycomprise market operations, the liquidity credit facilityand the minimum reserve system.

Through its market operations, the Bank of Finlandcan on its own iniative exert an immediate impact onbanks liquidity, short-term market rates and the ex-change rate. Money market operations are usually con-ducted via tenders. Changes in the tender rate haveimmediate effects on money market rates and throughthem on banks lending and deposit rates. The Bank ofFinland can also affect the exchange rate when this isconsidered appropriate.

The liquidity credit facility consists of liquidity creditgranted by the Bank of Finland when needed and de-posits of excess reserves at the Bank. The main function

of this facility in respect of an individual bank is to safe-guard its liquidity in the event of an unexpected change inliquidity conditions. The rates of interest on liquidity cred-it and excess reserves, which are decided by the centralbank, usually form the upper and lower limits for the short-est market rates.

The minimum reserve requirement is used to affectboth the demand for central bank financing and bankslending possibilities. Because required reserves held atthe central bank do not bear interest, the system also sup-ports the central banks profitability. Fulfilment of reserverequirements on the basis of averaging facilitates banksmanagement of payment transactions.

Banks wishing to participate in the Bank of Finlandsmoney market operations and to gain access to the liq-

uidity credit facility are required to have a current accountat the Bank of Finland. By means of a current account, abank is able to effect payment transactions with the Bankof Finland and other current account holders in a safe,efficient manner.

The base rate, which is set by the Bank of Finland,was formerly an important reference rate. It is howeverbeing gradually superseded by market rates and hashardly any practical importance in the determination ofnew lending and borrowing rates.

Market operationsThe Bank of Finland affects interest rates and exchangerates by means of market operations, ie by dealing insecurities or foreign exchange assets with its selectedcounterparties.

Money market operations can be carried out in theform of either bilateral money market transactions or ten-ders. Tenders, in which the Bank of Finland lends moneyto the banks, are carried out via repurchase (repo) trans-

actions. In order to drain liquidity from the banking sys-tem, ie collect deposits from banks, the Bank of Finlandgenerally sells its own CDs via tenders.

In a fixed-rate tender, the Bank of Finland announcesthe tender rate in advance and the banks submit bids forthe volumes they wish to transact. In a variable-rate ten-der, banks bid by both rate and volume, and the Bank ofFinlands tender rate becomes the weighted average ofaccepted bids. The Bank of Finland applies a two-weekmaturity in its tenders. The settlement lag for tender-relat-ed payments is one banking day, ie payments are settled

on the banking day following the trade day. Short-termmarket rates move in line with the tender rate. Since 19March 1998 the tender rate has been 3.40 per cent.

The Bank of Finland may accept as money marketcounterparties credit institutions that are subject to mini-mum reserve requirements and which the Bank ofFinland considers to be otherwise qualified to operate ascounterparties. A counterparty is required to have a cur-rent account at the Bank of Finland and adequate techni-cal facilities and to be an active and important moneymarket participant. Counterparties in outright bilateraltrades are also required to act as market makers1 formoney market instruments and to observe the moneymarket rules and code of conduct. At its discretion, theBank of Finland may also accept as counterparties mar-

ket participants that are not subject to minimum reserverequirements.

The following banks have been accepted as counterpar-ties for money market operations:Aktia Savings Bank LtdBank of land LtdLeonia Bank plcMerita Bank LtdOkobankSkandinaviska Enskilda Banken Helsinki BranchSvenska Handelsbanken AB,

Branch Operation in FinlandUnibank A.S. Helsinki Branch

Normally, the instruments accepted for the Bank ofFinlands outright money market transactions areTreasury bills and Bank of Finland CDs. In special cases,other money market instruments can be approved for usein outright transactions.

Acceptable underlying assets for repo transactionscomprise Bank of Finland CDs, benchmark governmentbonds, Treasury bills, notes issued by Asset Manage-ment Company Arsenal, and CDs issued by banks thatoperate as money market counterparties.

In repo transactions, haircuts are set according toissuer and maturity as follows:

16 Bulletin 9 98

Monetary policy instruments August 1998

1 Functioning as a market maker means that the counterparty isable to give binding buy/sell quotes on the securities or foreigncurrencies in question.


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Issuer Short-term Long-term12 months over 12

or less months

Bank of Finland CDs 0 %

Government Treasury bills 0 %

Benchmarkgovernment 0 % 5 %bonds

Arsenal Notes 5 %

Banks CDs 5 %

The Bank of Finland conducts foreign exchange opera-tions with the banks primarily when it wants to influencethe exchange rate. The Bank attempts to even out widefluctuations in the exchange rate and, in the context of theERM, it is responsible for keeping the markkas exchangevalue against other ERM currencies within the allowed

15 per cent fluctuation margins. In addition, the Bank ofFinland may convert currencies that the central govern-ment has borrowed from abroad into markkaa and sellforeign exchange to the central government as needed toservice loans.

