Sveriges Riksbank 350 Year Journey Flashcards
What is the highest and lowest the interest rate has been through Swedish history
Highest 500% and lowest below zero, to defend price stability
Why does deflation prevent investment
Because people wait for prices to fall instead of investing
How did people react to the hyperinflation during the 16th century
First they did not know which let the rulers get away with huge expenditures but after a while when inflation reached 800 percent merchants started adopting the HRE currency insted
How does inflation affect loans
If you take out a loan before a period if high inflation it becomes very easy to pay back
What characterized the monetary policy of the Swedish royals
High inflation to support wars
What characterized the Swedish monetary policy under the hats
Excessive lending to industrialists easily payed back with inflation
What characterized the Swedish monetary policy under the caps
Deflation, bankrupting the speculating industry but making imports cheaper
What was seen as the foundation of the value of money during the time if liberation
Precious metals
What was the strangulation system
A system where the riksbank terminated loans when they weee short on silver
When did the Swedish fed implement an interest rate
1890
Why did Sweden abandon the gold standard
Because the first world war necessitated more spending than there was gold in the coffers
What was the profiteer economy
When it was a valid business strategy to wait for prices to be high and sell as late as possible to maximize profit
When did the Swedish riksbank adopt its policy of price stability
1932 to navigate a world without the gold standard
What was the bret and woods system
World currency was pegged to dollar that in turn was pegged to gold to ensure stability
Why did the bret and woods system collapse
Because the US abused the dollars position to fund the Vietnam war and abandoned the gold standard leading to a dollar glut
What characterized the 1970s and 1980 in the Swedish economy
High inflation to stay internally export competitive
Why did the riksbank raise the interest to 500% in the 1990s
To pervent people from loaning to speculate on currency changes
What are the negative affects of having a low repo rate on markets
Cheap lending leads to inflation in asset prices often bought by debt like housing
How does globalization affect inflation
It decreases it as greater competition from countries with cheaper labor become accessible, more cheap wares are available
What made inflation low in the twenty tens
Globalization and higher savings rate
How did Wallenberg improve banking
He gave the offer of limited liquidity for greater interest rate, thus he was able to use deposits more affectively for lending. Firs one to primarily use deposits for lending
How did the riksbank become a proper central bank
1897 rhe riksbank abandoned traditional commercial lending to gain a monopoly on giving banknotes and accept the mission to peruse stability
What was the Kruger krash
Ingvar Kruger faked his solvency and gained massive loans from many central banks and when he could no longer loan cheep he became bankrupt and the banks gained worthless assets triggering a financial crisis
What was the eurodalar market
A gray financial market of eurobanks that served developing countries when regulation was to high in the west
Why did the us, uk and Sweden deregulate during the 80s
To regain control over the Eurodollar market
How did deregulation affect the banks
As regulation no longer constrained insurance, savings and commercial banks to work within their field and thus a lot of mergers and acquisitions ensued. Poorer risk assessment also followed the deregulation
How does globalization affect Swedish banks
Problems can spread more easily and the central bank has less control
How did the riksbank loose independence from the government
When Sweeden became a parliamentary democracy parties gained equal representation in the riksbanks central council
What was the prevailing idea about fiscal and monetary policy in the 1930s
That they should be coordinated resulting in Dag Hammarsköld being appointed both finance minister and chief of the central council of the central bank before becoming the UN general secretary
What was the interest rate coup
Per Åkeson convinced the council to raise the interest rate without notifying the ministry of finance and was severely reprimanded for it even though he technically had the tight
Why does the central bank need to be independant
So it can be the hero the country needs not the one it wants. F.ex sacrifice employment for better output
What does the EU demand in regards to separation of bank and state
They need to be separate institutions and the gov cannot loan from the nations bank
