In their opinion, the risk of rising inflation on account of a weak exchange rate was balanced by the risk of economic activity becoming more subdued. The other members, of whom I was one, concluded, however, that when everything was taken into account, the spectrum of inflation risks had shifted slightly upwards. The increase was a precautionary measure. It was also considered important to send a clear signal that the inflation target is taken very seriously. It was underscored that the decision did not imply anything about the repo rate’s future path. That would be considered as usual at the Riksbank’s regular monetary policy meetings in the light of the overall picture of inflation prospects. In view of some comments which suggest that the Riksbank’s action has been wrongly interpreted, I want to emphasise in particular that the interest rate increase in July did not have the aim of strengthening the krona. As I have indicated, an appreciation would be a good thing in itself but the interest rate increase was actually motivated by a need to counter the risks of inflation that were considered to stem from a weaker currency. Let there be no misunderstandings about that. During the summer the krona has become somewhat stronger, which is welcome. A major factor here has been the weakening of the dollar. A continued appreciation of our currency would also be welcome. In relation to the Swedish economy’s sound fundamentals, the krona is still weak.
Now let me come to the risks that a generalised move towards universal banking could entail, and the ways and means of containing them. The main risk, of course, is the emergence of conflicts of interest. One such potential conflict of interest may arise within any bank, between the bank’s own risk-taking activity and risk-taking for its customers. The classic example of this is the potential conflict of interest between credit-granting and securities underwriting, but this is only one example. The traditional way of avoiding the misuse of such conflict-creating situations is (a) to devise an organisational structure with clearly distinguishable lines of responsibility, (b) to avoid flows of “inside” information between the various activities, (c) to attribute to each activity costs, income and profits, and (d) to entrust external auditors with the surveillance of the systems put in place. The end-result will, of course, never be entirely safe. Moreover, the building of “Chinese walls” inside a multi-polar banking organisation may weaken, or even destroy, the synergy between those poles, i.e. it may undermine the rationale of a multi-polar organisation. I would not want, however, to overstate the internal conflict of interest argument. In the long run, the kind of conflict to which I have referred is unlikely to be very strong. In a longer-term perspective, no bank can afford to favour its own risk-taking activity at the expense of its customers - especially if auditing makes it certain that any misuse of the bank’s powers would come to light. 3.