# Keep the Tool, Raise the Bar: Sweden's Governor on QE, Independence, and Cash

Source: Realpha Blog (blog.getrealpha.com)
Original article and charts: https://blog.getrealpha.com/en/blog/macromusings-2026-09-28-erik-thed-en-on-qe-central-bank-independence-and-d/

> Notes on the 2026-09-28 Macro Musings episode with Riksbank Governor Erik Thedéen: why a central bank founded in 1668 decided to raise the bar for large-scale asset purchases, the three layers of that argument, where each one stops holding, and what breaks if you transplant it. Educational, not investment advice.

Published: 2026-09-28
Locale: en
Tags: central bank independence, quantitative easing, digital payments, monetary policy, Riksbank


![Morning light angling through tall windows down the long stone hall of an old bank, with a small wooden counter at the far end holding a few notes and coins](/covers/macromusings-2026-09-28-erik-thed-en-on-qe-central-bank-independence-and-d-cover.png)

> Move not unless there is advantage; use not your troops unless there is something to gain; fight not unless the position is critical.
>
> —— Sun Tzu, *The Art of War*, "Attack by Fire" (Spring and Autumn period)

On the 2026-09-28 episode of *Macro Musings*, host David Beckworth interviews Erik Thedéen, Governor of Sweden's Riksbank. In a June speech to the Swedish Economic Association, Thedéen argued that the bar for large-scale asset purchases should now be high. His hardest reason is firsthand: rising rates produced mark-to-market losses, equity went negative, and he had to walk into parliament and ask for a capital injection — an initial request of over 40 billion kronor (roughly 0.5–0.6% of GDP), with 25 billion granted. Whether that reasoning travels depends on two Swedish specifics: banknotes and coins are only about 7–8% of GDP, and household and corporate borrowing is mostly at variable rates.

## A bank from 1668, saying what it learned

The backstory is worth a paragraph. The Riksbank's predecessor, Stockholms Banko, was licensed by the king to a private individual, Johan Palmstruch, and was among the first banks anywhere to issue notes. Palmstruch issued too many, inflation followed, and he was removed and sentenced. After a fight between king and parliament over who should control the money, the bank ended up under parliament — where it still sits, one of the few central banks not under a government. In 1968, on its 300th anniversary, it endowed the prize in memory of Alfred Nobel in economics. The selection committee has nothing to do with the bank; Thedéen calls it an excellent division of labour: others do the work, he goes to the gala dinner at city hall.

This bank experiments. A price level target from 1931 to 1933. Inflation targeting in 1993. Among the first to try negative rates in the 2010s. Far out in front on digital payments. So when it says "we reviewed our QE and the bar is now much higher," that lands differently from a routine policy statement. Thedéen frames it politely: this says nothing about his predecessors being wrong; after you do something, you look at what there is to learn.

That is the claim I want to take apart. Its three layers differ a lot in strength.

## Layer one: compressing the long end, and Swedes feel nothing

The first reason is transmission. Swedish mortgages and corporate loans are mostly variable rate, so pushing down long yields leaves actual borrowing costs roughly where they were. You buy a lot of bonds and the price signal never reaches the people doing the borrowing.

![Two panels compared side by side, each with an arrow pushing down from the top to represent lowering long-term yields; in the left panel Sweden, mostly floating-rate borrowing the arrow breaks into a dashed line partway down and borrowing costs at the bottom barely move, while in the right panel the US, mostly 30-year fixed the arrow runs unbroken all the way to the bottom and borrowing costs genuinely fall.](/figures/qe-transmission-floating-vs-fixed-en.svg)

This layer holds only under that rate structure. The United States runs the other way — the thirty-year fixed mortgage dominates, so long-end compression flows into refinancing and purchase costs. The argument does not transplant. Thedéen ranks it lower himself; he thinks other central banks should still scrutinise it, but his emphasis is further down.

## Layer two: you lose money, then you go ask parliament for some

This is the vivid part. When rates rose, bond holdings took mark-to-market losses, as at most central banks. What differs is how thin the Riksbank's cushion is. Notes and coins are 7–8% of GDP and shrinking. Issuing non-interest-bearing cash and holding interest-bearing assets is the classic revenue stream, and in Sweden that pipe has nearly run dry.

