BIS central bankers’ speeches  15  the use of cash means that central bank revenue from the issuing of banknotes and coins – known as “seigniorage” – decreases, which further inflates the risks of central bank finances becoming more strained than previously in the period ahead. Less room for manoeuvre in the wake of financial globalisation Central banks’ room for manoeuvre is affected not only by how independent they are in accordance with national regulatory frameworks. I have today spoken about how central bank operations, in basically all areas, are influenced by financial globalisation. Over the past 30 years, international capital flows have increased dramatically. 34 This reflects the gradual liberalisation of capital flows that has occurred over a long period. In the right circumstances, especially when countries have achieved a certain level of institutional and financial development, and when there are regulations and oversight, free capital flows lead to considerable efficiency gains. But it does not mean that the completely free movement of capital is good for all countries at all times. The fact that many countries have been affected by the US credit cycle is nothing new, but the fact that this synchronisation now includes developing countries as well as a large number of other countries is a more modern phenomenon. This increased global financial covariation does not just apply to credit in relation to GDP but also within basically all financial asset types.
As a consequence, interest rates in Sweden  19  For a theoretical discussion about the consequences of financial imbalances on flexible inflation targeting, see Woodford (2012). 20  See Giavazzi and Mishkin (2006), Goodhart and Rochet (2011) and Goodfriend and King (2016). See also Bryant, Henderson and Becker (2012). 21  See Mitelman (2013), Schück (2015), Sydsvenskan (2015) and Dagens Industri (2015). 10  BIS central bankers’ speeches  would remain at today’s extremely low levels for even longer to come. 22 For reasons I will shortly outline, it would, however, be more difficult to counteract economic recessions in the future, if inflation, inflation expectations and the average nominal interest rate were to remain permanently at very low levels. The international debate has not concerned itself too much with globalisation and digitalisation having lastingly held back inflation. Instead, it has been argued that central bank inflation targets should be increased. 23 One reason for this is that real, long-term interest rates have fallen by about 4.5 percentage points around the world over the past 30 years. 24 One consequence of interest rates being much lower than twenty years ago is that it has severely restricted the scope for central banks to cut their policy rates when the economy has been weak or inflation has undershot the target. One way of dealing with this is to raise the inflation target.