One is that it could jeopardise central bank’s credibility by giving rise to accusations of financial and fiscal dominance. A second side effect is that maintaining a larger balance sheet than necessary increases the Eurosystem’s exposure to credit and duration risk. The probability and extent of net losses are significantly higher the larger the amount of long-term fixed-rate assets the central bank holds on its balance sheet. [7] A third side effect relates to the functioning of financial markets. The APP, together with the pandemic emergency purchase programme (PEPP), has left a visible footprint in euro area financial markets. The Eurosystem’s outright holdings of euro area sovereign bonds currently amount to more than a third of the outstanding market (Slide 3). Mobilised collateral for longer-term refinancing operations further increases the encumbrance of government bonds through monetary policy operations. As a result, the “scarcity premium” that market participants must pay to obtain these assets has often been considerable, both in the repo and the bond market (Slide 4). [8] The inception and expansion of the Eurosystem’s securities lending facility have been able to partly alleviate these strains. [9] Yet, in times of heightened uncertainty, when the demand for safe and liquid assets rises sharply, market conditions tend to visibly deteriorate. Last year’s surge in market volatility is a case in point.
However, the IMF has become considerably more open in recent years, and today material on almost all activities is available, not least on the IMF’s website (www.imf.org). A second example is the issue of capital account liberalisation. Besides working for opening up the capital account in many countries, we strive for the long-term goal of giving the IMF a clearer mandate to regulate issues relating to the international capital market. A third issue where we have been active is developing a body of rules for how private creditors are to contribute to the financing of countries’ finance requirements in crisis situations. The increased attention in the media about the IMF and the World Bank has arisen during a period when the functioning of these organisations and their mandate have been discussed intensively internally as well. The growth of private capital markets has resulted in many countries no longer requiring financing from the IMF. At the same time, the need to build institutions, regulation and coordination is increasing, not least in the financial sphere. Some radical groups have argued that the IMF should be abolished, or considerably reduced in size. Others believe that the organisation should take on more responsibilities, such as within areas concerning the labour market, the environment and money laundering. Sweden is among those who believe that the IMF can only be an efficient organisation if its mandate is kept relatively narrow. The IMF shall work with financial stability, and in particular macroeconomic issues.