bank of japan have been observed in financial markets. even when there were various shocks due to problems in the domestic financial system, the terrorist attacks in the united states, and the military action against iraq, a liquidity shortage did not materialize in the money market, and short - term interest rates have continued to be virtually zero, including longer - term rates such as those on term instruments. this situation is a marked contrast with that in 1997 - 98 when the failure of a few large financial institutions triggered concerns about the availability of liquidity at japanese banks, and as a result, the so - called “ japan premium ” expanded and a sharp credit contraction occurred in corporate financing. the bank ’ s policy commitment - that it will continue the current framework of monetary easing until the cpi records a year - on - year increase of zero percent or more on a sustainable basis - leads market participants to believe that short - term interest rates will continue to be zero at least until the actual inflation rate turns positive. as a result, risk premiums reflecting future fluctuations in interest rates have declined considerably, and the decline in interest rates has spread to even longer - term rates. the yields on five - year jgbs are in the range of 0. 1 and 0. 2 percent, those on ten - year jgbs have fallen below 0. 5 percent, and those on 30 - year jgbs are around 1 percent. thus, the government is able to raise funds at almost zero or an extremely low cost. the cost for the private sector of raising funds has also declined. however, despite drastic monetary easing by the bank, economic activity and price developments have not been influenced much so far. this is due to various factors. first, there was originally very little room for interest rates to decline further. as a consequence of the bank ’ s large - scale monetary easing since the bursting of the bubble, the overnight call rate was already below 0. 5 percent in 1995, and long - term interest rates were already at around 1. 5 percent at the time of the introduction of the quantitative easing framework. in this situation, the effects of various additional easing measures have remained marginal, especially when the economy has been under substantial adjustment pressures. the concern of many central banks about the risks of a price decline is based on a reflection of such uncertainty and limitation of the effectiveness of monetary easing under the “ zero lower bound ” of short - term interest rates. the second factor, as i mentioned earlier, is that

lars nyberg : is it dangerous to borrow dollars? speech by mr lars nyberg, deputy governor of the sveriges riksbank, at svenska handelsbanken, stockholm, 17 may 2011. * * * the lessons of the financial crisis are many. the world ’ s banks – and a number of institutions that were not banks – had far too little and far too low - quality capital. they also had too little liquidity. the conviction that the markets would always be at hand with more or less unlimited liquidity turned out to be wrong. across the world, central banks were forced to intervene and to provide the funding that the banks were unable to obtain elsewhere. now the new regulations known as basel iii are almost in place, even if it will take a few years to introduce them. the banks will need to hold both more and better capital and their buffers for managing liquidity shortfalls will need to increase. of course, nobody is claiming that this will save us from all future financial crises, but it can reasonably be expected to strengthen the resilience of the financial system to shocks. the most apparent shortcomings brought to light during the crisis can be said to have been remedied. even so, there is naturally still much work to be done. one issue that must be addressed is how to take care of banks that nevertheless become insolvent and must be wound down, as this is an area where the crisis revealed major shortcomings in a number of countries ’ legislation. and, as the banks have grown larger and have increasingly expanded their operations over national boundaries over the last decade, each nation cannot solve such problems alone. the question of how to manage crisis banks is currently the subject of intensive discussion across the world, and new regulations of some form must also arise from this discussion. today, i plan to address another lesson from the financial crisis, a lesson that has not yet led to any consequences in the form of regulatory changes, but which nevertheless must be dealt with in the long term. it applies to sweden, but also to many other countries, particularly in europe. it relates to the banks ’ dependence on funding in foreign currencies, primarily us dollars. what kind of risks are the swedish banks taking when they borrow in dollars – and who bears the cost? as usual, i would like to point out that the thoughts i present are my own and are not necessarily shared by my colleagues on the riksbank ’ s executive board