Persson: False conceptions of the euro and the Riksbank
Deputy Governor Kristina Persson spoke at a lunch meeting organised by Ruter Dam on Wednesday on the consequences of introducing the euro in Sweden.
"Less than two weeks remain now to the referendum that will determine whether Sweden shall introduce the euro, and discussions are in full swing. A number of misconceptions have arisen during the course of the general debate regarding the consequences of introducing the euro in Sweden. However, let me begin by pointing out that the Executive Board of the Riksbank has not taken a stand on the issue of adopting the single currency. On the other hand, we, the members of the board, can freely express our personal opinions. I myself am convinced that the advantages of participation outweigh the disadvantage of not being able to conduct national monetary and exchange rate policy," said Ms Persson.
"One of the false claims featured in the general debate is that Sweden does not conduct an independent monetary policy now; that the Riksbank adapts its policy to the ECB's interest rate decisions. This is wrong. The Riksbank conducts its monetary policy on the basis of the expected path for inflation in Sweden and nothing else. The similarity between the conduct of monetary policy in Sweden and the ECB is due to the increased interlinking of the economies and the greater synchronicity in business cycles. There are considerable similarities between the euro area economies and the Swedish economy, which reduces the risk of a single currency creating problems," said Ms Persson.
"Another false claim is that the Swedish state will suffer a substantial loss of income when the Riksbank is abolished and the krona is replaced by the euro. However, most of the European System of Central Banks' tasks are performed by the national central banks. The Riksbank will thus by no means be abolished. If Sweden participates in the Eurosystem, the Riksbank will transfer a small part of its currency reserve to the ECB's joint reserve, but the income from this will fall to the Riksbank. The Riksbank's profits, and thereby the possibility to transfer a surplus to the Treasury, would not be affected by a euro introduction. The claims that the government would lose billions if Sweden takes part are incorrect," pointed out Ms Persson.
"The claim that the introduction of the euro would entail a return to a fixed exchange rate regime is also false. The euro floats against other countries' currencies. The difference is that Sweden would become part of a large currency area, which would mean that fluctuations in the exchange rate would have less impact on the economy, as almost half of Sweden's foreign trade is with euro area countries. As the euro is a large currency, it is also much less vulnerable to speculation. If we choose to adopt the euro, we will lose the possibility of devaluating the krona or allowing it to depreciate to improve our competitiveness. However, when the krona has been devaluated in the past, this has resulted in higher inflation, which has ultimately affected wage-earners. It has also made it possible to postpone necessary measures to solve various economic problems," pointed out Ms Persson.
"It is also said that the European Central Bank is an undemocratic, closed organisation. In actual fact, there are considerable similarities between the ECB and the Riksbank, which both have price stability as their objective and use similar methods. The Executive Board members are appointed by politicians but then act independently and may not request or receive instructions from the government or parliament. The main difference is that the Riksbank publishes minutes after its monetary policy meetings, while the minutes of the ECB's meetings are classified as confidential over a long period of time. We at the Riksbank could actively try to change this if we joined the system," said Ms Persson.
"Finally, there are claims that the loss of a national monetary and foreign exchange policy would entail a threat to welfare and employment in Sweden. The task of monetary policy is not to maintain high growth and employment, but to keep average inflation in Sweden at a low, stable rate. Monetary policy can only affect economic activity in the short term and does not have any long-term effects on either growth or employment. It is other economic policy measures, such as investment in knowledge and technology, the functioning of the labour market and international developments, which determine growth and employment. The effects on welfare in Sweden of participation in the Eurosystem would probably be positive, as several studies indicate that introduction of the euro would lead to increased trade and thereby increased growth. Adopting the euro would thus increase the resources that can be used to finance, for instance, increased welfare. The effects on employment would also depend on how the increased resources were used. As I see it, the risk to welfare comes from remaining outside of the euro area," concluded Ms Persson.
