IMF (2011a) examined international capital flows over the last 30 years and found that net capital flows to emerging markets have been strongly correlated with changes in global financing conditions, rising sharply during periods with relatively low global interest rates. Based on these and similar observations some observers have conclude that the effects on capital flows to other countries should be taken into account in, for instance, Federal Reserve policy decisions. For example, Eichengreen, Rajan, and Prasad (2011) find that the political authorities in large economies “should let considerations of these external effects play an explicit role in the monetary policy framework. Central banks in these countries should pay more attention to their collective policy stance and its global implications.”5 I do not agree with that conclusion. The Federal Reserve’s mandate concerns U.S. inflation and employment, and the Federal Reserve is not responsible for inflation, real developments, and monetary policy in other countries except as they feed back into the United States. That responsibility should rest with the policy authorities in those countries. Countries that choose to stabilise their dollar exchange rate or even peg to the dollar will tend to import U.S. expansionary monetary policy into to their own country. This monetary policy may in many cases be too expansionary for the countries concerned, creating an overheated economy with risks for bubbles and other negative consequences. A flexible exchange rate would give the countries the option of conducting an independent monetary policy appropriate for the country in question.

Economic theory says that such goods will not be offered to a sufficient extent or sufficiently efficiently by the private market. Tobin (1987) 15 argued that this aspect of the monetary system means that central government should have a central role on the payment market and I am inclined to agree with him. The implementation of payments involves the exchange of a large amount of information, demanding large IT systems which are expensive to obtain but with 13 The banks’ possibilities for creating new loans are also limited, to a certain extent, by the requirement that they have a certain amount of equity in relation to the size of their balance sheets. There are also regulations for the composition of the balance sheet that are aimed at reducing the risks in the financial system. 14 Up to SEK 950,000 per person and institution is protected according to the deposit guarantee. See www.riksgalden.se/sv/Insattningsgarantin/Om_Insattningsgarantin/. 15 See Tobin, J. (1987) “A Case for Preserving Regulatory Distinctions.” Challenge 30 (5). 5 [15]  which the marginal cost for executing a further payment is small. In other words, there are economies of scale, which, in theory, leads to natural monopolies. This means that, if the market is left unregulated, the dominant company will have an incentive to supply too little of the product for too high a price. Monopolies can also create worsened conditions for innovation as these are often driven by competition. In addition, the system can be vulnerable when one company, and thus one technical platform, dominates.