![Two pipes of very different widths sit side by side to represent seigniorage income: Sweden's is thin and its opening is still narrowing, while the US pipe is far wider, and below each sits a basin that must catch a loss of the same size.](/figures/seigniorage-pipe-width-en.svg)

So equity went negative and he went to parliament. His own words are worth quoting: for someone from a central bank to sit down with parliamentarians and ask for money — one time is fine, but he doesn't want to be there several times. That points at something larger than accounting. Losses don't damage independence. Losses that force you back into the room with the people who hold the purse do.

![A door representing Congress: on the left a single arrow walks in once, on the right four arrows walk in again and again, with a note on the right that freedom of action gets priced by this room.](/figures/independence-priced-by-the-room-en.svg)

The US version hides the same thing. The Fed books a deferred asset, so no trip to Congress, though remittances to Treasury fall — the same event. Thedéen notes the accounting differs; the effect doesn't disappear, it goes out of sight. The hidden version strikes me as the more awkward one: the day someone starts totting up that bill in public, the questions arrive all at once.

To rebuild the pipe, the Riksbank did something concrete: legislation letting it require banks to hold a share of funds at zero interest. They first looked at the existing reserve requirement provision, but the law permits it only for monetary policy reasons, and "we need revenue to protect our independence" did not convince their own legal department. So they went to parliament and said plainly why they needed the revenue. Every party backed it, start to finish in about six months — fast, he says, for a legislative process.

## Layer three: stay in the government bond market long enough and you are fiscal policy

The third layer is the one he considers fundamental, and the only one that travels.

A central bank operating in the government bond market over time is making fiscal decisions, directly or indirectly. He pushes the clock forward twenty years: deficits high, debt higher, rates climbing. Someone asks why you aren't supporting the government by bringing borrowing costs down. And if you are selling and yields rise, someone asks why you are hurting households and firms.

Neither question has a technical answer, because neither is a technical question. His conclusion: stay away from that seat. Managing the national debt belongs to the debt office.

Beckworth names the American version already in motion: the Treasury Secretary looking to lean on Fed facilities to smooth long-term yields. And a standard claim for the ample-reserves regime is that balance sheet size is separable from the stance of policy — if true, that's a spare degree of freedom, so why not deploy it when the Treasury market wobbles? Once that logic is accepted, refusal gets hard.

## Where the argument stops holding

The question I kept asking while listening: how much of this is Sweden-only?

Two layers are local, one is general. Layer one needs variable-rate borrowing. Layer two needs seigniorage thin enough that losses can't be absorbed. The US fails both — dollar cash circulates worldwide, a far wider pipe, which Beckworth (quoting his friend Bill Nelson) calls the central bank's golden goose.

![Three horizontal bars of different lengths, where length stands for how many countries each layer of the argument travels to; the first and second bars are short and tagged with Sweden-only conditions, while the third runs the full width of the row and is marked as universal.](/figures/three-layers-portability-en.svg)

There's a condition on the selling side too. Thedéen says Sweden's balance sheet reduction went smoothly because Swedish debt is small and foreign investors welcomed the extra tradable supply. For a country with high debt to GDP, the same action floods the market. Different risk entirely.

He also says the most candid thing in the episode, about choosing an operating framework. He admits to a slightly cynical view: people debate which system is best, but the choice tends to be state dependent. Sit on a large bond portfolio and abundant reserves, and you'll argue the floor system is good. Sweden got domestic bond holdings down near zero, which is what gave it room to consider alternatives. "If we were stuck with the thousand billion we had at the top, forever, maybe I would be sitting on this show saying I actually think an ample system is really good."

## Why this is more than "QE doesn't work"

High bar and no use are different things, and the distinction matters.

