Although the Riksbank was able to phase out its extraordinary measures relatively quickly, compared with other countries, the Riksbank’s balance sheet has for various reasons changed since before the crisis. So let us go through why the balance sheet looks the way it does. 1  The concept “monetary policy liabilities” is used as a generic term for the items ‘liabilities to credit institutions in Sweden related to monetary policy operations denominated in Swedish kronor” and “debt certificates issued”. 2  BIS central bankers’ speeches  How has the Riksbank’s balance sheet developed over the past decade? Let us examine (a simplified version of) the Riksbank’s balance sheet from the year-end 2004. Ten years ago, the balance sheet total was SEK 183 billion. The asset side was dominated by the gold and foreign currency reserves, which amounted to SEK 166 billion. In addition, we had a monetary policy claim on the Swedish banks of SEK 17 billion.2 At that time the Riksbank lent money to the banking system and this was done through the monetary policy repo transaction (therefore the name repo rate). The assets are largely funded through the Riksbank over the year issuing banknotes and coins to a value of SEK 109 billion. The bank’s equity amounted to SEK 65 billion. The small liability to the IMF is a result of Sweden’s membership of the International Monetary Fund. I do not intend so say so much about this item now. Let us now compare this with how the balance sheet looks today.
This crosscountry financial fragmentation hindered common monetary policy transmission to the whole of the euro area, and even posed a threat of a repeat of the 2012 sovereign debt crisis. In this setting, in March the ECB announced the launch of a new financial asset purchase programme (PEPP) which grants it the necessary flexibility to be able to concentrate its purchases at certain moments in time or on government bonds issued in certain jurisdictions, with a view to preventing fragmentation in monetary policy transmission. The volume of purchases initially announced under the PEPP was € billion for the whole of 2020. In June the term was extended up to at least June 2021, and the volume by a further € billion, making for a total of € trillion. Today we can safely say that the PEPP has been clearly successful in curbing financial market deterioration in all euro area countries. This is particularly visible in sovereign yields, which are now close to their pre-crisis levels, but it may also be perceived in other market segments such as corporate issuance. This decline in the cost of sovereign debt has amplified the room for manoeuvre of the fiscal authorities in all euro area countries, enabling them to take unprecedented measures to sustain the income of households and firms.