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2016-01-08

Sweden should try to avoid Swiss mistakes - Will the Riksbank do whatever it takes?

By Martin Sandbu, FT January 6, 2016

Sweden’s Riksbank has wagged a very stern finger at currency markets by publicly delegating to its governor and deputy the power to carry out foreign exchange intervention at any time.

The rationale is that recent upward pressure on the Swedish krona puts downward pressure on domestic inflation, which the Riksbank has struggled to bring back up to its target. 

Sweden’s central bankers have that problem in common with most of their counterparts in the rest of the advanced world, of course. But they are the only ones to move towards targeting the currency to solve it.

At least explicitly. Accusations of “currency war” have been flying freely since Brazil’s finance minister used the term against the Federal Reserve’s monetary easing in 2010. 

And many observers see the European Central Bank’s quantitative easing mostly as an unspoken attempt to boost growth and inflation by driving down the value of the euro. 

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