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As of 2002, the “implicit inflation targeting regime” was adopted as a strategy of convergence BIS Review 89/2006 1 with the formal inflation targeting regime and gradually the components of this regime were adopted. In line with these efforts, some changes were made in our Bank’s organization and some new departments have been established, our set of data has been expanded and the decision-making processes have been further institutionalized. By 2005, the monetary policy strategy implemented under the name of the implicit inflation targeting regime had become a regime covering most of the elements of formal inflation targeting and significant achievements had been made in the pre-conditions necessary for a successful transition to the formal inflation targeting regime. In 2006, encouraged by our achievements, the “formal inflation targeting regime” was adopted on time. The new regime necessitated a more institutionalized structure and a higher degree of transparency compared to the previous one. In order to have a more comprehensive understanding of the course of inflation and the policy decisions of the Central Bank it is essential to have a good grasp of the framework that we have drawn for the inflation targeting regime. Therefore, I would like to take this opportunity to highlight some important elements of the formal inflation targeting regime once more in this meeting today. Under this regime, the Central Bank adopts a medium-term perspective. Accordingly, inflation targets are announced for a period of three years.	Rapid changes in exchange rates* Duration Value at the Top value (days) beginning % Change Standard deviation Beginning Date Ending Date 15.04.2002 30.07.2002 106 1.2928 1.6966 31.2 1.11 03.12.2002 09.01.2003 37 1.5200 1.6825 10.7 1.00 03.03.2003 25.03.2003 22 1.5962 1.7548 9.9 1.53 24.09.2003 10.11.2003 47 1.3545 1.5048 11.1 0.80 05.04.2004 24.05.2004 49 1.3076 1.5582 19.2 1.18 20.07.2004 21.09.2004 63 1.4293 1.5388 7.7 0.74 08.03.2005 30.03.2005 22 1.2601 1.3905 10.3 1.14 04.05.2006 26.06.2006 53 1.3167 1.7016 29.2 1.61 (Daily change%) * CBRT indicative USD selling rate 6 BIS Review 89/2006 In this period of fluctuations, in order to ensure the continuation of the downward trend of inflation, the Central Bank used policy interest rates effectively on the one hand, and took the necessary market measures with a view to stopping the fluctuations in the market on the other. First of all, in order to prevent declining foreign exchange liquidity from increasing volatility in the level of the exchange rate, the Central Bank suspended foreign exchange purchase auctions and intervened directly in the market by selling foreign exchange where deemed necessary.	1
But turning back to banking in the region, even if this scenario is realized, and there must of course be much uncertainty on this, the amount that banks would be called upon to finance would remain very substantial in absolute terms. For the foreseeable future, therefore, the banks will still be playing a key role in mobilizing savings in the region and channeling this into investment. And this makes it even more important that banking systems in the region remain healthy. Of course, foreign banks will play an important financing role, in particular those based in Hong Kong which is the major centre in the region for the arranging of syndicated loans. But within most of the banking systems of the region it is the local banks which predominate in terms of share of assets. The position of Asian banks 10. So let us take a look at the current position of the Asian banks. It is in fact very difficult to generalize because the banking systems in the region are not homogeneous. But certainly if we look at what the World Bank has called the eight “high performing Asian countries”, the Asian banks have been at the heart of the Asian success story2. This is partly due to the emphasis laid by governments on trying to ensure the stability of banks, through prudential supervision and other means, to encourage confidence among savers.	Thirachai Phuvanatnaranubala: The strengthening and development of regional bond markets Speech by Mr Thirachai Phuvanatnaranubala, Deputy Governor of the Bank of Thailand, at the APEC Business Advisory Council Meeting, Tokyo, 16 May 2003. * * * Lessons from the Asian crisis – a local perspective Thailand’s experience The crisis of 1997 brought to light weaknesses in the country’s financial sector development and the sequencing of liberalization policies. Prior to 1997, the function of financial intermediation fell almost entirely on commercial banks. They mobilized funds mainly through deposits, which accounted for roughly 80 percent of domestic banking liabilities. At the same time, they held almost 70 percent of total financial sector assets, most of which were in the form of credits to the household and corporate sectors. Direct financing through the domestic bond market – through both public and corporate bonds – was relatively small and not well developed. Nine consecutive years of fiscal surplus between 1988 and 1996 provided no incentive for the government to issue regular and substantial amount of government bonds. The resultant limited supply of government bonds inhibited the development of a risk-free benchmark against which to price corporate issues and mark to market daily trading. The crisis brought to the fore an imbalance in the structure and operation of the Thai financial markets. With financing channels limited to bank loans, Thai businesses faced severe liquidity crunch as the banking sector sharply curtailed their credit operations amidst high non-performing loans and massive recapitalization needs.	0