The Bank of Finland requires that its counterparties inforeign exchange operations act as market makers for theFinnish markka. The following banks have been acceptedas counterparties for outright foreign exchange operations:

Leonia Bank plcMerita Bank LtdOkobankSkandinaviska Enskilda Banken Helsinki BranchSvenska Handelsbanken AB,

Branch Operation in Finland

Liquidity credit facilityUpon application, the Bank of Finland may grant accessto the liquidity credit facility to any credit institution thatis subject to the minimum reserve requirement and hasa current account at the Bank of Finland. The facilityenables the credit institution to obtain liquidity credit oraccrue interest on its excess reserve deposits at the Bankof Finland.

Liquidity credit must be fully collateralized and theapplicable interest rate is tied to the Bank of Finlands ten-der rate. Since 19 March 1998 the rate on liquidity credithas been 5.40 per cent, ie the margin vs the tender rate

has been 2 percentage points. The maturity for liquiditycredit may be 1, 7, 14, 21 or 28 days. The maturity andother terms and conditions are decided by the Bank ofFinland. Since the start of November 1997, the maturity onliquidity credit has been one day.

If the monthly average of a banks daily currentaccount balances exceeds the banks reserve require-ment, the bank is considered to have excess reserves.The Bank of Finland may separately decide to pay intereston excess reserves; since 19 March 1998 the rate hasbeen 1.40 per cent.

The following banks have been granted access to theBank of Finlands liquidity credit facility:

Aktia Savings Bank LtdBank of land LtdCitibank International plc Finland BranchCrdit Agricole Indosuez Helsinki BranchDen Danske Bank Helsinki BranchLeonia Bank plcMandatum Bank Ltd

Merita Bank LtdOkobankSkandinaviska Enskilda Banken Helsinki BranchSvenska Handelsbanken AB,Branch Operation in Finland

SkopbankUnibank A.S. Helsinki Branch

Minimum reserve systemBy virtue of the Act on the Bank of Finland, a deposit bankor branch of a foreign credit institution which carries ondeposit banking activities in Finland must hold non-inter-est-bearing reserves at the Bank of Finland. The maxi-mum reserve requirement is 5 per cent of the mandatoryreserve holders liabilities. The reserve requirement is cal-culated against the reserve base as at the last day ofeach calendar month. The reserve requirement based onthe reserve base effective at the end of a given monthmust be met during the second calendar month followingsuch effective date. Thus the lag between the effectivedate of the reserve base and the end of the correspond-ing reserve maintenance period is about 60 days.

The reserve requirement is graded according to thecomposition of a banks funding so that the more liquid anitem, the larger the reserve requirement. The reserverequirement on deposits payable on demand (ie liquiddeposits) is 2 per cent, on other deposits 1.5 per cent andon other balance sheet items 1 per cent. At the end ofJuly 1998, the sum total of required reserves was FIM 7.0billion and the weighted average reserve requirement 1.7per cent.

A bank with a current account at the Bank of Finlandcan meet its reserve requirements by maintaining themonthly average of its daily balances at least as high asthe minimum reserve requirement. Thus banks may use

funds in their current accounts for effecting payments solong as the average monthly balances meet their respec-tive reserve requirements on the last banking day of eachmonth. Banks that do not have a current account at theBank of Finland or use another bank as their central finan-cial institution deposit their reserves in special minimumreserve accounts at the Bank of Finland.

The minimum reserve requirement applies to the followingbanks:Aktia Savings Bank LtdBank of land LtdCitibank International plc Finland BranchCrdit Agricole Indosuez Helsinki BranchDen Danske Bank Helsinki Branch

Gyllenberg Private Bank OyLeonia Bank plcMandatum Bank LtdMerita Bank LtdOP-Homebank LtdOkobankOkopankki Oy, an Okobank subsidiarySkandinaviska Enskilda Banken Helsinki BranchSkopbankSvenska Handelsbanken AB,

Branch Operation in FinlandUnibank A.S. Helsinki BranchOther cooperative banks and savings banks

Current account systemThe Bank of Finlands current account (BoF-RTGS) sys-tem is an essential part of the payment and clearing sys-tem in Finland. Payments effected in the system can bedivided into three main types: (1) business transactionsbetween the Bank of Finland and the banks, ie payments

Bulletin 9 98 17


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18 Bulletin 9 98

related to monetary policy and maintenance of the moneysupply, (2) interbank payments and (3) payments relatedto clearing and settlement systems, including cover forinterbank settlement of trades effected via the FinnishCentral Securities Depository.

