A 2020 BIS Study – which I had the honour of chairing – explored the impact of EAs on market functioning, focusing on FX markets. It found that the rapid rise of EAs in FX markets was driven by the electronification of these markets and their concomitant fragmentation across a multitude of new fast-paced electronic trading venues. According to the study, before the COVID-19 pandemic, FX execution algorithms already accounted for 10–20% of global FX spot trading (approximately 200 to 400 billion US dollars in daily turnover). With the further rise of digitalisation, their use is expected to grow, potentially altering market dynamics. 11 In fragmented, fast-paced FX markets, execution algorithms have many advantages. They process new information quickly and they direct orders simultaneously across multiple trading venues. This helps traders to navigate fragmented markets and to optimise trade 9  Sébastien P. Kraenzlin, Christoph Meyer and Thomas Nellen (2020), ‘COVID-19 and regional shifts in Swiss retail payments’, SNB Working Papers series, 2020-15. 10 Yuriy Gorodnichenko, Tho Pham and Oleksandr Talavera (2021), ‘The Voice of Monetary Policy’, NBER Working Papers series, 28592. 11 BIS (2020), ‘FX execution algorithms and market functioning’, Markets Committee Papers, No. 13. Page 8/10  execution. EAs can improve the matching of supply and demand, which in turn reduces trading costs and helps to mitigate market impact. In addition, EAs help to increase operational efficiency, which is one reason their popularity has grown during the pandemic.
At the same time, monetary policy can be used to smooth fluctuations in activity around the growth trend. But I should emphasise that this presupposes that the central bank is committed to price stability and that its policy is perceived as credible. With low inflation, moreover, the economy will function more efficiently. It is important, I believe, to realise that price stability’s status as the monetary policy objective does not imply a lower priority for growth and employment as economic policy’s overall objectives. Rather than being an impediment, low inflation creates good conditions for growth. In order for this to be combined with low unemployment, the labour market must also function properly. Monetary policy with an explicit inflation target Since the move to a flexible exchange rate in the autumn of 1992, monetary policy in Sweden has been conducted with an explicit inflation target. The Swedish target for the rate of inflation, which is appraised in an annual perspective and expressed in terms of the consumer price index, is 2 per cent. The target is surrounded by a band of ±1 percentage point, which serves among other things as a buffer for temporary effects on inflation. I should like to mention some factors which illustrate how the Riksbank works on the construction of monetary policy with an inflation target. As monetary policy is characterised by long and variable lags, the policy needs to be forward-looking and based on an inflation forecast.