In this context, we will focus in particular on the possible repercussions of dampened growth dynamics, geopolitical developments, exchange rate and energy price developments, and the pass-through of our monetary policy measures. We will be particularly vigilant as regards the broader impact of recent oil price developments on medium-term inflation trends in the euro area. Turning to the monetary analysis, data for October 2014 support the assessment of subdued underlying growth in broad money (M3), with the annual growth rate standing at 2.5% in October, unchanged from September. Annual growth in M3 continues to be supported by its most liquid components, with the narrow monetary aggregate M1 growing at an annual rate of 6.2% in October. The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was –1.6% in October, after –1.8% in September, showing a gradual recovery from a trough of –3.2% in February. On average over recent months, net redemptions have moderated from the historically high levels recorded a year ago. Lending to non-financial corporations continues to reflect the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) was 0.6% in October, after 0.5% in September. The monetary policy measures in place and the completion of the ECB’s comprehensive assessment should support a further stabilisation of credit flows.	In this context, early next year the Governing Council will reassess the monetary stimulus achieved, the expansion of the balance sheet and the outlook for price developments. We will also evaluate the broader impact of recent oil price developments on medium-term inflation trends in the euro area. Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council remains unanimous in its commitment to using additional unconventional instruments within its mandate. This would imply altering early next year the size, pace and composition of our measures. In response to the request of the Governing Council, ECB staff and the relevant Eurosystem committees have stepped up the technical preparations for further measures, which could, if needed, be implemented in a timely manner. All of our monetary policy measures are geared towards underpinning the firm anchoring of medium to long-term inflation expectations, in line with our aim of achieving inflation rates below, but close to, 2%, and contribute to a return of inflation rates towards that level. Let me now explain our assessment in greater detail, starting with the economic analysis. Real GDP in the euro area rose by 0.2%, quarter on quarter, in the third quarter of this year. This was in line with earlier indications of a weakening in the euro area’s growth momentum, leading to a downward revision of the outlook for euro area real GDP growth in the most recent forecasts.	1
Christian Noyer: The role of inflation - indexed bonds in the process of setting monetary policy: a central banker’s perspective Speech by Mr Christian Noyer, Governor of the Bank of France, at the Morgan Stanley seminar on indexed bonds, Paris, 9 June 2004. * * * Ladies and Gentlemen, [Dear Friends], It is a great pleasure for me to address you here in the context of the first “Séminaire de Paris” on inflation-linked securities organised by Morgan Stanley. Today, I will focus more specifically on “The role of inflation - indexed bonds in the process of setting monetary policy” from a central banker’s perspective, based on my own experience as the former Vice-President of the ECB and the current Governor of the Banque de France. Throughout my presentation, I will occasionally refer to the monetary policy strategy framework implemented by the Eurosystem in which asset prices, in particular inflation-indexed government bonds, can play a role in the context of our economic analysis. Having said this, I will neither elaborate further on the ECB’s framework nor comment on the last Governing Council’s monetary policy decision. Price indexation of financial contracts is not a new phenomenon. According to Robert Shiller1, the world’s first known inflation-indexed bonds were issued by the Commonwealth of Massachusetts in 1780 during the Revolutionary War. These bonds, the so-called “depreciation notes”, were issued to US Soldiers as deferred compensation for their services. They were mainly designed to deal with severe wartime inflation.	Both initiatives are aimed at promoting the development of index bond funds in the regional markets and, at the same time, enhancing both domestic and regional bond market infrastructure. This is a very concrete initiative, involving the allocation of funds by a considerable number of central banks. These three sets of initiatives use differing approaches and a variety of tools. But they have common aims. One important aim is to identify - through individual studies, experience-sharing, and the practice of fund management - where obstacles exist and how best standards and practices can be harmonised to facilitate cross-border financial transactions within the region. A separate, but parallel BIS Review 40/2004 3 consideration is the development of financial infrastructure. A number of studies have been carried out to explore the feasibility and desirability of establishing region-wide infrastructure, such as a regional rating agency and regional settlement and payment systems. Apart from the many technical complexities, any proposals for infrastructure on a regional dimension would require thorough discussion among different jurisdictions and rigorous assessment of business viability and impact on the market. Long planning time would therefore be expected before any conceptual proposal could be put into practice. Effective financial infrastructure across the region is a precondition for debt market development within the region. Without it, all of the other initiatives I have described would be about as useful as buying aeroplanes without having the airports in which to land them.	0
