What objectives should a central bank have? The most fundamental question to ask when one is on the point of reforming the monetary policy framework is, of course, what the objective of monetary policy should be. On a very general level the objective of monetary policy can be said to be to create an environment where the economy can develop in the best possible manner. However, this definition is too general to be of any great practical use, although it excludes some tasks that are sometimes imposed on central banks. To obtain a more operational definition, it is necessary to take the discussion one step further and ask the question of how monetary policy can contribute to favourable economic development. On a fundamental plane, one could say that the central bank’s main task should be to ensure that the payment system in the economy functions efficiently. This means in simple terms that payments and financial transactions can be made easily and smoothly and entail as little risk as possible. Many scholars also regard this as the main reason why central banks were originally founded 1 . An economy’s payment system can be regarded as a sort of infrastructure in roughly the same way as the country’s communications network or energy supply system. It also essentially fulfils the same purpose, i.e. to ensure that the flows essential to the economy – in this case the flow of money – functions properly.
The Riksdag’s possibility of sanction is to replace a member of the executive board each year, as the members of the executive board have varying periods of office. The Chairman and Vice-Chairman of the Governing Council of the Riksbank follow the executive board’s work by having the right to attend and speak at board meetings. This is how it must be in a democracy. Delegation of power must be accompanied by a possibility of holding to account. By the Riksbank being open about its objectives, its forecasts and the assessments that have been made by the executive board, confidence can be established in the Riksbank’s policy among politicians, investors and the general public. I consider that Sweden has a found a reasonable and balanced approach to implementation of the EU directive. 5. Are there alternatives? We have thus noted that Sweden has undertaken a fundamental change of policy. From having directed stabilisation policy at full employment as the highest priority, policy has been realigned to create stability. Low inflation is to constitute the economic environment in which full employment shall be restored. 7  BIS Review 59/1999  The objective of “price stability” is delegated to an autonomous Riksbank instead of – as previously – fiscal and monetary policy being co-ordinated by the Government to achieve both full employment and price stability. Full employment is aimed at by long-term economic growth. I have given a fairly detailed account of the failures of stabilisation policy that have led to this change of course.