Riksbank governor criticises proposed central bank law

Sveriges Riksbank head Stefan Ingves warned lawmakers’ proposed changes to the central bank’s governance would hamper its ability to react to future crises.

“The proposals that exist today are bad proposals and need to be rewritten,” Ingves said in a speech on November 3. “They put a lot of energy in trying to reduce the Riksbank’s independence … and I do not think that is good for Sweden.”

In November 2019, the Riksbank Committee, which has members from all parties in Sweden’s parliament, submitted proposals to the government to amend the Riksbank Act.

The Riksbank has repeatedly criticised central aspects of the reform. In April, it published a note saying the proposal would entail a separation between monetary and financial stability measures, arguing this would slow down and limit its actions.

“If you think about what was necessary to deal with the global financial crisis in 2008–09 and the current pandemic and different types of future event, we need tools at the Riksbank which are not included in the proposals,” Ingves said this week.

The lawmakers’ proposal distinguishes between tasks where the Riksbank abides by European Union law from tasks where the central bank must consult Sweden’s government and other national public authorities. The proposal calls for a division between the central bank’s tools for monetary policy and financial stability.

It also calls for giving the Riksbank a dual mandate for its monetary policy, which currently targets inflation. “Without setting aside the price stability objective, the Riksbank should contribute to a balanced development of production and employment,” the lawmakers said.

In April the Riksbank argued that “central banks need to have the capacity to use all of their tools rapidly, flexibly and effectively”.

It went on to say that “during periods of turbulence on the financial markets, it is very difficult to specify whether the measures taken concern monetary policy or financial stability. In most cases, it is a question of both, that is, measures where the central bank uses both its policy rate tool and its balance sheet by buying and selling financial assets.”

The central bank said that if these proposals had applied during its response to Covid-19, they would have limited its monetary policy toolbox. “It would have been unclear what the Riksbank was allowed to do,” the statement said.

The Riksbank also argued the changes would limit its financial independence, setting an upper limit to its equity.

Ingves has repeatedly called on lawmakers in recent months to introduce measures that would secure Swedish citizens’ access to cash. Usage of cash is falling rapidly in Sweden, and the Covid-19 pandemic has reinforced that trend.

The central bank’s 2020 annual payments report says 50% of people in Sweden have used cash over the last 30 days. This is sharply below the 93% recorded in 2012. This has coincided with a rapid increase in the use of the digital payments platform Swish, which has grown from 0% usage in 2012 to 75% this year.

Overall, cash in circulation in Sweden stands now at just 1% of GDP. In the eurozone it stands at 11%; in the US at 8%; in Canada and the UK at 4%; while in neighbouring Norway it represents 2% of GDP.

In a bid to make sure citizens keep access to central bank money, and to maintain an adequate monetary policy transmission, the governor has put forward a series of steps.

“I believe that stronger legal protection for cash could slow down the decline in its use,” said Ingves in a speech in October. “If it were to be established by law that one was forced to accept cash in Sweden, more of us would probably choose to have cash in our wallets. However, the Riksbank does not have any say in this. It is a task for the government and the Riksdag [Parliament].”

The Riksbank has been one of the first central banks to start working on the development of a central bank digital currency. But Ingves stressed in October that it would only work as a complement to cash and would not replace it.

In October, he also called for the government to undertake major reforms of Sweden’s payments systems. Sweden needed to enable around-the-clock instant payments in Swedish krona and instant payments between currencies across borders, he said.