Only if the krona were abolished and replaced as legal tender by the euro, in a similar manner as Panama and Liberia have done with respect to the dollar, would exchange rate risk and the associated interest rate risk premium disappear. However, it is good for thought that no country with its economy in good order has chosen this path. Seignorage then accrues to another country or group of countries and all influence over monetary policy is surrendered. Nor is it clear that such a path would be acceptable to the European Central Bank. Participation in the Monetary Union would be a preferable option to adopting the unions currency unilaterally as this would allow for a share in seignorage and give the possibility for influencing monetary policy decisions. This would, however, require membership of the European Union as I mentioned earlier and any decision in that regard of course concerns wider issues than only monetary and exchange rate arrangements. This is of course a very general analysis of the options we face, but nevertheless shows that the issue is more complicated than we are sometimes led to believe. All the alternative options have strengths and weaknesses. Also, future developments and what will actually be on offer are still in doubt. One reason is that the European Monetary Institute, the precursor of the European Central Bank, has not been empowered to discuss linkages with any non-member of the European Union. The task of preparing Monetary Union has been more than sufficient.
A new overnight facility for credit institutions subject to reserve requirements was established at the Central Bank. Collateral for overnight loans will be provided by government guaranteed securities held by the credit institutions. The next step in these changes will take place on April 1 when new rules governing reserve requirements will take effect. The reserve base will be widened to include the foreign borrowing of credit institutions while the reserve requirement ratio will be lowered as the change is intended to be broadly neutral with respect to required deposits, thus making the change neutral from a monetary policy perspective. The reserve requirement ratio will be 4 percent on obligations under 1 year to maturity but 1.5 percent on obligations tied for longer than 1 year. Also, the reserve requirement will cover more institutions than before, and only institutions subject to reserve requirements will have access to facilities at the Central Bank. It will be possible to meet the reserve requirement more flexibly than has been the case. Indexation of required deposits will be abolished but the interest rate on them will initially be set on the basis of prevailing yields. BIS Review 42/1998  -5-  The last step in these changes will be taken on May 21 when the first calculations based on the new rules concerning reserve requirements will be done. At the same time, the so-called discount quota, which is a facility that the Central Bank has offered to deposit banks, will be abolished.