The Swedish Riksbank is currently led by Erik Thedéen, widely regarded as an interest rate hawk. He has maintained a relatively high policy rate despite weak growth and rising unemployment.
This stands in contrast to his predecessor Stefan Ingves, who introduced negative interest rates during a long period of persistently low inflation.
A popular saying goes: “Inflation is taxation without legislation.” It is a critical view of monetary policy — the idea that inflation allows governments to reduce the real value of money without the political cost of raising ordinary taxes.
If you have 100,000 SEK in savings and inflation is 5%, that money only has the purchasing power of about 95,000 SEK after one year. You haven’t lost any kronor on paper, but you have become poorer in reality.
The winners from inflation tend to be:
- The government (especially with large debts)
- People with big loans
- Banks and financial institutions that can protect themselves
The losers are:
- Savers
- Pensioners with fixed incomes
- Employees whose wages don’t keep up with inflation
Both Ingves and Thedéen have struggled to consistently hit the 2% inflation target. One mostly undershot it, the other first overshot it before bringing it down. The fact that two governors with very different approaches both failed to hit the target strengthens my belief that the traditional interest rate tool is losing its effectiveness in today’s economy.
We may need new tools for a new economic reality.
One possible idea could be a Swedish digital krona with built-in value preservation. A portion of the money held in this digital currency could automatically be invested in a broad, low-cost index of Swedish productive assets — such as infrastructure, housing, and technology companies. This would give ordinary citizens a simple, automatic protection against inflation, while still keeping the money liquid and accessible.
Perhaps it’s time to think beyond just raising or lowering the interest rate.
AI-generated image with Grok
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