Martin Flodén: Sweden needs its inflation target Speech by Mr Martin Flodén, Deputy Governor of the Sveriges Riksbank, at Fores, Stockholm, 13 October 2015. *  *  *  I would like to thank Mikael Apel for contributions to the text. “The Riksbank should reconsider its policy. Digitisation and globalisation have made it more or less impossible to reach the inflation target of 2 per cent. The Riksbank’s rigid fixation with the target is in fact making the problems of rising debt and housing prices worse. The Riksbank should lower the inflation target or at least accept that inflation will continue to remain below the target for a long time to come. Then the repo rate could be raised and the rise in debt and housing prices would slow down.” These are the main features of the criticism directed at the monetary policy, which has been expressed by an increasing number of commentators over the past few months. It is undoubtedly good that monetary policy is publically debated, as this forces all parties to sharpen their arguments and think a little more deeply, which in turn increases everyone’s knowledge and insight. I would like to make my contribution to this discussion here. It may not come as a complete surprise that I believe the ongoing debate is often oversimplified, and that there are a number of points that are unclear in the arguments presented.
The role played by cash in payments from customers to companies is declining steadily, but the position of cash as a means of payment between private individuals is still strong. Unless cash is superseded in this area of usage, it will continue to play an important role in our payment system. I therefore believe that the major challenge to cash will come if a new payment service appears that could be used to make quick and safe payments between private individuals. There are interesting projects and products that may threaten cash in this respect. Sweden is well to the fore in this field and the Swedish banks are working on an interesting mobile phone-based service for person-to-person payments in real time.3 Square is another interesting product, as yet only available in the United States, that allows card payments to be made between private individuals by connecting a small card reader to a mobile phone.4 Whatever path technological development takes, it will probably mean that the use of cash continues to decline. We will have more payment services to choose between and competition will increase. How far the use of cash is pushed back will depend on what alternative payment services are established. The same barriers that protect cards against competing products will also protect cash to a certain extent. But, above all, cash is simple and easy to use as a means of payment, especially for small transactions. This is appreciated by the consumers and it has proven to be quite difficult to change consumer habits.