5 This proposal has yet to be realised. Parts of the inquiry's proposal were nevertheless implemented voluntarily but we consider that this coordination responsibility should be made statutory and provide the possibility to place binding requirements on the payment system’s participants. No authority currently has such a responsibility and neither is there an authority responsible for producing an overall risk and vulnerability analysis. Ability to create unlimited liquidity in SEK Among the Riksbank’s many tasks is the important role of providing liquidity in the event of a crisis. There are certainly good reasons to believe that the function of banks in society – facilitate payments, mediate credit, enable risk diversification – is more efficient as a result of competition among private players rather than being run by the state. But banking operations also have an inherent vulnerability. The banks’ funding is based to a considerable degree on short-term loans, for example deposits from the general public and short-term borrowing on the capital market. Their assets, on the other hand, often comprises lending of a more longterm nature. This mismatch in maturity and liquidity between debts and assets is typical for traditional banking operations and does not constitute a major problem as long as confidence is maintained in the banks’ debt-servicing ability. But if doubts arise, depositors may quickly try to withdraw their money – money that the bank cannot obtain in the short run. This causes a liquidity problem.
The growing importance of balance sheet considerations in monetary policy only reinforces the importance of transparency in central bank communication. 5 Finally, let me make an obvious but nonetheless crucial point, even if it goes beyond today’s topic. Transparency is a valuable good in its own right. For good reasons, central banks are powerful and for the most part politically independent institutions. Moreover, the officials who run central banks are typically appointed for lengthy terms and are difficult to remove from their positions. Transparency is a crucial element in creating democratic legitimacy for politically independent institutions whose actions can have wide-ranging consequences for a country’s citizens and its elected government. As former Fed Chairman Alan Greenspan (1996) said ten years ago, it “cannot be acceptable in a democratic society that a group of unelected individuals are vested with important responsibilities, without being open to full public scrutiny and accountability.” Transparency is of little use if markets and the public do not believe what a central bank says. Credibility is therefore a condition that is a sine qua non for a successful monetary policy. How can credibility be established? Alan Blinder (1998) summarises credibility as a "painstakingly built up history of matching deeds to words". A long history of actually matching deeds to words, of honest communication and a reputation for delivering price stability will therefore ensure central bank credibility.