Much has been written of late as to whether costs in Hong Kong are too high. Let me ask you to reflect on the following. Cities such as London and New York have a reputation for being expensive. So also do of a number of capital cities in former communist countries. In a very general sense one can say that London and New York are expensive as a consequence of success as business centres and because, presumably, people still feel that there is value for money there. I leave you to judge whether the others would fit that description; to my understanding, some of them have become expensive for rather different and less palatable reasons. I strongly believe that Hong Kong fits the London-New York paradigm. Actually, our competitiveness (as measured by the real effective exchange rate) is now back where it was in mid-1997 before the onset of the Asian crisis, thanks to the sharp adjustment of property prices and reductions in labour costs, and with help from a strengthening of other currencies, notably the yen. Nevertheless, although costs may now be back closer to their norm, Hong Kong will never be a cheap place. But when you take account of what is on offer here and the high productivity of the labour force, I hope you will agree that you get value for money.	Thus, today, the received wisdom is that central banks should follow clearly articulated policies aimed at a stable monetary environment. This in turn begs the question of how to define a stable monetary environment. BIS Review 135/1999 2 In Hong Kong, a highly open economy with no capital controls, we focus on stability of the exchange rate, but this regime itself requires a flexible economic structure and a sound banking sector. I believe that Hong Kong possesses those attributes, as demonstrated not least by the adjustment of the past two years, and that the peg remains the appropriate regime for us, but I would be the first to admit that it is may not suit others. From the point of view of investors, it is the stability and credibility of macroeconomic policy as a whole which probably determines, or ought to determine, investment strategy. As experience tells us, it can be a costly mistake to pay attention only to particular parts of the policy regime, such as the exchange rate, without scrutinising the wider context in order to be satisfied that the overall design is credible. And so it is my pleasure to help to launch this conference today, and to welcome those of you from outside Hong Kong. We pride ourselves in being a place which offers not only a wide choice of excellent conference facilities but also, more importantly, the critical mass of financial and ancillary services which issuers and investors require - and which many of you here today contribute to.	1
This will be aided by the fact that the relationship established via the MPF is likely to be a sticky one, and companies are unlikely to shift to another scheme unless there are good reasons to do so. This does not mean, however, that MPF providers can afford to provide a bad service. If they do, they will destroy goodwill and make it more difficult to sell other products. The cross-selling opportunities provided by the MPF are not theoretical. There are already signs that it is making an impact on sales of other funds to individuals. As your Association recently announced, the fund penetration rate in Hong Kong has risen from 7.8% to 10% in a year. This is a creditable performance in view of the weakness in the stock market. One of the reasons for the increasing willingness to invest in funds is undoubtedly the low return now offered by bank deposits. However, it also appears that the marketing of the MPF over the last year has helped by focussing employees' attention on the attractions of funds for long-term savings purposes and on the need to plan for retirement. The role of the regulators I have talked so far about the involvement of the banks in MPF business. In practice, however, the role played by banks themselves is mainly to act as intermediaries, selling and advising on MPF schemes. The various MPF services – trustee, administrator, custodian and investment manager – are generally provided by other companies which may be related to the bank.	Deregulation has been the catalyst – the more cynical would say the excuse – for banks to introduce fees and charges on deposit accounts. Most banks have also introduced tiered savings accounts, with higher interest rates being paid on larger balances. Sometimes the rate depends on the range of the bank's products and services that the customer uses. The converse is that some banks are now paying less than the standard rate on small deposits. A further innovation is that in a few cases there are savings products that are linked to HIBOR. Banks have not rushed to pay interest on conventional current accounts, though some have offered combined savings and deposit accounts that pay interest. At least one bank offers an auto-sweeping service from savings to current accounts. Such products are effectively offering interest on current accounts. Generally speaking, the amounts deposited in the innovative current and savings accounts are still quite small. Perhaps the biggest surprise so far has been that some of the banks have been able to lower their benchmark savings account rate to 1.75%, which is probably 25bp below what it would have been without deregulation. A few years ago, when the debate about deregulation was taking place, the conventional wisdom was that the savings rate was artificially depressed and would rise closer to time deposit rates after the cap was lifted. So far this has not been the case. Indeed, it appears that the interest rate rules effectively imposed a floor as well as a cap.	1
