price stability. inflation is currently very low. where ’ s the harm in that? it is, above all, a question of confidence. the ecb is committed to maintaining price stability, by which we mean keeping inflation below, but close to, 2 % – and we have achieved this objective. average inflation since the introduction of the euro is 2. 03 %. this has contributed to economic stability in europe. if we were to miss our objective, people would start to question our commitment. that also holds if we were to tolerate inflation rates that were too low. we cannot risk such a loss of confidence. the main reason for the current low level of inflation is price and cost adjustment in the crisis countries, thereby enabling these countries to become more competitive. it is good that the economies needing to regain competitiveness adjust. but the adjustment is much easier if inflation in the euro area as a whole stands at 2 %, rather than, say, 1 %. bis central bankers ’ speeches why? we know from experience that, at least in europe, it is very difficult to cut nominal wages. if prices are rising, you get the desired effect – the cost of labour declines in real terms – just by holding nominal wages constant. this is why there is no major central bank in the world that seeks to eliminate inflation completely. inflation should be at a low, but positive level. the inflation rate in the euro area is currently at 0. 9 %. if we take you at your word, the ecb is in fact not doing its job. it is true that, as a result of the weak economy, there is little scope for prices to increase. but we expect the rate of inflation to come back to 2 % over the medium term. according to your staff projections, inflation will be below the target until 2015. what do you mean by medium term? we are not giving a more precise time frame, but we are certainly not talking about a decade or a generation. if the countries in the south have lower inflation rates and the ecb wants to keep overall inflation at 2 %, then that means logically that germany has to accept higher inflation. it is not a goal of our policy to artificially increase inflation in germany. but if the german economy keeps doing well, and wages increase, inflation will naturally also increase somewhat. that is a result of market decisions. what is important for us is that average inflation in the euro area as a whole returns to our objective. and what

policy ’ s degree of freedom, above all in smaller economies such as ours. to reduce the risks to the financial system and increase the degree of freedom for monetary policy, monetary policy needs to be complemented by an efficient macroprudential policy, among other things. inflation targeting is based on an assignment that largely disregarded the risks inherent in financial stability. the riksbank ’ s responsibility in this area is expressed in the legislation as the task of “ promoting a safe and efficient payment system ”. more specific details are not given. i consider that the riksbank ’ s responsibility should include financial stability and this should be clarified in the sveriges riksbank act. an important question in this context is what formal role the riksbank should have in the work to reduce risks and vulnerabilities in the financial system. after the financial crisis, the framework surrounding the preventive work for financial stability has been reviewed in several countries, including sweden. the outcome of the swedish inquiries has not improved the riksbank ’ s chances of working preventively on reducing the risks in the financial system – rather the opposite. i do not consider that dispersing responsibility among several different authorities and reducing the riksbank ’ s role is a good solution for sweden. the risk is that it will become unclear who is to act should a risk arise in the financial system and how accountability is to be demanded should a crisis nevertheless occur. as i have pointed out several times previously, i think it would be good if the riksbank were to be given an extended mandate to prevent financial crises and, at the same time, were to be allocated some macroprudential policy tools. the swedish banking system has a relatively great need for wholesale funding in foreign currency. in order to provide liquidity support in foreign currency, the riksbank therefore needs to maintain a sufficiently large foreign currency reserve. the government's proposal that the foreign currency reserve should be roughly halved is risky. my assessment is that at least the current level of the foreign currency reserve is necessary to allow us to meet the needs that can be expected to arise in the short term in a financial crisis. 21 references bernanke, ben ( 2015 ), “ why are interest rates so low, part 2 : secular stagnation ”, ben bernanke ’ s blog, 31 march 2015, https : / / www. brookings. edu / blog / benbernanke / 2015 / 03 /