for quite some time. [ 15 ] central banks have to protect their balance sheets. after all, their financial independence is one of the conditions needed for them to safeguard price stability. this is why we should not mix up such risk - mitigating measures with 17. shin, h. s. ( seite ), central banks and policy the new world of payments, speech delivered on 30 june 2020. proposals which primarily target climate objectives. p p p y g p y j 18. king, m., monetary policy : theory in practice, speech delivered on 7 january 2000. and even if we do tilt the portfolio in a risk - oriented manner, we will be reliant on a suitable and transparent risk measure. it is all the more important, then, to enhance our pool of information, through reporting obligations for issuers or rating standards, say. that way, central banks can also help to better pinpoint climate - related financial risks in the market. they would thus be acting as a catalyst for the greening of the financial system and be supporting climate policy. 6 central bank digital currency there ’ s one final topic i would like to touch upon at least briefly : central bank digital currency. right now, you would be hard pressed to find an area that is being transformed by digitalisation as much as payments. yet digital money in itself is nothing new. households and businesses hold bank deposits on a large scale – that ’ s digital money created by commercial banks. so far, though, the only central bank money they have been able to use has been in the form of banknotes. access to central bank money in its digital form is reserved for banks. the digital euro would change all that : it would be intended for people and businesses. more than 50 central banks the world over are looking at the option of introducing this kind of central bank digital currency – with more joining them. [ 16 ] it could offer a host of advantages, such as lowering transaction costs and spurring completely new services. the political guard often points out that the digital euro could also help to preserve monetary sovereignty in europe. above all, though, the digital euro would make one thing possible : enabling people to pay with public money in a digital environment as well. this could be a weighty argument, especially given the declining use of cash. yet one thing is clear : the eurosystem will continue to provide cash ; the digital euro would be an additional offering. at the same time, there

low inflation and good growth go hand in hand when inflation converges internationally and long - term inflation expectations are permanently lowered to the level of the target for price stability, the core of the inflation process lies in the relationship between prevailing demand and the sustainable level of output. if resource utilisation is so high that it becomes strained, inflation will tend to rise. conversely, when resource utilisation is low, inflation tends to fall. to a large extent it is the interaction of demand and supply that determines whether inflation is rising, falling or constant in relation to the 2 per cent target. monetary policy is capable of exerting a direct effect - through the repo rate - on only one of these two sides of the economy, namely demand. the supply side is essentially influenced by structural factors that the riksbank cannot control directly. but permanently high inflation can indirectly impair the workings of the economy, leading to weaker growth. by the same token, today ’ s low inflation should help the supply side to function more efficiently. seen from this angle, it is easy to appreciate that a policy for safeguarding price stability should be able to go hand in hand with a development of demand that matches the supply side ’ s sustainable capacity. in the event of a demand shock, even in the short run the riksbank ’ s objective therefore coincides with that of general economic policy - a favourable real economic trend. in view of the discussion that arises from time to time about objectives for the riksbank, this should be borne in mind. consider these two examples : • suppose, first, that a shock causes demand to fall ; resource utilisation will then decline, with a risk of inflation dropping below the 2 per cent target. the monetary stance must then be adjusted so that the rate of inflation returns to the target. this involves lowering the repo rate so that demand recovers. [UNK] • suppose, instead, that a shock causes demand to rise faster than the supply side can cope with. inflation will then be liable to rise above the targeted rate. the monetary stance must therefore be tightened so that inflation falls back to the target, which involves subduing demand to output ’ s sustainable level. in the various situations, the impact of monetary policy can be contractive, expansive or neutral, depending on the degree of resource utilisation and the risk of inflation deviating from the target in either direction. the relevant rate of inflation here and the one that is affected by total demand