In the event of a deviation from the inflation target, the Riksbank has to decide how soon monetary policy should bring inflation back to the targeted rate. If this is done too quickly, it will exact a cost in the form of instability in the real economy and in financial markets. If it takes too long, on the other hand, inflation will fluctuate markedly, with the risk of a rising trend or even genuine deflation. Against this background, early this year the Executive Board elaborated on the inflation target and stated that, under certain specific circumstances, the Riksbank has reason to be more flexible in its interpretation.3 When I presented this to the Standing Committee in more detail 3 See Riksbank memorandum: ‘The Riksbank’s inflation target – clarification and appraisal’, 4 February 1999. 9 BIS Review 61/1999 last March, I noted that it amounted essentially to a codification of monetary policy practice in recent years. That is also what I have described today. There is another matter I want to take up concerning monetary policy and its result. It has to do with the outturn for 1998, when the annual change in the CPI was 0.4 per cent, while UND1X rose only 1 per cent and in some months was also outside the lower band limit. Could not an alternative interest rate policy have succeeded in preventing such a low outcome for underlying inflation?	The SNB will continue to monitor developments on the mortgage and real estate markets closely, and to assess whether further measures are necessary to mitigate the risks to financial stability. Page 3/3	0
In this context, we conducted an intensive process of dialogue with banks to monitor and manage this risk, which so far remains contained. Third, 2022 was characterised by an intensive wave of cyber-attacks against the most critical sectors in Albania, including the banking sector. The focus of our analyses and examination was cyber risk. We increased the requirements for banks to invest in optimum management of this risk. The banking sector has intensified its diligence towards protective systems and preventive measures and has strengthened its capacities for monitoring and neutralisation of cybernetic attacks. In spite of these challenges, developments in 2022 were positive for the banking system. Financial intermediation has continued to expand, financial results have been positive and at comparable values with the previous year, the capital adequacy ratio stood at 18% showing a considerable ability of the banking sector to withstand risks; while the non-performing loans ratio dropped close to 5.0%. Our regular analyses on systemic risks to the banking system, show these risks remain contained. Further consolidation of banking activity was also an important development in 2022. OTP bank purchased the shares of Alpha Bank in Albania, bringing the number of banks in the Albanian banking system to 11. Beyond monitoring the soundness of the banking system, we have oriented our work towards the further strengthening of banking supervision and consolidating resolution plans.	Monetary conditions are almost identical: three and six months Libor and Euribor rates do not differ by more than 50 basis points. I strongly believe that those three features – speed, innovation and cooperation – allowed central banks to play a decisive part in containing the crisis and limiting its impact. Has the crisis changed our vision of central banking? The credit bubble has already extracted heavy costs on our economies and the welfare of our citizens. All must be done to avoid the repetition of such developments. Bubbles are however complex phenomena: hard to detect, hard to prevent, hard to fight. Can we do better in the future and what contribution can central banks bring ? The crisis has revived the old, but ongoing, debate on whether monetary policy should aim, or not, at ensuring financial stability in parallel to its main objective of price stability. The arguments are well known, on both sides. New ideas are being brought, regarding, in particular, the impact of monetary policy on overall maturity transformation and leverage inside the financial system. It is desirable and healthy that this discussion takes place. Let me give you my own reflexion, at this stage: • The primary and dominant objective of monetary policy should remain price stability. Any dilution of this fundamental mandate would be take us back three decades and be extremely detrimental to our welfare and prosperity in the long run. • Without prejudice to this primary objective, all mandates allow for consideration of other objectives.	0
24 In addition, there are other structural forces, such as population aging, that may impact bond markets and, hence, the transmission of monetary policy. See, for example, Praet, P. (2018), “Economic policymaking under uncertainty", speech at the “la Caixa” Chair for Economics and Society conference, Madrid, 17 October. 25 Our actions to protect the environment begin with reducing our own ecological footprint. In 2007 we adopted an environmental policy and registered with the European Eco-Management and Audit Scheme. For more, see ECB (2018), “2018 update of the ECB’s Enviornmental Statement”, October. 26 See, for example, Villeroy de Galhau, F. (2015), “Green Finance – A New Frontier for the 21st Century”, speech given at the international climate risk conference for supervisors, Amsterdam, 6 April; and Knot, K. (2017), “Sustainability: a role for central banks?”, speech at the CEP/DNB workshop ‘Central banking & Green Finance’, Amsterdam, 28 November. 27 For example, we are part of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. The ECB is also a member of a technical expert group that is assisting the European Commission in establishing an EU-wide classification system, or taxonomy, for green assets. This taxonomy has the potential to increase transparency, discourage “greenwashing” and improve market pricing of both climate and transition risks. See European Commission (2018), “Action plan: financing sustainable growth”, March. 28 For a more general overview, see ECB (2006), “Portfolio Management at the ECB”, Monthly Bulletin, April.	