A weaker exchange rate affects inflation directly in that imported goods will become more expensive. At the same time, domestic goods become cheaper than foreign goods. This leads to a decline in imports and a rise in exports. Higher demand for domestic goods contributes to an increase in resource utilisation and inflationary pressures. Inflation expectations are also important to the way in which companies set prices and to how wage formation functions, and thereby to the development of inflation. If everyone is confident that inflation will remain low, the companies do not need to change their prices so often, and employees do not need to increase their wage demands. This makes it easier for the Riksbank to achieve the inflation target. This then is mainly how monetary policy is supposed to work normally. But when the financial markets are not working normally the transmission mechanism is also affected. The various channels simply do not work as effectively as they usually do. This also makes the link between monetary policy and financial stability particularly important. Monetary policy and financial stability are interlinked As you know, the Riksbank has more than just a monetary policy mandate. In addition to maintaining price stability, the Riksbank also has the task of promoting a safe and efficient payment system. We thus have two main tasks: monetary policy and financial stability. These tasks are of course interlinked even under normal conditions.
It is therefore our hope that the MOU we are signing today will assist in not only fostering stronger trade relationships between Zambia and China but to also avail our staff a multi cultural awareness which would assist them both in their official work and in developing their social networks. We also hope that staff will have opportunities for higher education in China and other South East Asian countries where the Chinese language is spoken. Allow me to mention here that, already three bank employees are currently pursuing Phd programmes in China under the Chinese Government scholarship programme. With the introduction of this initiative, it is my hope that more of our staff can be offered scholarships to study in China. In conclusion, let me appeal to the members of staff who will be enrolled on the programme to take the course seriously bearing in mind the resources that the bank is investing into this undertaking. To this effect I urge the human resources department to enrol employees who are committed to learning the language. I also wish to thank the Chinese International School in Zambia for accepting our proposal and we look forward to a further cooperation with other Chinese institutions in order to foster the relations of our two countries. Lastly, I want to thank you, Your Excellency, for finding time to witness this great occasion. I thank you all for your attention. 2  BIS Review 175/2010