steering of interest rates works through the shortest interest rate in the interbank market. after this i will discuss what significance this has for the banks'credit granting. the riksbank steers the shortest market rate the fact that the central bank has a monopoly on issuing money is usually stated as a necessary condition for being able to determine price trends in its own currency - e. g. calculated by how many goods can be purchased for a particular sum of money. it is intuitively easy to understand that the amount of money in the economy is a decisive factor for the price of the goods produced in the country. in modern economies, where payments are largely made electronically, the monopoly on issuing banknotes is no longer an equally evident condition for enabling monetary policy to determine price trends. today, it is instead the right to determine the terms in the systems for large electronic payments between banks and the opportunity to influence how much the banks shall borrow or deposit in the riksbank that enable us to steer interest rates. for electronic payments to be able to function as money, it is necessary for the central bank to be perceived as guarantor for these means of payment in the same ways as with banknotes. this role can only be fulfilled by a central bank and in this way one can say that the possibility to determine price trends in the economy still lies with the monopoly on issuing money. the riksbank governs the shortest interest rate in the interbank market, so that it normally remains close to the monetary policy - steered repo rate. the fact that the riksbank can steer the interbank rate is primarily due to the fact that each individual bank participating in the system handling large interbank payments - known as the rix system - always has an opportunity to borrow and deposit money in the riksbank overnight at the lending and deposit rates set by the riksbank. these lie at 75 points above and 75 points below the repo rate respectively. the difference between the lending and deposit rates is sufficiently large for the banks normally to view it as more profitable to balance deficits and surpluses in their payments at the end of the day on the interbank market, rather than utilising the riksbank's lending and deposit facilities. both a bank with a surplus and a bank with a deficit win by depositing or borrowing in other banks at rates between the riksbank's deposit and lending rates. the fact that the interbank rate normally lies at the centre of the

majority of the group seems to hold ; “ surely all the others cannot be wrong ” is a common thought. an example with which you may be familiar is the reluctance to enter a restaurant that is empty ; people generally prefer one that has many guests - they simply rely on the judgement of others. even if you hold a different opinion from others, it could be profitable to act as you think the majority will. an investor who considers a stock to be valued above its fundamental level could still decide to buy or hold on to the stock if he or she believes that others might still be interested in buying the stock at an even higher price, for instance due to the factors mentioned earlier. in a paper the authors draw hagstrom, r. g. ( 2001 ) : the essential buffet, john wiley & sons, inc. new york. cutler, d., j. poterba and l. summers ( 1991 ) : speculative dynamics, review of economic studies 58, pp. 520 - 546. see e. g. tversky, a. and d. kahneman ( 1974 ) : judgement under uncertainty : heuristics and biases, science 185, pp. 1124 - 1131. an analogy with a game of poker. in normal times the market behaves like a game of roulette ; the probabilities are known and independent of the investment decisions of the different players. in times of market stress, though, the game becomes poker. the players have to take into consideration the position of others and their likely behaviour. we are also liable to succumb to wishful thinking. an example that confronts me almost daily at present is when supporters of a national football team, for instance, are frequently over - confident about the chances of winning. learn from history the so - called it boom, combined with markedly lower transaction costs as a result of new technology, induced many inexperienced people to invest in shares. moreover, access to the internet leads to an increased number of share transactions, often with poorer results. investors have also become younger. the same tendency applies to stockbrokers and analysts, many of whom began their careers in the 1990s. inexperienced investors did not get the assistance and support they needed. in the period running up to the nasdaq crash, less than 1 per cent of the analyst ’ s recommendations had been to sell. the media accentuated the exuberant mood, with reports of rapidly rising share prices, and the notion that