Upon application, the Bank of Finland may open acurrent account for any Finnish or foreign credit institution

operating in Finland that is subject to minimum reserverequirements and which fulfils certain other requirements.The credit institution must be subject to supervision by theFinancial Supervision Authority or to other comparablepublic supervision. It must meet the capital adequacyrequirements laid down in the Credit Institutions Act andits own funds must amount to at least FIM 30 million. Forspecial reasons, the Bank of Finland may at its discretionopen current accounts for other entities participating inthe financial markets.

Upon application, the Bank of Finland may also grantan intraday credit limit on the current account of a creditinstitution subject to minimum reserve requirements, if suchaccount holder provides the Bank of Finland full collateralfor the credit limit in accord with the Banks guidelines.

Current account holders have workstations linked tothe Bank of Finlands current account data base via adata communications network. Current account holdersthemselves effect payments to other current accountholders via their workstations.

The following entities have a current account at the Bankof Finland:Aktia Savings Bank LtdAsset Management Company Arsenal Ltd

Bank of land LtdCitibank International plc Finland BranchCrdit Agricole Indosuez Helsinki BranchDen Danske Bank Helsinki BranchFinnish Central Securities Depository LtdGyllenberg Private Bank OyHEX Oy, Helsinki Securities and Derivatives Exchange,

Clearing HouseLeonia Bank plcMandatum Bank LtdMerita Bank LtdOkobankSkandinaviska Enskilda Banken Helsinki BranchSkopbankState TreasurySvenska Handelsbanken AB,

Branch Operation in FinlandUnibank A.S. Helsinki Branch

Base rateThe Parliamentary Supervisory Council decides on theBank of Finlands base rate upon a proposal by the Boardof the Bank of Finland. The base rate is used as a marketreference rate. About 2.8 per cent of outstanding depositsand 11.2 per cent of lending is tied to the base rate, butonly 0.7 per cent of new lending is tied to it (June 1998).Since 16 September 1996, the base rate has been 4.0 percent.


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Land, climate and populationFinland covers an area of more than 338 000 square kilo-metres. The total area is slowly increasing because of thesteady uplift of the land since the last glacial era. Thecountry shares frontiers with Sweden in the west, Norwayin the north and Russia in the east and has a coastlinebordered by the Baltic Sea in the south and west.Agricultural land accounts for 8 % of the total area, forestand other wooded land for 68 % and inland waters for10 %. Located between latitudes 60o and 70o north,Finland has warm summers and cold winters. Helsinki on

the south coast has an average maximum temperature of21o C (70o F) in July and 3o C (25o F) in February.Finland has a population of 5 147 349 (31 December

1997) and an average population density of 17 per squarekilometre. The largest towns are Helsinki (Helsingfors), thecapital, with 539 363 inhabitants, Espoo (Esbo) 200 834,Tampere (Tammerfors) 188 726, Vantaa (Vanda) 171 297and Turku (bo) 168 772.

There are two official languages: 93 % of the popula-tion speaks Finnish as its mother tongue and 5.7 %Swedish. There is a small Lapp population in the north.Finnish is a member of the small Finno-Ugrian group oflanguages, which also includes Estonian and Hungarian.

Form of governmentFinland is a parliamentary democracy with a republicanconstitution. From the twelfth century to 1809 Finland waspart of the Kingdom of Sweden. In 1809, Finland wasannexed to Russia as an autonomous Grand Duchy withthe Tsar as Grand Duke. On 6 December 1917 Finlanddeclared her independence. The republican constitutionadopted in 1919 remains essentially unchanged today.

The legislative power of the country is exercisedby Parliament and the President of the Republic. Thesupreme executive power is vested in the President, whois elected for a period of six years. The President for thecurrent term, 1 March 1994 to 1 March 2000, is Mr MarttiAhtisaari.

Parliament, comprising 200 members, is elected byuniversal suffrage for a period of four years. Following theparliamentary elections of 1995, the seats of the variousparties in Parliament are distributed as follows:

Social Democratic Party 63; Centre Party 44; NationalCoalition Party 39; Left Wing Alliance 22; SwedishPeoples Party 12; Green League 9; Christian League 7;Progressive Finnish Party 2; Rural Party 1; and EcologicalParty 1.

Of the 18 ministerial posts in the present Govern-ment appointed in April 1995, 7 are held by the SocialDemocratic Party, 5 by the National Coalition Party, 2 bythe Left Wing Alliance, 2 by the Swedish Peoples Party,1 by the Green League and 1 by an expert with no partyaffiliation. The Prime Minister is Mr Paavo Lipponen of the

Social Democratic Party.Finland is divided into 452 self-governing municipal-ities. Members of the municipal council are elected byuniversal suffrage for a period of four years.

International relationsFinland became a member of the BIS in 1930, the IMF in1948, the IBRD in 1948, GATT in 1950, the UN in 1955,the Nordic Council in 1955, the IFC in 1956, IDA in 1960,EFTA in 1961, the ADB in 1966, the OECD in 1969, theIDB in 1977, the AfDB in 1982, the MIGA in 1988, theCouncil of Europe in 1989, the EBRD in 1991 and the EUin 1995.

