erik thedeen : the krona will strengthen in the long run comments by mr erik thedeen, governor of the sveriges riksbank, at the finance panel on " why is the swedish krona so weak? ", of a seminar organised by sns and the swedish house of finance, stockholm, 22 september 2023. * * * the krona is currently undervalued many, including the riksbank, assess that the krona is currently undervalued if one compares with what is justified by fundamentals, that is, economic developments in sweden compared with those in the rest of the world. for example, the imf says that the krona is undervalued by about 10 per cent, trade - weighted. 1 economic fundamentals thus indicate that the krona should strengthen in the slightly longer term, in real and also nominal terms. if one looks a little further back in time and studies how the value of the krona has changed in relation to the currencies of sweden's most important trading partners, it is also clear that the exchange rate has weakened during periods, and sometimes weakened substantially as during the global financial crisis. but it has also tended to strengthen again eventually. if, on the other hand, we focus on the shorter term, the krona has weakened clearly since the beginning of 2022, both against the dollar and against the euro. just a few days ago, the exchange rate against the euro was at its lowest level ever. how can this be the case when many still agree that the krona should strengthen both in real and nominal terms? those who read the newspapers receive many different suggestions of reasons why the krona has weakened recently. but it is often difficult to deduce whether, and if so, how much, different factors have affected the exchange rate. there is also a tendency to try to understand the movements in the exchange rate in response to specifically swedish factors that seem relevant at the moment : the nato debate, interest - sensitive households, perceived signals from the riksbank and so on. such factors can certainly play some role and push the market slightly in one direction or another. but if we broaden our perspective, we can, for example, note that the norwegian krona has weakened largely in line with the swedish krona. so it is not as simple as everything being explained by, for example, problems in the swedish property sector. financial agents account for most of the k

of the financial system in many parts of the world. even so, to a growing extent households face what are sometimes very difficult risk - management decisions that were not called for or even possible earlier. many people still lack the requisite knowledge for this and it may be asked whether people in general can be expected to have such knowledge in the future. everyone cannot be a specialist in risk management and financial theory. as i have indicated, one reason why households face a more difficult situation than before is, of course, the substantially greater exposure to the stock market that stems from disintermediation. but this tendency has been accentuated by the new pension system. it is now up to the individual to decide how a part of her / his pension capital is to be invested. moreover, the problems with complex risk management are exacerbated in that perhaps the most important component available to an individual is human capital, with all the forms of risk connected with its management and yield. in addition, households encounter complicated decisions in other aspects of life, of which some have to do with insurance products. as i just said, the financial system has already changed spectacularly and become increasingly sophisticated. but it will not stop there. it may therefore be asked whether banks and other financial institutions will become increasingly consumer oriented in the future, instead of the current focus on products. one advocate of such a development is robert merton, a harvard professor who predicts that financial institutions will split into one group that produces business services and another that is close to consumers and mainly distributes financial services. banks today often perform both these functions. merton considers that in such a new consumer - oriented financial system, help is needed to construct well though - out, tailor - made plans for the life cycle that allow for all the potential risks. one type of risk that needs to be considered is stock market fluctuations. central matters here are, of course, investment horizons, how buying and selling is arranged and the degree of diversification across companies and geographical regions. another parameter is, as indicated, the life cycle ; the possibility of saving for the long run is restricted by how much capital is likely to be needed in the nearer future. the risk profile ’ s covariation with the return on human capital has to be considered, too ; perhaps a merton, r. c. ( 2000 ), finance and the role of financial engineering in the 21st century, unpublished, harvard university. stockbroker, for example, should be wary of