its economy. the predominant view was that a fixed exchange rate was the best means for a small, open economy to attain stable prices and set a framework for the stabilisation policy. this was one of the reasons why sweden chose to continue with a system where the krona was pegged to other currencies. but when the economy suffered problems in the 1970s and 1980s it became clear that the target for the fixed exchange rate was not regarded as credible. the target often came into conflict with the aim of bringing down unemployment, which became an increasingly important element of the stabilisation policy. this was resolved by means of recurring krona devaluations. the result was a negative spiral, where expectations of continued high inflation and new devaluations affected price - setting and wage formation. wage increases in sweden therefore showed a higher trend increase than other countries. this in turn led to cost crises in the manufacturing industry, which were resolved through devaluations of the krona. this fulfilled the expectations of devaluations and thus sowed the seeds for the next round. 1 in the middle of the 1980s, the swedish credit market was deregulated, which was the starting point for a rapid credit boom and sharply rising prices for financial assets and property. the economic policy conducted could not withstand the pressure and the result was a property market bubble and a very overheated economy. when the bubble burst in the early 1990s, it triggered a financial crisis and a deep recession. many were assuming that the old pattern would be repeated and that the krona would be devalued. but the political stance on this occasion was instead to once and for all disperse expectations of devaluations and show that they were serious about the fixed exchange rate. as you all know, this proved unsuccessful, despite a policy rate of 500 per cent and explicit support for the defence of the krona. in november 1992 the riksbank had to give up the fight and let the krona float freely, which meant that it weakened significantly. 2 see, for instance, jakobsson ( 1997 ) and jonung ( 1999 ) for descriptions of the economic policy problems during this period. in just a couple of days, the exchange rate weakened according to the tcw index by just over 10 per cent, which increased to around 20 per cent after a few months. bis central bankers ’ speeches... to a floating exchange rate, inflation target and independent riksbank when the krona

than dynamic application. we could think about measures that would improve the pra ’ s ability to supervise firms through a cycle. an alternative could have been for firms to hold additional regulatory capital during more benign times, buffers which the pra could then allow to be released during a market down - turn. all speeches are available online at www. bankofengland. co. uk / news / speeches this would be similar to the effect of the symmetric adjustment. at present, buffers held in excess of the solvency capital requirement ( scr ) are determined by each insurer ’ s risk appetite to avoid breaching the scr, and are thus less likely to be used in a stress. in relation to internal models, we could review the balance between assessment against tests and standards and supervisory judgements concerning calibration of the overall capital requirement. ultimately, the extent to which the uk ’ s regulatory framework is similar to or different from eu regulation after the implementation period is a political choice. but as solvency ii is based on the same principles as the preceding uk regime, revolution is less likely than evolution. and the pace of policy reform – in the uk, but also in the eu and globally through the international association of insurance supervisors ( iais ) – is likely to be on a longer timetable due to covid - 19 being a shared and pressing priority. we recognise that there are certain aspects of the design and implementation of the solvency ii regime that do not fit so well to uk specificities. our views on these areas are well known, and i believe shared by industry. we understand that the first priority for the industry is the risk margin. the current design is too sensitive to long term interest rates and this has the unintended and perverse consequence of driving a high proportion of longevity risk on new business offshore. we are committed to reform of the risk margin. the timing and nature of reform depend, like many questions of regulatory reform, on the final relationship between the uk and the eu. there is a wide range of options that could be pursued and it is encouraging that eiopa intends to look at the design of the risk margin in the final stages of the 2020 review. second is the matching adjustment. the pra supports the concept of the matching adjustment. it provides the right incentives for insurers to invest in assets that are suitable for their business models. this in turn also reinforces a macroeconomic role of insurers, who provide stable