mr. heikenstein discusses the advent of the euro and emu in relation to sweden speech by the deputy governor of the bank of sweden, mr. lars heikenstein, at world trade day ’ 98 held at the stockholm chamber of commerce on 25 / 8 / 98. i should like to begin by thanking our hosts for the invitation to world trade day ’ 98. the introduction of a new currency is due in our vicinity in little more than four months ’ time. this is the first instance in modern times of a large group of sovereign states establishing a monetary union with a single currency. along with the collapse of the iron curtain, the creation of the european monetary union is probably the most significant european event since world war two. today i shall be focusing on what the birth of the euro may mean for developments in the currency market. i shall not, however, be attempting to predict the euro ’ s future strength or weakness. instead, i shall begin by discussing factors that could affect the single currency in the course of the changeover and the somewhat longer term. then i shall consider how the euro is likely to affect the position of sweden ’ s currency, the krona. i can say right now that, basically, i do not believe that the euro will fundamentally alter either the role of the krona in sweden ’ s economy or, for that matter, the value of the krona in the long run. in view of the discussion that this matter occasions from time to time, there may be reason to say something about the view of the riksbank. 1. a new currency is created a new currency will see the light of day in january 1999. eleven countries in europe are forming a monetary union and will accordingly be having a currency, a monetary and exchange rate policy, and a central bank in common. the euro will be the domestic currency of a major economic area. today, the euro area ’ s share of world output is around 30 per cent, as against around 35 per cent for the united states. as regards world trade, the share for emu ’ s external trade amounts to around 17 per cent and the united states around 15 per cent. emu is a central component in the process of european integration. this process was initiated in the 1950s with agreements on the joint control of certain means of production, the european coal and steel community. the idea was to forge economic bonds between nations as a way of promoting peace in europe. the establishment of the common market in

- related damage. the risks may also increase on the financial markets when various branches are forced into major changeovers as a result of demand, taxation or regulations being changed. 7 monetary policy can also be affected more directly, for instance if economic data becomes more difficult to interpret when the effects of the weather lead to larger fluctuations in prices and production. 8 it is important that the riksbank understands these changes, both to be able to conduct an effective monetary policy and to be able to identify risks on the financial markets. in other words : the riksbank must be able to manage the economic consequences of climate change. 6 some people talk about central banks ’ role being not just “ lender of last resort ” but also “ market - maker of last resort ”. see, for example, the bank for international settlements ( 2014 ). ngfs ( 2019 ) talk about physical impacts and transition impacts, respectively. 8 see cœure ( 2018 ). 4 should the riksbank buy green bonds? another question that is sometimes discussed is whether the central banks themselves should try to affect climate change. this usually involves two different directions. the first is regulating the financial markets to steer investments in a more sustainable direction. in many countries it is the central bank that is responsible for this type of regulation, but in sweden it is the responsibility of finansinspektionen ( the swedish financial supervisory authority ). the riksbank does not have any of these tools at its disposal. the second direction concerns the central bank ’ s own investments. after the financial crisis, many central banks, including the riksbank, built up large balance sheets through asset purchases. shouldn't these purchases reward sustainable assets, for instance by focusing on green bonds? this is a question faced by central banks today, and the answer is not evident. i shall try to describe my views on this. but i would like to point out that these are preliminary views. i am happy to listen to arguments against them. the riksbank ’ s assets can be roughly divided into two parts. we have a portfolio of swedish securities ( almost sek 400 billion ), that has been built up through quantitative easing for monetary policy purposes. and we have foreign exchange reserves ( just over sek 500 billion ) that we hold for contingency purposes. 9 the swedish portfolio consists solely of government bonds. this is partly to hold down financial risks, and partly because monetary policy, apart from determining the general interest -