Citizens of the five Nordic countries, Denmark,Finland, Iceland, Norway and Sweden, have enjoyed acommon labour market, a passport union and reciprocalsocial security benefits since the mid-1950s.

Having abolished most quantitative restrictions onforeign trade in 1957, Finland first took part in Europeanfree trade arrangements under the auspices of EFTA in1961. Imports from the USSR were also progressivelyfreed from customs duties. Finlands free trade agree-ment with the EEC entered into force in 1974 and agree-ments for the removal of trade barriers were concludedwith several eastern European countries as well. Theagreement on the European Economic Area (EEA) be-tween the member countries of EFTA and the EuropeanUnion came into effect at the beginning of 1994. Finlandbecame a member of the European Union on 1 January1995. Finland and ten other EU countries will proceed to

Stage Three of EMU in 1999.

The economyOutput and employment. Of the gross domestic product ofFIM 538 billion in basic values in 1997, 2 % was gener-ated in agriculture and fishing, 3 % in forestry, 27 % inindustry, 6 % in construction, 11 % in trade, restaurantsand hotels, 9 % in transport and communications, 3 % infinance and insurance, 22 % in other private services and18 % by producers of government services. Of totalemployment of 2.2 million persons in 1997, 7.0 % wereengaged in primary production, 27.4 % in industry andconstruction and 65.6 % in services.

In 1997, expenditure on the gross domestic product

in purchasers values amounted to FIM 622 billion andwas distributed as follows: net exports 9 % (exports40 %, imports 31 %), gross fixed capital formation 17 %,private consumption 53 % and government consumption21 %. Finlands tax ratio (gross taxes including compul-sory employment pension contributions relative to GDP)was 47.0 per cent, which is somewhat below the averagefor the Nordic countries.

Average annual (compounded) growth of real GDPwas 4.7 % in the period 195059, 5.0 % in 196069,3.7% in 197079, 3.7% in 198089and 3.6 % in 195096. Fin-lands GDP per capita in 1997 was USD 23 302.

Foreign trade. EU countries absorb the bulk ofFinnish merchandise exports. In 19931997 their aver-age share was 51.7 %. Over the same period, Finlandsexports to other European countries (including Russia)accounted for 22.1 % and to the rest of the world for 26.2%. The regional distribution of Finlands merchandise im-ports in the same period has been quite similar to that of

20 Bulletin 9 98

Finland in brief


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exports: EU countries accounted for 53.8 %, otherEuropean countries for 22.3 % and the rest of the worldfor 24.0 %.

In 1997, the share of forest industry products in totalmerchandise exports was 30.8 %, the share of metaland engineering products 43.3 % and the share of othergoods 25.9 %. Raw materials and intermediate goods

(incl. crude oil) accounted for 60.9 % of merchandiseimports, fuels for 4.4 %, investment goods for 15 % andconsumption goods for 21.9 %.

Forest resources. Finland has fairly abundant forestresources but only limited amounts of other raw materials.The growing stock comprises 1 937 million cubic metres,of which 46 % is pine, 36 % spruce, 15 % birch and 3 %other broad-leaved species.

According to the latest National Forest Inventory(19891994), the annual volume increment is about 75.4million cubic metres. During the same time period, theaverage annual drain has been about 55 million cubicmetres.

Finance and bankingCurrency. Finland has had its own monetary system since1865. The currency unit is the markka (plural: markkaa),abbreviation FIM, which is divided into 100 penni (singu-lar: penni). From 1 November 1977 to 7 June 1991 theexternal value of the markka was officially expressed interms of a trade-weighted currency index, which was per-mitted to fluctuate within a prescribed range (from 30November 1988 the range was 6 percentage points).From 7 June 1991 to 7 September 1992, the markka waspegged to the European Currency Unit, the ECU. Thefluctuation margins and the midpoint were set so as tocorrespond to the fluctuation margins and midpoint ofthe old currency index. The midpoint was first 4.87580

(FIM/ECU). Owing to the devaluation of the markka on15 November 1991, the midpoint was increased to5.55841 and the fluctuation limits to 5.39166 and 5.72516.On 8 September 1992, the fluctuation limits of the markkawere abandoned and the markka was allowed to float. On14 October 1996, the markka was joined to the ExchangeRate Mechanism (ERM) of the European Monetary Sys-tem (EMS) at the central rate of 5.80661 per ECU. As from16 March 1998 the ECU central rate is FIM 6.01125.

