During the crisis the Riksbank has acted in its traditional role as lender of last resort. The difference this time, compared with the traditional role, is that it has not merely involved short-term loans in kronor, but also lending at longer maturities and in dollars. Gold and foreign currency reserve The Riksbank has a substantial gold and foreign currency reserve. It consists of gold and assets in different currencies, which can be quickly converted to liquid funds. The main part of the foreign currency reserve consists of securities in foreign currency, with a small percentage of bonds issued by US mortgage institutions and some Australian states. The currency distribution up to the crisis was that half of the currency reserve was listed in euro, 20 per cent in US dollars, 10 per cent each in British pounds and Norwegian kronor and 5 per cent each in Canadian and Australian dollars. During the crisis there has been a greater emphasis on euro and dollars. The gold and foreign currency reserve serves three purposes. Firstly, the Riksbank has traditionally held a gold and foreign currency reserve to be able to support the Swedish krona’s exchange rate. This was a particularly strong reason up to 1991, when Sweden had a fixed exchange rate. But it has no major significance now that we have a floating exchange rate and an inflation target. Secondly, a gold and foreign currency reserve is needed to be able to provide temporary liquidity assistance in foreign currency to banks suffering liquidity problems.
BILD: But it is precisely this policy of cheap money that is not working… Draghi: Wrong – our policy is working, but we must be patient; investor confidence has not yet been fully restored. For two years, the economy in the euro area has been growing month by month, banks are lending and unemployment is steadily falling. Meanwhile, euro area countries are now able to buy more German exports again, which, for German companies, is partly making up for the decline in trade with China. But it is a slow process because the crisis was more severe than anything we’d had since the Second World War. BILD: And when will interest rates rise again? Draghi: It’s quite simple: when the economy is growing more strongly again and inflation rises closer to our objective. Low interest rates today will lead to higher rates tomorrow. BILD: Does the ECB’s policy of cheap money not make it far too easy for euro area countries like Italy and France, for example, to shirk necessary but unpopular reforms? Draghi: No. The majority of governments are acting, albeit too slowly for my personal taste. All of them would be well advised to do more. But that is not primarily dependent on the ECB and its policies. Most countries started to implement reforms when the level of interest rates was already very low. Furthermore, reforms of judicial systems, electoral laws or labour laws, for example, don’t have much to do with interest rates.