supervision of the financial system. the riksbank has a function here in that the riksdag ( sweden ’ s parliament ) has made us accountable for promoting a safe and efficient payment system. a major ground for making us responsible for efficiency and stability is that, along with the banks, the riksbank is a central player in the payment system and provides means of payments. the banks distribute notes and coins, keep transaction accounts linked to giro systems and operate credit card systems. the riksbank in turn provides accounts in the payment system, rix, that is available for large - value interbank payments. the work on financial stability is undertaken in three main ways. one concerns the rules and regulations that set the bounds for the operations of financial companies. another is the continuous surveillance of the system that is performed by finansinspektionen ( sweden ’ s financial supervisory authority ) as well as by the riksbank. thirdly, the state needs to be able to manage any crises that nevertheless occur. the work on stability calls for highly developed cooperation between the finance ministry, finansinspektionen and the riksbank. the laws governing financial operations are enacted by the riksdag, with the finance ministry as an important agent. more detailed regulations are issued by finansinspektionen, which also monitors their observance. the riksbank ’ s contribution to the work on rules and regulations consists in the first place of submitting opinions ; in addition, the bank participates in international efforts to develop the regulatory framework. the role of the riksbank in surveillance work is central and focuses on the functioning of the financial system as a whole and the risks that may arise. the identification of risks in the system as a whole means, moreover, that the individual institutions and the financial infrastructure have to be scrutinised. it is primarily finansinspektionen but to some extent also the riksbank that need to keep a continuous eye on the individual banks. due to the central functions of the banks, a crisis in the banking system might swiftly have serious consequences for the payment system as well as for the supply of credit. but it is not just the significance of the banks in the payment system and as a source of credit that warrants their supervision. as the economist wrote last spring, banks are “ the most hazardous economic institutions known to man ”. that may sound rather drastic but there is some truth to it

. nor have any serious imbalances arisen. so thus far there is reason to be positive about the economic situation ; most leading indicators point to an economic recovery, with an upturn in activity during 2002. there is, however, the problem that inflation has for a time been clearly above the riksbank ’ s 2 per cent target. to a certain extent the comparatively high inflation can be explained by various supply shocks that have raised the prices of electricity, meat, fruit and vegetables, for instance. the background to these shocks includes the previous winter ’ s low precipitation for hydroelectric power, livestock diseases and poor harvests due to last autumn ’ s unusually cold weather in europe. as i said, shocks of this type can raise the general price level and lead, as in these cases, to a transitory increase in the rate of inflation. but even if one disregards these price increases, inflation has risen. as we discussed in a number of inflation reports last year, this probably has a number of interacting explanations. one is that resource utilisation in the swedish economy has probably been somewhat higher than envisaged earlier. this in turn no doubt explains why wage increases, particularly in domestic sectors, have been higher than expected. as this has been accompanied by weak productivity growth, mainly it seems for cyclical reasons, it has led to upward pressure on prices. a general contraction of profit shares in the economy as a whole has presumably helped to modify price increases in recent years. but this has also left firms with less room to “ absorb ” further additions to costs and weak underlying productivity growth. all this naturally raises questions about potential growth resource utilisation, inflationary pressure, competition in various markets and the workings of the economy. resource utilisation higher than expected ever since inflation expectations closed onto the target some time after the mid 1990s, a very important consideration for inflation forecasts and thereby for the formation of monetary policy has been resource utilisation. this indicator concerns the relationship between actual demand and what the economy is capable of producing in the longer run without price and wage increases accelerating. let me point out first that neither the potential growth rate, resource utilisation nor the inflation propensity in a wide sense is something that can be measured directly. for some years now the riksbank has been drawing attention to questions of this type, analysing them and presenting detailed accounts in the inflation report. although we have mainly referred to various supply shocks as explanations for inflation ’