![One road forks into two, each blocked by a wall of different height; the wall on the financial-stability branch is low, while the wall on the branch for pushing inflation from 1.4% up toward 2% is markedly higher.](/figures/qe-threshold-by-purpose-en.svg)

Thedéen keeps the financial stability use permanently available. Moments of market dysfunction can't be excluded; Sweden had turmoil in its own corporate bond market, and the Bank of England did well during the UK gilt episode. COVID was its own extreme — the downside was unbounded, and buying insurance made sense.

What he wants to raise the bar on is the other use: nudging inflation from 1.4% up toward a 2% target in an economy already growing reasonably. There, he leans toward patience — let the flexibility in the inflation target do its work, watch that expectations stay anchored, and don't jump into purchases quickly.

What happened next supports him. Zero rates plus purchases left the economy heavily stimulated, then COVID ended and everybody went travelling and out to restaurants, so demand exploded in exactly the sectors that had been shut, with fiscal pushing too. Risk management, he says, suggests caution about how much stimulus you add when something might change the scenario.

One more thing he stresses: plan the exit before you enter. Know what stops the purchases and what triggers the unwind, or the balance sheet ratchets up and stays. Beckworth brings in Raghuram Rajan's point here — abundant liquidity makes banks more willing to supply liquidity to clients, so the system circles back to a similar liquidity risk, and aggregate reserves understate the fragility. Thedéen isn't sure the data carries it, but he offers a lovely image: it's a bit like driving faster because you're wearing a seat belt.

## A few other things worth keeping

- **They can move from scarce to ample reserves inside a week.** The deposit rate on reserves sits 10 basis points below the policy rate, while one-week certificates are offered at the policy rate. Banks have every incentive to bid for certificates, yet they voluntarily leave around 100 billion kronor on deposit — paying 10 basis points for instant access. To flood the system with liquidity, skip an auction.
- **Cash fell from 40% to 5%, and now they're pushing back.** In 2010 about 40% of in-store purchases were cash; now it's 5%. Thedéen has used press conferences to suggest every adult keep a thousand kronor (about $100) on hand, and the bank pushed for legislation obliging grocery stores and pharmacies to accept cash. Beckworth offers a real case: his brother in Asheville, North Carolina, lost power in a hurricane; the only person in the family carrying cash was his daughter, and the one open gas station took nothing else.
- **Someone is finally questioning 24/7 instant payments.** Two reasons: anti-money-laundering checks are harder when everything settles instantly around the clock, and — the counterintuitive one — plenty of financial crises get resolved over a weekend, when markets are closed and there is time to act. He also says the three-day settlement lag has no justification; that's banks earning rents.
- **Next door to the euro, and not euroised.** Ten million people beside a currency area of four hundred million, with some shops accepting euros, and the krona is fine. His inference: where fiscal policy, monetary institutions, democracy, rule of law and price stability are in order, dollar stablecoins pose limited substitution risk. The risk concentrates in the developing world.
- **On tokenisation, he expects incumbents to adapt rather than fall.** Central banks aren't great innovators, he says, and nor are some incumbent banks; outside pressure from stablecoins and fintechs pushes the system to develop. Banks have been challenged repeatedly over thirty years and are still here — different animals, still here.

![A line falling steeply from upper left to lower right, showing cash's share of in-store payments dropping from 40% to 5%, with a dashed arrow turning upward at the end as policy begins to push back.](/figures/cash-share-fall-and-push-back-en.svg)

## One thing to take away

The idea I kept after this episode: **judging whether you can use a tool means judging who you'll owe afterwards.**

The Riksbank never claimed QE was ineffective. It ran a different calculation — using it means possibly walking back into a particular room, again and again, to explain and request and negotiate with the people holding the resources. Once is fine. Do it often enough and your freedom of action gets priced by that room. None of this cost is visible on the day you buy the bonds. It shows up years later.

Something I've tried: take one move you reach for whenever you panic — the credit card, the same friend you dump your problems on, pulling an all-nighter, asking family for money — and write two lines in your phone's notes. What conditions permit using it. How you wind it back afterwards. The second line is the hard one; it forces you to admit the move has a price. When I did this, I found two moves I had never planned to wind back at all — which means I'd been quietly accumulating a debt I never counted.