The monetary base has thus increased by around 300 per cent. In simpler economic models one usually assume that there is a fixed relationship between the monetary base and the money supply. 2 The question that has been discussed is whether the large increase in the monetary base could give rise to rapid inflation. But for this to happen the money volume in society must also increase, that is, as well as the monetary base increasing, the general public’s deposits in the banks must increase. This could happen if the increase in the monetary base leads to the banks increasing their credit granting to the general public and if this in turn leads to the general public depositing more money with the banks. In the prevailing economic downturn this has not been the case. The banks have tightened their credit granting, while demand for credit has declined, particularly from companies. A more reasonable interpretation of what has happened is that the banks have increased their demand for liquid reserves in the Riksbank. Put simply, one can say that the bank system as a whole has borrowed as much from the Riksbank as it is willing to invest as a deposit with the Riksbank. Thus, the ratio between the monetary base demanded and the money supply has increased, or in other words what is known as the credit multiplier has  2  Money supply here refers to the general public’s holdings of banknotes and coins and the general public’s deposits with the banks.
During the crisis the banks experienced problems with funding in foreign currency, particularly dollars. The Riksbank therefore lent dollars to the Swedish banks, partly funded through the currency reserve. 10  BIS Review 160/2009  Thirdly, Sweden has international commitments through, for instance, the IMF to be able to support other countries in crisis with loans in foreign currency. These commitments have increased substantially during the crisis. The Riksbank has established swap agreements with the central banks in Iceland, Latvia and Estonia, to be able to provide loans in foreign currency to stabilise the financial situation in these countries. Moreover, the Riksbank has increased its commitments to the IMF. All in all, international commitments have increased by more than SEK 50 billion in connection with the crisis and they may increase further. Prior to the financial crisis the gold and foreign currency reserve amounted to around SEK 200 billion, and then accounted for more or less all of the Riksbank's assets. The foreign currency reserve has been strengthened this year. The Riksbank has borrowed a further amount in foreign currency through the Swedish National Debt Office, totalling the equivalent of around SEK 100 billion. Some of the foreign currency reserve has been lent out during the crisis and the value in Swedish kronor has been affected by the depreciation in the krona. The size of the foreign currency reserve has thus varied during the crisis (Figure 11).