I think this is unfortunate, as it will limit the Riksbank's capacity to safeguard a smoothly-functioning financial system. 38 The Sveriges Riksbank Act should be flexible and not govern in detail under what conditions and in what sequence monetary policy tools should be used. Technical and detailed limitations linking different items on the Riksbank’s balance sheet to different purposes – as the Government proposes in its new bill – would make it difficult to adapt monetary policy to the requirements of a particular situation. My picture is that the draft law deviates from international practice in the area of monetary policy and goes completely against the experiences that we have gained during the pandemic and earlier crises. I find it difficult to understand what one intends to achieve with the new proposal. The role of the balance sheet in monetary policy The Riksbank has several tools it can use in its monetary policy. Most people are familiar with the Riksbank’s policy rate. This is a short-term and risk-free interest rate that affects interest rates with a longer maturity, risky rates and ultimately the interest rates charged to households and companies. The impact of the policy rate on other interest rates can vary over time, and depends on factors such as the situation in the economy, conditions on the financial markets, and the structure of the financial sector. The Riksbank's other tools can be divided up, somewhat simplified, into extensive asset purchases and various forms of direct liquidity support to the banks.
We lent amounts to Swedish banks corresponding to just over 9 per cent of GDP, a measure that was intended to ensure that the financial system stabilised to allow us to conduct monetary policy and contribute to production and employment not falling as heavily as in the wake of the financial crisis. The new act means we would need to determine the main purpose of these measures, and the conditions and procedures differ, depending on the purpose. Was what we did mainly monetary policy or financial stability? Are the measures we implemented during the coronavirus pandemic mostly monetary policy or financial stability policy? In our world they are of course both, as our two core activities are two sides of the same coin. As I described earlier, the financial markets are developing rapidly, and needs are thus changing over time. It is difficult to predict how the next crisis will look, or what measures might then be needed. The fact that we have been able to take action during the pandemic is because the current legislation gives us opportunity to do so. Handling the global financial crisis 2008-2009 and the current pandemic, and also future events, requires the right tools and a flexible mandate. This is made more difficult by the proposal for a new Sveriges Riksbank Act. The proposal also limits the Riksbank’s possibilities to both build up and use its foreign exchange reserves. This is problematic, as the Swedish financial system is strongly dependent on short-term market financing, largely in foreign currencies.