The Central Bank. The two new laws adopted in 1997and 1998 make Finnish legislation compatible with therequirements of the Treaty establishing the EuropeanCommunity and the Statute of the European System ofCentral Banks and the European Central Bank. The latterlaw, the new Act on the Bank of Finland, integrates the

Bank of Finland into the ESCB once Finland joins the euroarea. In performing the tasks of the ESCB, the Bank ofFinland will act in accord with guidelines and instructionsissued by the ECB. Under the Treaty, the primary objec-tive on the Bank of Finland is to maintain price stability.The new Act did not change the division of responsibilitiesbetween the Parliamentary Supervisory Council and the

Board. The tasks of the Council are connected with super-vision of the Banks administration and operations, admin-istrative decisions and certain other responsibilities. TheBoard of the Bank of Finland comprises the Chairman(Governor) and a maximum of five (currently three) othermembers, all of whom are appointed by the President ofthe Republic on a proposal of the Council. The Chairmanof the Board is appointed for a seven-year term and theother members of the board each for a five-year term. TheBank of Finland has a head office in Helsinki and 4 branchoffices in other towns.

Other banks ( 31 Dec 1997). Finland has three majorgroups of deposit banks with a total of 1 242 offices. Thereare two big commercial banks with national branch net-works and five smaller ones. The commercial banks havea total of 10 foreign branches, subsidiaries and associatebanks and 16 representative offices abroad. There are40 savings banks and 294 cooperative banks, both withextensive branch networks. In addition, 6 foreign bankshave branches and 7 foreign banks have representativeoffices in Finland.

Financial markets. Of the total stock of FIM 726 billionin outstanding domestic credit at end-September 1997,48 % was accounted for by deposit banks, 6 % by insur-ance companies, 23 % by pension insurance institutions,12 % by other credit institutions, and 11 % by state andlocal authorities and social security funds.

In the money market, 72 % of the instruments in valueterms, which totalled about FIM 134 billion at end-

December 1997, were accounted for by bank certificatesof deposit (including central bank paper). Other nego-tiable money market instruments consist of Treasury bills,commercial paper and local authority paper.

At end-March 1998, there are 81 companies on theofficial list, 32 on the OTC list and 15 on the brokers list forthe HEX, Helsinki Exchanges. Total market capitalizationfor the official list was FIM 518 billion, the OTC list FIM 6billion, and the brokers list FIM 8 billion, at end-March1998. Domestic bonds and debentures in circulation atend-March 1998 totalled FIM 289 billion; governmentbonds comprised 76 % of the total. Turnover on the HEX,Helsinki Exchanges amounted to FIM 187 billion in 1997.In JanuaryMarch 1998 share turnover amounted to FIM60 billion.

Bulletin 9 98 21


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1. The balance sheet of the Bank of Finland S21.1 The balance sheet of the Bank of Finland S21.2 Time series for the balance sheet items

of the Bank of Finland S3

2. The Bank of Finlands operationsin the money and foreign exchange marketsand the banks forward exchange position S42.1 The Bank of Finlands minimum reserve system

and standing facilities S42.2 The Bank of Finlands money market transactions S42.3 The Bank of Finlands transactions

in foreign currencies and the stock of reserve assets S52.4 Forward exchange contracts S5

3. Rates of interest S63.1 Money market rates and rates applied

by the Bank of Finland S6

3.2 The Bank of Finlands liquidity facility S63.3 Weighted Eurorates and commercial ECU interest rate S63.4 Rates of interest applied by banks S73.5 Yields on bonds and shares S7

4. Rates of exchange S84.1 Middle rates S84.2 Markka value of the ECU and currency indices S94.3 Deviations of ERM currencies markka rates from

central rates S9

5. Financial markets and money supply S105.1 Bank funding from the public S105.2 Bank lending to the public S10

5.3 Money supply S115.4 Liabilities and assets of the central government S115.5 Markka bond market S12

a) Issues S12b) Stock S12c) Turnover S13

5.6 Helsinki Stock Exchange S13

6. Balance of payments, foreign liabilitiesand assets S146.1 Current account S146.2 Capital and financial account S156.3 Finlands international investment position S166.4 Finlands net international investment position

(liabilities less assets), by sector S177. Foreign trade S18

7.1 Exports, imports and the trade balance S187.2 Foreign trade: indices of volume, prices and

terms of trade S187.3 Foreign trade by main groups S187.4 Foreign trade by regions and countries S19

8. Domestic economic developments S208.1 Supply and use of resources S208.2 Volume of industrial production S208.3 Indicators of domestic supply and demand S218.4 Wages and prices S22

8.5 Labour, employment and unemployment S238.6 Central government finances: revenue, expenditureand financial balance S24

