One of the largest shifts in Sweden’s trade balance occurred from 1990 to 1991. During this time period, there was a seven and a half billion dollar shift. In 1990 the overall Balance of Payments (BoP) was a 7.552 billion dollar surplus and by 1991 it had become a 63 million dollar deficit. The cause of this major shift in Sweden’s trade balance is what I’d like to explore.
The Balance of Payments consists of the current account and the financial account. This suggests that the seven and a half billion dollar shift in the trade balance occurred in both of these accounts. After analyzing Sweden’s Balance of Payments spreadsheet, it appears that the majority of the shift was in the financial account. It is important to note that the current account wasn’t particularly affected in relation to the BoP shift; From 1990 to 1991 the change in current accounts went opposite of the BoP shift decreasing their trade deficit from 6.339 billion to 4.653 billion dollars. This leaves the financial account as the reason for this shift; from an 18.925 billion dollar surplus in 1990 to a 1.339 billion dollar deficit in 1991. It also important to note that there was almost an 11 billion dollar change in the net errors and omissions portion of the Balance of Payments sheet from 1990-1991 as well.
So after determining that the majority of the shift came in the financial account, I wanted to find out where this major shift had come from specifically. It turns out that Sweden’s account labeled as “Other Investments- Liabilities n.i.e” had shifted 45 billion dollars! They had nearly 40 billion dollars invested into their country in 1990 and then went to paying back six billion dollars in 1991. This is a very significant transition for Sweden considerin...
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...buy Krona futures contracts. Residents of Sweden also opted to buy foreign currencies as they appeared to be more stable than their own. This is what could explain the net outflow in “Other Investments- Liabilities n.i.e”, ultimately leading to the shift in Sweden’s BoP.
Works Cited
Jonung, L. (2009, February). Economic and Financial Affairs. Retrieved from European Commission: http://ec.europa.eu/economy_finance/publications/publication14098_en.pdf
Kohlbacher, A. (2009, May 25). The Swedish banking crisis: roots and crisis management. Retrieved from University Konstanz: http://www.uni-konstanz.de/FuF/wiwi/franke/frankehome/09%20ifmmfoe%20seminar/The%20Swedish%20banking%20crisis%20Anja%20Kohlbacher.pdf
Riksbank, S. (1991). Quarterly Review 1991:3. Stockholm: Sveriges Riksbank.
Sveriges Riksbank. (1991). Quarterly Review: 1991:4. Stockholm: Sveriges Riksbank.
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