The development of household debt is linked to the development of housing prices, which is not so strange as housing purchases as largely financed through loans (see Figure 7). A high level of indebtedness makes households more vulnerable to various shocks. Ultimately, shocks in, for instance, incomes, housing prices or interest rates can trigger adjustments that have fairly significant effects on the macro economy: weak demand, high unemployment and difficulties stabilising inflation around the target. Naturally, we wish to avoid this type of development. There has recently been a debate on whether giving consideration to financial imbalances in the repo-rate decisions is compatible with the Riksbank’s monetary policy assignment. I consider it to be entirely compatible with the monetary policy assignment, as financial imbalances ultimately risk jeopardising both real economic stability and inflation stability. In a really negative scenario, financial imbalances may not only lead to unfavourable macroeconomic outcomes, they may also pose risks to financial stability.5 Financial stability is an important condition for monetary policy to function smoothly. The monetary policy transmission mechanism and the possibility to attain the monetary policy objectives – price stability and real economic stability – deteriorate substantially if a financial crisis breaks out. The monetary policy decisions taken in recent years have thus involved a balance between stabilising inflation in the shorter term and also taking into consideration the effects the repo rate has on household indebtedness and thus the risk of an unfavourable scenario later on. Figure 8 is a way of illustrating this balance within monetary policy.

This is not just a ‘wholesale’ question of improving the efficiency, security and functionality of the huge cross border flows of transactions driven by financial globalisation: a global capital market and an integrated global financial sector. It is also increasingly a ‘retail question’ both about improving global financial inclusion and also about facilitating the increasing use of cross border retail transactions that technology has made possible. I will look briefly at each of these questions. Availability and acceptability of cash  The provision of secure physical cash is a core part of our mission. The Bank has made clear its commitment to continuing to produce cash for as long as people want to use it. Last week, we launched our new polymer £ depicting JMW Turner and containing the latest cutting-edge security features to ensure its safety and reliability. But as we have seen from other countries, and are beginning to see in the UK, the availability and acceptability of cash requires more than its physical production. Availability requires distribution by the 6  All speeches are available online at www.bankofengland.co.uk/news/speeches  6  private sector – banks and ATM providers. The declining use of cash means loss of economies of scale. That changes the economics of such distribution. Acceptability requires not just that banks distribute and ‘bank’ cash. It also requires that merchants accept it. That depends on the all-in cost and convenience of using cash versus electronic payments.