Notes and explanations to the statistical section S25

Bulletin 9 98 S1

STATISTICS


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1997 1998

31 Dec 7 Aug 14 Aug 21 Aug 31 Aug

ASSETS

Reserve assets 51 455 52 346 52 651 52 977 52 175

Gold 1 742 1 742 1 742 1 742 1 742Special drawing rights 1 772 1 296 1 344 1 238 1 600IMF reserve tranche 3 036 3 500 3 529 3 537 3 538ECUclaim on the European Monetary Insitute 4 078 2 915 2 917 2 922 2 923Foreign exchange assets 40 827 42 893 43 118 43 538 42 372Other foreign claims 3 342 3 147 3 147 3 155 3 155Markka subscription to Finlands quota in the IMF 3 281 2 728 2 728 2 735 2 735European Central Bank capital share1) 61 418 419 419 420Claims on financial institutions 2 951 2 826 115 115 115Liquidity credits Securities with repurchase commitments 2 711 Term credits Bonds 114 77 77 77 77

Other 2 837 39 39 39 39Claims on the public sector 2 015 2 026 2 026 2 026 2 026Treasury bills Bonds Total coinage 2 015 2 026 2 026 2 026 2 026Other Claims on corporations 1 762 1 620 1 618 1 618 1 615Financing of domestic deliveries (KTR) 26 14 12 12 9Other 1 736 1 606 1 606 1 606 1 606Other assets 635 607 598 627 563Accrued items 528 514 505 535 467Other 107 93 93 92 96Valuation account

Total 62 159 62 571 60 154 60 517 59 649LIABILITIES

Foreign liabilities 4 911 4 234 4 243 4 342 4 306Allocations of special drawing rights 1 046 1 019 1 028 1 032 1 033IMF markka accounts 3 281 2 729 2 729 2 736 2 736Other 584 486 486 573 538Notes and coin in circulation 17 817 17 219 17 105 17 026 17 047Notes 15 923 15 311 15 196 15 116 15 142Coin 1 894 1 907 1 909 1 910 1 905Certificates of deposit 10 500 15 600 12 450 14 750 7 800Liabilities to financial institutions 10 681 7 295 7 800 5 457 11 710Reserve deposits 7 911 7 295 7 800 5 457 11 710Term deposits Other 2 770 0 0 0 0Liabilities to the public sector Current accounts Other Liabilities to corporations 32 12 11 10 10Deposits for investment and ship purchase 32 12 11 10 10Other Other liabilities 55 121 65 50 102Accrued items 23 75 25 13 55Other 32 46 40 37 46Valuation account 258 186 575 977 769Provisions 12 140 12 140 12 140 12 140 12 140Pension provision 1 601 1 601 1 601 1 601 1 601Other 10 540 10 540 10 540 10 540 10 540

Capital accounts 5 764 5 764 5 764 5 764 5 764Primary capital 5 000 5 000 5 000 5 000 5 000Reserve fund 764 764 764 764 764Net earnings

Total 62 159 62 571 60 154 60 517 59 6491) Until 1 July 1998 Share in the European Monetary Institute.

1. The balance sheet of the Bank of Finland1.1 The balance sheet of the Bank of Finland,mill. FIM

S2 Bulletin 9 98


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1993 7 337 6 398 463 476 496 720 1 216 14 994 14 8371994 1 480 6 526 347 5 392 316 1 285 1 601 14 315 35 2361995 7 076 15 676 655 7 945 185 1 706 1 891 15 611 27 0901996 11 626 6 829 372 5 169 70 1 623 1 692 16 891 15 5301997 7 911 181 7 730 26 1 704 1 730 17 817 10 500

1997Aug 8 225 12 522 252 4 045 37 1 748 1 785 16 287 28 440Sep 9 214 4 458 226 4 982 33 1 767 1 800 16 046 36 760Oct 15 103 13 983 188 1 308 26 1 792 1 819 16 144 34 900Nov 4 411 11 612 184 7 017 26 1 684 1 710 16 381 12 200Dec 7 911 181 7 730 26 1 704 1 730 17 817 10 500

1998Jan 1 929 5 642 157 3 556 26 1 713 1 739 16 416 13 740Feb 3 648 10 365 155 6 562 21 1 715 1 736 16 274 9 360Mar 8 417 153 8 264 18 1 718 1 736 16 190 3 100Apr 6 255 132 6 123 14 1 723 1 737 16 845 6 900May 1 962 5 089 132 2 995 14 1 593 1 607 16 909 12 820Jun 5 286 8 326 117 2 923 14 1 594 1 608 16 932 15 350Jul 2 711 6 131 116 3 304 14 1 594 1 608 17 178 16 900Aug 11 710 116 11 594 9 1 596 1 605 17 047 7 800

End of Foreign sector Public sector period

Gold Special IMF ECU-claim Foreign Reserve Other Net Claims Liabil- Netdrawing reserve on the exchange assets claims, claims ities claimsrights tranche European assets (1+2+3 net (6+7) (910)

