Mr Bäckström discusses the Swedish economy in the 21st century  Speech given by Mr Urban Bäckström, Governor of the Sveriges Riksbank and Chairman of the Board of Directors and President of the Bank for International Settlements, at the Swedish Shareholders Association, held in Gothenburg on 22 November 1999. *  *  *  First a word of thanks for the invitation to Gothenburg to discuss the Swedish economy in the 21st century. A week or so ago the Riksbank raised the repo rate from 2.90% to 3.25%. The decision was based on the assessment of inflation prospects we had presented in the October Inflation Report and our analysis of economic statistics that had subsequently become available. By raising the instrumental rate now, we aim to contribute to the continuation of a favourable economic trend, with stable prices and sustainable growth. We made the increase somewhat larger than was expected so as to be in a position to leave the repo rate unchanged for the rest of this year, given that the Swedish economy follows the path predicted by the Riksbank. Under these circumstances there is no point in dwelling on current monetary policy and its conditions. Instead I shall be considering a couple of matters to do with growth conditions for the Swedish economy in the longer run. This has a topical flavour on the threshold of a new millennium, perhaps particularly so at a time when so much discussion refers to the so-called new economy.
Are there differences between Europe and the United States that may have a bearing on the pace with which new technology is introduced? And what part does EMU play in this context? One important factor in the process of industrialisation in the late nineteenth century, when Sweden was transformed from poor country into a wealthy nation with almost the world’s highest growth rate, was the contemporary development of the financial system. Banks were established and financial know-how grew when interest controls had been abolished. As a result, inventions could be exploited and investment in the nascent industries could be financed. A mounting body of research findings published in the 1990s indicates that economic growth in various countries is appreciably affected by how the financial system works: the more highly-developed the financial system, the greater the stimulus to economic growth. An accessible banking system and efficient financial markets contribute to the development of investment and thereby to the economy’s growth trend. One conceivable reason why the US economy is being transformed more rapidly than is the case with Sweden and, even more so, the European Community, is the efficiency with which the US financial system works. Corporate financing may well be facilitated by the breadth and liquidity of diverse financial markets. 3  BIS Review 129/1999  With the rapid development of information technology, moreover, a new type of company has emerged. It differs from the traditional pattern in that its operations involve highly mobile human capital.