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5/22/14

Scandinavia: Ikea Economics Lure Central Bankers Seeking New Tools - by Simon Kennedy

If you’ve ever bought a folding futon bed from Ikea you’ll probably have been both impressed and perplexed by Scandinavian ingenuity.

It’s the same when it comes to central banking. Policy makers are looking to Sweden, Norway and Denmark for off-the-shelf measures they can build at home.

Sweden invented the central bank, establishing the Riksbank in 1668 after the public lost confidence in the paper money produced by Stockholms Banco. Bank-rescue strategies in the 1990s and efforts to improve central-bank communications through forward guidance taught lessons to first responders in the recent global financial crisis.

Now, the European Central Bank is considering copying Sweden and Denmark by charging banks to hold their money. And the Bank of England may mimic steps taken by Sweden and Norway to tame a housing boom.

They’ve drawn warnings from Michala Marcussen of Societe Generale SA that negative deposit rates and mortgage-focused regulations carry risks: “Central banks, learn from thy neighbor!” she said in a report this week.

Sweden cut its deposit rate to minus 0.25 percent in July 2009 and held it there until September 2010. Denmark followed in July 2012 until last month as it successfully prevented an appreciation in the krone from capital inflows.

Read more: Ikea Economics Lure Central Bankers Seeking New Tools - Bloomberg

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