Monetary +4+5)Institute

1993 2 180 664 1 747 . 28 882 33 473 1 324 32 148 1 788 784 1 0041994 2 180 1 537 1 354 . 47 672 52 743 1 114 51 629 1 806 93 1 7131995 1 742 1 569 1 685 3 363 40 506 48 865 2 082 46 783 1 882 75 1 8071996 1 742 1 344 1 953 2 541 28 817 36 397 1 826 34 571 1 906 1 9061997 1 742 1 772 3 036 4 078 40 827 51 455 1 569 49 886 2 015 2 015

1997Aug 1 742 1 711 2 031 3 978 54 008 63 470 1 622 61 848 1 926 1 926Sep 1 742 1 588 2 081 3 958 52 686 62 055 1 750 60 305 1 939 1 939Oct 1 742 1 489 2 068 4 031 54 754 64 085 1 941 62 144 1 947 1 947Nov 1 742 1 234 2 271 4 071 41 920 51 238 2 256 48 982 1 955 1 955Dec 1 742 1 772 3 036 4 078 40 827 51 455 1 569 49 886 2 015 2 015

1998Jan 1 742 1 323 3 065 3 310 40 268 49 709 1 389 48 320 2 019 2 019Feb 1 742 1 230 3 389 3 318 38 830 48 510 1 413 47 097 2 020 2 020Mar 1 742 1 680 3 399 3 334 34 412 44 567 1 362 43 205 2 017 2 017Apr 1 742 1 558 3 351 2 727 37 034 46 414 1 611 44 803 2 019 2 019May 1 742 1 203 3 541 2 721 39 418 48 626 1 414 47 212 2 024 2 024Jun 1 742 1 714 3 588 2 735 42 171 51 950 1 472 50 478 2 026 2 026Jul 1 742 1 664 3 521 2 917 42 910 52 753 1 049 51 704 2 026 2 026Aug 1 742 1 600 3 538 2 923 42 372 52 175 1 151 51 024 2 026 2 026

Bulletin 9 98 S3

1.2 Time series for the balance sheet items of the Bank of Finland, mill. FIM

End of Domestic financial sector Corporate sector

periodTerm Reserve Other Net Claims Special Net Notes Out-claims on deposits claims on claims in the deposits claims and standingdeposit of deposit financial (12+13+ form of and other (16+17) coin in CDs issuedbanks, banks institu- 14) special items, circu- by the Bank net tions, net financing net lation of Finland

12 13 14 15 16 17 18 19 20

1 2 3 4 5 6 7 8 9 10 11


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S4 Bulletin 9 98

2. The Bank of Finland's operations in the money and foreignexchange markets and the banks' forward exchange position

2.1 The Bank of Finlands minimum reserve system and standing facilities

1 2 3 4 5 6 7

1 As of 2 October 1995, the minimum reserve requirement is fulfilled on an averaging basis; until 2 October 1995, end of month figures.

2.2 The Bank of Finland's money market transactions, mill. FIM

During Purchases Sales Matured Money marketperiod of money market of money market money market transactions, net

instruments instruments instruments, net (123)

1 2 3 4

1993 86 521 146 899 50 486 9 8921994 35 540 351 820 295 165 21 1151995 50 435 434 810 393 930 9 5551996 94 080 250 980 190 562 33 6621997 128 220 422 500 294 770 490

1997Aug 8 350 30 260 26 320 4 410Sep 12 300 34 630 23 120 790Oct 12 200 36 900 28 830 4 130Nov 11 400 15 700 18 480 14 180Dec 0 22 430 26 110 3 680

1998Jan 2 000 30 040 27 770 270Feb 4 280 23 540 19 260 0Mar 0 7 000 9 610 2 610Apr 0 10 400 7 850 2 550May 2 000 17 870 10 650 5 220Jun 5 350 25 365 20 365 350Jul 3 750 37 300 29 970 3 580Aug 0 21 800 29 180 7 380

Reserve requirement Required Excess Total reserves, Liquidityreserves 1, reserves, mill. FIM credits,

On deposits payable On other On other mill. FIM mill. FIM (4+5) mill. FIMon demand, % deposits, % items, %

1993 2.0 1.5 1.0 6 398 . . 4401994 2.0 1.5 1.0 6 526 . . 141995 IIX 2.0 1.5 1.0 6 557 . . 123

XXII 2.0 1.5 1.0 6 530 616 7 146 371996 2.0 1.5 1.0 6 652 440 7 092 1211997 2.0 1.5 1.0 6 717 747 7 464 1

1997Aug 2.0 1.5 1.0 6 803 626 7 429 Sep 2.0 1.5 1.0 6 769 521 7 290 Oct 2.0 1.5 1.0 6 799 1 020 7 818 Nov 2.0 1.5 1.0 6 911 892 7 803 Dec 2.0 1.5 1.0 6 999 310 7 309

