The Riksbank has obtained greater independence in relation to parliament and this is why its management has been given greater breadth – five deputy governors compared with two previously. The change towards greater independence for the Riksbank coincided with the clarification of the bank’s monetary policy task. It is now written in the Sveriges Riksbank Act that the bank shall maintain price stability. This is a development that has also taken place in many other countries. Inflation was for a long time a major problem in many parts of the world, but since the shift in monetary policy towards a greater focus on price stability, inflation has been brought under control. In addition to Sweden, twenty or so other countries currently have inflation targets, although not all of them have chosen exactly the same system for inflation targeting. Sweden was one of the first in this context. The increased independence has entailed greater demands for the Riksbank to explain its decisions. When I worked at the bank prior to 1999, work had already begun on improving analyses and communication and aiming for increased openness. This is a continuous process. During my years abroad I have seen several examples of the prominent role played by the Riksbank in central bank circles, particularly bearing in mind that we are a small central bank in a small economy. The Riksbank is now regarded as one of the most open central banks in the world.
The task of safeguarding price stability had to make way for other central bank tasks. It was partly therefore that almost the entire western world lived with a rising inflation rate during the late 1960s and the 1970s. At the same time, the upswing in inflation did not go hand in hand with higher growth and employment. When the world economy and world trade grew, the regulations became increasingly ineffective. Interest rate regulation, credit restrictions and exchange rate regulation hindered capital from flowing to where it could give the highest return. In addition, the regulations became more difficult to maintain when an increasing number of companies began to conduct operations in several countries, while new, unregulated companies and operations arose in the financial markets. In Sweden, as in many other countries, credit and exchange rate regulations were gradually abolished during the 1980s. This of course radically altered the conditions for monetary policy. The fixed exchange rate system was also subjected to considerable strain during the 1970s and 1980s. This had long been perceived as the best means for a small, open economy to promote international trade and at the same time maintain a low inflation rate. The idea was that a fixed exchange rate would lead to an inflation rate in Sweden that was roughly the same as that among our  2  BIS Review 8/2006  most important trading partners. However, for various reasons, economic policy did not manage to achieve this target.