to restore the situation to more normal conditions, the riksbank has offered financing at longer terms than what the markets can currently provide by lending swedish krona with maturities of three and six months. the lending is designed so that we provide liquidity in the form of somewhat longer loans and absorb the same quantity of short term liquidity. combined with the fact that lending takes place at market rates, this means that banks receive help with their strained financing situation at the same time that the measures do not have any direct effects on monetary policy. this is a very important point. the riksbank is quite simply helping the banks replace their short - term financing with longer - term financing. in a broader sense, the riksbank is assuming the role of market maker in the money market and by doing so ensuring its functioning. the other problem is that a general shortage of financing opportunities in us dollars has arisen. since the swedish banks are not counterparties with the us central bank, they cannot be certain that they will receive any of the injections of liquidity that the federal reserve makes. that is why the riksbank have offered their counterparties large loans in us dollars. together with the measures that the national debt office have taken, the riksbank's lending of both swedish krona and us dollars contribute to a general strengthening of liquidity primarily in the swedish credit markets, thereby also creating conditions for the markets to return to more normal conditions and allowing financial stability to be maintained. second of all the riksbank has – as i just mentioned – also provided special liquidity assistance to kaupthing bank sweden. this loan is against collateral and with an interest rate that is above normal lending costs. even if this measure is aimed at an individual bank, it should also be viewed as an initiative to safeguard financial stability and to maintain confidence in sweden's entire credit and payment system. the decision is based on the assessment that although the bank is solvent, it is unable to perform its obligations without liquidity assistance. what happens next with kaupthing sweden is mainly a question for the bank's owner, the icelandic state. the liquidity support to kaupthing differs in many regards from the riksbank's other measures. in this case the support is aimed at an individual institution and not at money market participants in general. in kaupthing's case the point was to enable the bank to obtain any funding whatsoever and thereby continue to exist. an important similarity

further and argue in favour of sweden abolishing the krona and introducing the euro instead. this is obviously an even bigger decision as it is basically irrevocable. if one believes that adopting the euro would be a good idea, i am sure it is possible to find several good reasons for doing so. but i cannot see that one of these would be that the inflation - targeting regime has been ineffective and made us poorer as a people and nation. my most important messages let me round off by summarising my main messages. i started by presenting my reasoning at the most recent monetary policy meetings. here a key argument was that i find it crucial to be very clear about the guiding role of the inflation target when designing monetary policy. if such clarity is lacking, there is a risk of a selfreinforcing process emerging leading to average inflation “ getting stuck ” at too low a level. such a development would be problematic, not least as it would lead to the policy rate having to be negative for longer periods. i then discussed the current framework with an inflation target and a floating exchange rate as a point of principle. here my main purpose was to remind people of the positive aspects of this framework, as my experience is that the debate over recent years has been biased towards emphasising the disadvantages. i discussed and responded to two arguments that have occurred in the debate : that the inflation target is no longer relevant as a benchmark for wage formation and that the krona ’ s development in recent years shows that the costs of having a floating exchange rate have now become too great. the framework with an inflation target and a floating exchange rate, which we launched in 1993, is not perfect in all situations and for all events. but unfortunately, no perfect system exists and the interesting question is whether there is a better alternative. this reminds me of winston churchill ’ s evaluation of democracy as a form of government : 11 currency rate act ( 1998 : 1404 ), section 2. 13 “ indeed it has been said that democracy is the worst form of government except for all those other forms that have been tried from time to time. ” i think this is also an apt quotation for inflation targeting, so far at least. references aftonbladet ( 2013 ), “ nya direktorer men samma gamla riksbank ” [ new directors but same old riksbank ], post on ledarbloggen by ingvar persson. bo