1998Jan 2.0 1.5 1.0 6 995 321 7 317 Feb 2.0 1.5 1.0 6 947 147 7 095 Mar 2.0 1.5 1.0 6 947 895 7 842 0Apr 2.0 1.5 1.0 6 866 198 7 065 May 2.0 1.5 1.0 6 834 1 197 8 031 3Jun 2.0 1.5 1.0 6 918 179 7 098 Jul 2.0 1.5 1.0 6 985 115 7 100 Aug 2.0 1.5 1.0 7 015 293 7 308


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2.3 The Bank of Finland's transactions in foreign currenciesand the stock of reserve assets, mill FIM

During Intervention in the foreign exchange market Spot Central Reserve assetsperiod transactions government's (end of period)

Spot Spot Forward exchange related foreign exchangepurchases sales intervention = to forward transactions, net

change in forward contracts, netexchange position mill. FIM mill. USD

1 2 3 4 5 6 7

2.4 Forward exchange contracts between Finnish markka and other currencies, mill. FIM

Stock Finnish banks' forward contracts Non-residents' forward The Bank at end contracts with Finnish of Finlandsof With Finnish customers With foreign customers Total customers forwardperiod (excl. Finnish banks) (excl. Finnish banks) contracts

Currency Currency Net Currency Currency Net Net Currency Currency Net Netpurchases sales to purchases sales to purchases sales to currencyfrom Finnish from foreign from Finnish salesFinnish customers foreign customers Finnish customerscustomers (12) customers (45) (3+6) customers (89)

1 2 3 4 5 6 7 8 9 10 11

1993 38 373 23 721 14 652 14 346 21 895 7 548 7 104 11 632 2 173 9 459 1 9391994 51 096 22 093 29 003 19 236 32 791 13 555 15 448 18 372 4 780 13 592 6 0801995 60 280 19 095 41 185 31 837 48 906 17 069 24 116 12 829 6 871 5 957 1996 53 520 21 793 31 726 44 068 72 021 27 953 3 773 15 871 6 908 8 963

1997 66 649 37 507 29 142 105 128 127 793 22 665 6 477 23 490 14 552 8 938

1997Jul 71 933 31 074 40 859 55 146 83 978 28 831 12 028 30 797 14 976 15 821 4 690Aug 74 387 33 124 41 263 60 935 99 872 38 936 2 327 28 558 17 323 11 235 4 690Sep 69 721 36 411 33 310 68 654 93 287 24 632 8 678 24 439 16 998 7 441 4 690Oct 68 258 37 917 30 340 92 393 116 191 23 798 6 542 24 034 19 297 4 737 1 578Nov 68 813 36 778 32 035 93 566 115 303 21 737 10 298 28 528 17 234 11 294 Dec 66 649 37 507 29 142 105 128 127 793 22 665 6 477 23 490 14 552 8 938

1998Jan 66 113 32 546 33 568 95 925 116 620 20 695 12 873 19 041 7 592 11 449 Feb 70 214 32 074 38 140 91 570 118 695 27 125 11 015 22 024 6 215 15 809 Mar 67 157 33 100 34 057 96 525 121 046 24 521 9 536 19 762 6 366 13 396 2 766Apr 61 717 36 202 25 516 90 097 109 915 19 818 5 698 22 235 5 892 16 344 2 211

May 60 290 29 129 31 161 93 234 112 666 19 432 11 729 21 843 5 825 16 018 9 150Jun 60 173 30 487 29 686 81 673 102 646 20 972 8 714 21 293 4 791 16 502 5 382Jul 58 821 28 217 30 604 83 545 104 528 20 982 9 622 21 841 5 621 16 220 2 981

Bulletin 9 98 S5

1993 25 120 45 080 7 460 6 910 33 240 29 517 5 6281994 20 930 12 900 9 060 8 930 24 660 33 473 5 7871995 4 910 5 470 6 170 9 170 10 135 52 743 11 1201996 7 360 7 320 13 868 48 865 11 2111997 47 620 1 470 4 310 37 540 36 397 7 838

1997Aug 70 670 63 470 11 784Sep 70 1 240 62 055 11 707Oct 3 160 3 100 800 64 085 12 342Nov 1 560 1 560 15 300 51 238 9 602Dec 610 51 455 9 492

1998Jan 2 730 49 709 8 974Feb 1 410 48 510 8 825Mar 5 330 2 800 2 780 6 590 44 567 7 950Apr 4 860 620 540 1 280 46 414 8 529May 7 040 8 060 8 250 48 626 8 970Jun 3 730 3 790 130 51 950 9 458Jul 2 510 5 230 1 200 52 753 9 743Aug 52 175 9 705


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1993 7.71 7.85 7.73 7.59 7.47 8.95 4.95 6.851994 4.38 5.11 5.35 5.78 6.33 7.11 3.11 5.271995 5.26 5.63 5.76 5.97 6.34 7.63 3.63 5.201996 3.66 3.58 3.63 3.74 3.99 5.57 1.57 4.381997 2.87 3.10 3.23 3.41

bank of finland bulletin 1998 09

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