Erik Thedéen on QE, Central Bank Independence, and Digital Payments

David Beckworth (0:02)

Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University. And I'm glad you decided to join us.

David Beckworth (0:25)

Our guest today is Erik Thedéen. Erik is a very special guest. He is the governor of the world's oldest central bank in operation, the Swedish Riksbank.

And today he joins us to discuss the history and operation of the Riksbank, as well as lessons learned from QE and digital payments. Erik, welcome to the program.

Erik Thedéen (0:46)

Thank you very much, David.

David Beckworth (0:48)

Well, it's a real honor to have a sitting governor on the podcast, particularly of the Riksbank. As you know, I had one of your colleagues on the show a few months ago. Yep. And, Per, and he and I had a fun conversation on the operational framework that you use there. And I've become a big fan ever since, so it's a real delight to get the governor, the leader of the Central Bank, to talk more about it as well as other things about the Central Bank. Now, I understand you just got back from Jackson Hole, the big conference there.

So beautiful place to go and talk with fellow Central Bankers. And we'll talk a little bit about the Riksbank experience with digital payments later on. And also, again, QE, you guys have had some really interesting experiments and lessons learned from QE.

Before we get into all that though, Erik, tell us about yourself. How did you get into Central Banking and become the governor of the Riksbank?

Erik Thedéen (1:42)

Well, as a governor, I'm basically closing the circle because my first job after university, the Stockholm School of Economics, was actually in the dealing room of the Riksbank back in 1989 So I actually practically was working with the liquidity system and the interest rate setting. I spent a couple of years there and then I was part of hiking it to 17.5 percent, I think. Then I left and a year later, it was up on the famous 500 percent when we defended the Corona back in the 1990 crisis that was more or less the same time when the sterling also was hit by hedge funds.

After that, I've been Deputy Head of the Debt Office, I've been on a hedge fund as a macro strategist, I've been Head of the Stock Exchange, I've been State Secretary to the Minister of Finance, I've been heading up the Swedish Financial Supervisory Authority for seven years and then since three and a half years back in time, I'm the Governor of the Riksbank. So I'm basically again, a closing circle, but this was my first kind of job. And I don't know if this is the last, but probably one of the last jobs anyway.

David Beckworth (2:49)

Well, you've come full circle, as you said, and you've seen a lot of the Swedish financial system, the economy, the institutions. So you know the operational details as well as the politics, all that goes into running a central bank successfully. Now, it's the Riksbank. This is the oldest existing central bank.

And I just want to talk about that for a while, because that is so fascinating. So walk us through the history briefly and some of the innovations that your bank has brought to the practice and art of central banking.

Erik Thedéen (3:21)

So this, you know, I'm not the historian, but I know the basics of it. And basically, if you read the history of the Riksbank, it's so fascinating. The bank was kind of licensed to a private individual to run Stockholm Banko. It was Joakim Palmstruck, and he got the license from the king to run a bank, and he was actually issuing notes. But of course, that was very, very kind of profitable, so he issued a little bit too many notes. So that ended, of course, in inflation. And he was fired. He was sentenced to death penalty. Wow. Eventually, he was, wasn't a death penalty, but he was for sure sentenced to jail.

And that was kind of the starting point of actually having a Central Bank under the Parliament. So then there was a struggle between the King and the Parliament. King wanted to finance his wars. The Parliament, of course, had some objections to that. So it ended up in an institution under the Parliament, which is interesting because we're still, I think together with Finland, which at that time also was a part of Sweden, I think we still are the only Central Bank that is actually under the Parliament. I might not be totally right here, but mostly they're under the government, right? So we're still under the Parliament, and then the history from then, there's we issued the first notes in the world, and it was first it was under the Parliament, and then it was a Parliament which was in different levels of the society that was changed. So eventually it changed now, I think in the end of the 19th century to Sveriges Riksbank.