Riksbank Governor Lambastes Plan to Change Central Bank Law

The governor of Sweden’s central bank has slammed a proposal by the government to amend the laws that guide monetary policy, warning that the planned changes risk colliding with European Union rules and undermining policy makers’ ability to fight crises.

The proposal will “make it more difficult for the Riksbank in future to rapidly, flexibly and efficiently implement measures when needed -– and this increases the risks to the Swedish economy,” Governor Stefan Ingves said in a speech on Monday.

Ingves said the government’s proposed legislation “does not comply with EU legislation” and warned that according to the wording in the latest draft, “it is not clear how the Riksbank shall deal with questions where the national legislation is in conflict with EU legislation.”

Sweden’s government last week unveiled a proposal to amend the legal framework within which monetary policy in the largest Nordic economy operates. The proposal includes adding employment as a secondary target to the bank’s mandate, and calls on the bank to consider how its asset purchases can contribute to fighting climate change.” But the government also wants the Riksbank to follow a sharper policy delineation in how it handles risks facing the financial system.

The proposed separation of tasks -- inflation targeting and financial stability -- would force the Riksbank “to first determine what the main purpose of each measure would be, and means that the conditions and procedures differ, depending on the purpose,” Ingves said. That means “the Riksbank will not be able to act as quickly and powerfully in the next crisis as we have been able to do during the pandemic,” he said.

Ingves cited proposals limiting the central bank’s discretion to buy assets other than government bonds as an example, and said the proposal would place the Riksbank at a disadvantage compared with its peers.

“In order to be able to buy other bonds at all you need to be able to manage a portfolio over time, because otherwise it’s impossible to do what you believe is necessary at a certain point in time,” he told reporters after the speech. “If you look at other central banks and the IMF’s opinion on the proposals, we will be an odd man out if this proposal is implemented.”

The draft proposal also seeks to reduce the number of Riksbank board members to five from six, in line with earlier proposals. Ingves has repeatedly criticized the government’s efforts to change Sweden’s monetary policy framework. Earlier this year, he said the planned amendments would make the Riksbank “very different” from other central banks.

On Monday, he said he thinks it’s “the wrong way to go, if politicians and citizens still want to have an independent central bank that can take powerful action using its entire balance sheet to stabilize the economy.”

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