a level of resource utilisation that can be described as normal. thus, although such estimates are uncertain, the swedish economy appears to have been producing below, rather than above, its long - term capacity for several years following the financial crisis. 6 confidence in the inflation target unimportant or possible to maintain with a different policy? one thing that is rarely done, but i think is of utmost importance, is to spell out the practical consequences of this criticism. it is of course easy to agree that if the riksbank had not needed to defend confidence in the inflation target, then monetary policy would not have needed to be so expansionary and the repo rate would perhaps not have needed to be negative. one may therefore draw the conclusion that those who say that monetary policy is wrong are arguing one of the following : either that confidence in the inflation target is not so important, or at least less important than other things, or that the riksbank should have been able to conduct a less expansionary policy while still being able to safeguard confidence in the inflation target. the criticism is rarely clear with regard to which of the statements it is based on, but my interpretation is that most of it is based on the first claim – that it is not so important to maintain confidence in the inflation target. unfortunately, this rarely develops into any more detailed reasoning. typically, the criticism tends to stop at monetary policy having been inappropriate, while reflections on the merits of a credible inflation target – and in particular on why the advantages of the current target should no longer apply – are almost always lacking. essentially the criticism concerns whether or not to have an inflation target when thinking about it, this criticism is in fact quite remarkable. what it actually says is that even if confidence in the inflation target is beginning to fail quite clearly, the riksbank should not do what it can to maintain it. in this sense, one can argue that the discussion is essentially about whether or not to have an inflation target, and perhaps even about whether or not to pursue an inflation - targeting policy at all, although it is rarely expressed in this way. i can only think of one earlier parallel. it was as long ago as the second half of 1994, after the riksbank had decided to introduce an inflation target, but before it came into force in 1995. the reason for the delay between the decision in january 1993 and the target coming into force was to give the inflationary impulse that arose when the krona was

a case, customers would have to be referred to other banks. of course, at least major customers generally also have contact with us banks, which never encounter acute liquidity shortages, as they can turn directly to the federal reserve in the event of a crisis. so they have access to a lender of last resort which can create dollars. this is exactly what the swedish banks lack. now, naturally it hurts for a bank to refer good customers to a competitor, but if you don ’ t have any dollars, then you don ’ t have any dollars. it ’ s all a question of what risks the bank is willing to take. another way of minimising the risk is for the riksbank to maintain a foreign currency reserve that the banks can have access to in a crisis, as it does at present. the riksbank has several reasons for maintaining a reserve in foreign currency, but one important argument for its current size is precisely the need to be ready to lend to the banks6. the riksbank ’ s foreign exchange reserve is currently equivalent to about sek 300 billion. it is, of course, difficult to say exactly how large the foreign exchange reserve would have to be to assist the banks with liquidity in a crisis situation. the amount could be either larger or smaller, but let ’ s assume that two - thirds of the reserve, that is sek 200 billion, is available for this purpose. what does it cost to maintain a foreign currency reserve like this? and who should reasonably pay this “ insurance premium ”? let us examine the cost first. one way of looking at the matter is that sweden, as a nation, has borrowed sek 200 billion more than we otherwise would have needed, and the cost for this, quite simply, is the average interest rate on the government debt. but this would be to disregard the fact that the riksbank can actually invest the money we have borrowed via the swedish national debt office in interest - bearing assets, let alone that choices are limited as the assets must have extremely good liquidity, that is to say that cash must be available at very short notice. if we assume that the difference between the deposit rate and the lending rate is about forty basis points, the annual cost for borrowing sek 200 billion would thus be about sek 800 million. is this a lot or a little? this can be discussed, but, last year, the four major banks had a combined balance sheet total of sek 11