villy bergstrom : the role of the riksbank in swedish society speech by mr villy bergstrom, deputy governor of sveriges riksbank, at fristaende sparbankers forbundsstomma, held in stenungssund, on 22 may 2000. * * * in my speech today i would like to concentrate on the role of the riksbank in swedish society. i am going to begin by trying to clarify the sometimes exaggerated idea about the meaning of the riksbank having an independent position in relation to our democratically elected representatives. later in my speech, i will take up issues relating to the riksbank ’ s role in reducing the risk for financial crises and the important function of the bank system. the duties of the riksbank the riksbank is an authority subject to the riksdag. the areas of responsibility that have been delegated to us in one way or another involve ensuring that our money plays its part well in society. in order for a modern economy to function efficiently, there must be access to money that is accepted by everyone as a means of payment. it must also be possible to make payments for the enormous flows of goods and services in a developed economy in a secure and efficient way. last but not least, it is important that the country ’ s currency functions as a store of value, a demand that is met if inflation is low and predictable. stable prices reduce uncertainty when agreements about future payments are to be concluded, for instance pay agreements. another benefit that is usually emphasised is that stable prices do not create the same arbitrariness in income distribution between savers and borrowers as high inflation does. by ensuring that our money fulfils its functions, the riksbank makes its best contribution to citizens ’ welfare. this is the ultimate objective of all economic policy and monetary policy is no exception. when the value of money and financial stability are maintained, we contribute to creating good conditions for growth, which is usually considered to be an important part of welfare. however, the funds the riksbank has at its disposal cannot affect productivity growth in the long run. as there is considerable agreement that it is neither possible nor desirable to use regulations as a normal component of policy, changes of the shortest interest rate are normally the monetary policy tool available to the riksbank. our tasks have been formulated as follows ; the riksbank shall ( 1 ) maintain price stability, ( 2

) promote a safe and efficient payment system and ( 3 ) be responsible for the supply of banknotes and coins. the core activity that the riksbank is responsible for is stated and regulated in the riksbank act. a new act came into force on 1 january 1999 and was occasioned by the demands made on the conduct of monetary policy according to the so - called maastricht treaty. the riksbank in a democracy when sweden became a member of the european union and the government signed the so - called maastricht treaty, this entailed, among other things, acceptance of the requirement that the riksbank was to have an independent position in relation to the government and the riksdag. however, many regarded it as a controversial demand, not least in the swedish trade union movement and within social democracy. it is hardly surprising that there were strong reactions in many places as an independent central bank is a quite new and unfamiliar element in swedish public administration. it meant that the conduct of monetary policy should be delegated to an authority that was only restricted by legislation. this procedure can be most closely compared with the independent interpretation of laws by the courts. however, on closer inspection of the content of the new law and the practice established since then, it can probably be said that the reactions and concerns were exaggerated. mention is often made in general discussion of, for instance, “ the independence of the riksbank ”, which may call to mind an organisation that can carry out its policy wholly without control and parliamentary supervision. in fact, in my view, what is involved is rather more a sensible arrangement, where the objective of monetary policy, stable prices, has been established by law. in addition, the act states that the riksbank, without prejudice to the objective of price stability, shall support general economic policy with a view to achieving sustainable growth and high employment. furthermore, when the new act was passed, responsibility for general issues relating to foreign exchange policy was transferred from the riksbank to the government it is thus the government that is to decide on the krona ’ s relationship to other currencies. this means, for instance, that it is the government that shall decide whether and when sweden shall apply for participation in the european exchange rate mechanism, erm2. however, the riksbank is responsible for setting the exchange rate at which the linkage shall be made in this case and the width of the band in which the krona