TALLINN (Feb 23): Sweden’s central bank must be ready to innovate if monetary policy needs to be more expansionary, and shouldn’t rule out new tools from helicopter money to deeply negative interest rates, Deputy Governor Anna Breman said.

“Current monetary policy is not necessarily appropriate in a changing society,” Breman said in a webcast speech on Tuesday.

“We need to be open to innovation and new thinking.”

Breman, who also discussed dual interest rates and yield curve control, said that for now, “a negative repo rate and increased quantitative easing” are the most obvious tools to use if more stimulus is needed in the short term.

While Breman’s speech echoes comments from Governor Stefan Ingves that the Riksbank may need to embrace more unconventional measures in future, her remarks include one of the most specific discussions yet seen from an advanced-world central banker on as-yet untested boundaries of monetary policy. She didn’t come to any firm conclusions however.

Potential measures that the Riksbank shouldn’t completely rule out:

On helicopter money — the idea by economist Milton Friedman of figuratively airdropping banknotes to citizens — Breman observed that a “People’s QE” tool where the central bank distributes money to households, perhaps via e-krona accounts, “may seem to be an effective tool to get inflation to rise.” Its legality is unclear, she added.

Of the unconventional ideas she mentioned, yield curve control and dual rates are easiest to implement, Breman told reporters.

“We must be prepared, be able to act decisively and have the courage to use new and untested tools if price stability is under threat,” Breman said. “I do not think that any of the tools I have discussed today should be ruled out, as long as their use is lawful.”

The remarks build on a common lament from developed-world central banks confronting the depletion of monetary tools from interest rates to QE.

In the UK, which unlike Sweden hasn’t yet tried out negative interest rates, Bank of England policy maker Gertjan Vlieghe is in favour of deploying that tool if needed, insisting last week that “we need to look for tools other than QE to deliver further stimulus if required.”

Breman isn’t currently advocating a return to subzero monetary policy, saying it’s not “relevant” at present, but she does see the possibility of doing so.

“There are important side-effects on the economy to consider even in the longer term,” she said. “On the other hand, it is possible in the near term to return to slightly negative levels of around –0.5% to support the economic recovery.”