That is, once markets and credit risk agencies price climate risks properly, the amount of collateralised borrowing counterparties can obtain from the ECB will be adjusted accordingly. We have also joined the Central Banks and Supervisors Network for Greening the Financial System. ECB staff are contributing in all three work streams. My presence here today emphasises that we take our membership seriously. The Network will play an important role in coordinating work among central banks and in defining and promoting best practices. Finally, we are also supporting work on sustainable finance-related topics at the level of the G20. Central bank asset portfolios differ in their ability to support sustainable investment The second step relates to incorporating these best practices into our own activities. Most central banks typically own and manage three different types of asset portfolios: one dedicated to pension funds, a second related to the central bank’s own funds, and a third covering foreign exchange reserves. More recently, some central banks, including the ECB, have also built up separate monetary policy portfolios, resulting from the need to preserve price stability when the room for manoeuvre with conventional policy instruments had become constrained. Not all of these portfolios are, however, equally suited to promoting green finance. For our pension fund portfolio, we have already taken concrete steps. The broad investment universe and longer-term investment horizon allow us to pursue a sustainable investment policy based on selective exclusion and proxy voting guidelines.	1
Fernando Restoy: Presentation of the book “Financial regulation: the solution or the problem?” Closing address by Mr Fernando Restoy, Deputy Governor of the Bank of Spain, at the presentation of the book “Financial regulation: the solution or the problem?”, Fundación de Estudios Financieros, Madrid, 5 March 2015. * * * Good morning. Many thanks for your introduction and for the opportunity to participate in the presentation of this report on financial regulation by a group of veritable authorities on the matter. I have had professional dealings with all of them to some extent in recent years and, in particular, with the report’s coordinator, José Pérez, who contributed to my joining the Banco de España – when he was Director General of the Research Department – some years ago and who therefore bears some responsibility for me being here before you today. The book’s title is admittedly a provocative one: “Financial regulation: the solution or the problem?” It is comforting to see that the work’s conclusion is not that regulation is the problem and, therefore, that deregulation is the solution. On the contrary, I believe that the authors, on the whole, appreciate the effort made to strengthen prudential regulation and, in particular, to gear it to the aim of achieving more and better capital. At the same time, I understand and largely share the concern to avoid excesses. Regulation, like the vast majority of public policies, is no free lunch. It is there to redress market failings that harm the collective well-being.	In particular, the supervisor should have the real capacity to influence bank managers’ decisions through moral suasion and to formulate non-legally binding recommendations, in the sure knowledge that they will in practice be very widely followed. Supervisory actions would otherwise be excessively hampered by a regulatory framework which, despite having been honed in recent years, can hardly envisage all situations of supervisory significance or include the full range of instruments needed to tackle such situations with the speed required in each instance. Finally, it is difficult for supervision to be effective if it does not include a thoroughgoing review of banks’ financial statements. Allow me to elaborate on this point. Evidently, an essential aim of supervision is to oversee banks’ solvency through the monitoring of capital ratios. Insofar as these ratios are calculated on the basis of accounting information, it is essential to ensure that such information properly reflects the value of the bank’s assets and liabilities. It is true that auditors and securities supervisors also perform this task. However, the specific nature and complexity of bank business, the evident relationship between published financial information and financial stability, and the occasional lack of specificity of prevailing accounting principles all make it advisable that the prudential supervisor should contribute to encouraging supervised banks to follow the best practices, in full conformity with current regulations and the distribution of competencies among institutions thereunder.	1
• The central government budget – growth in public expenditure – influences the krone and the size of the internationally exposed business sector in the medium term. Government expenditure and revenues must be in balance in the long term. • Wage formation, the structure of the economy and incentives determine how well and how efficiently we utilise our labour resources and other economic resources. There is also an interaction: • In its budget resolutions, the government authorities will attach importance to the effects of the budget on the Norwegian economy and will therefore take account of interest rate effects. In this way, they avoid a situation where growth in public expenditure and the interest rate push the economy in different directions. • With a known monetary policy response pattern, the parties to the centralised income settlements can take interest rate effects into account when wage increases are negotiated. • Moreover, the parties to public sector negotiations can take into account that the higher pay increases are, the fewer people that can be paid over government budgets. The interaction here became clear when public sector employment fell after the expensive wage settlement in 2002. In the years following 1997, with strong growth in public expenditure, the fiscal rule pointed to a continued increase in the use of petroleum revenues.	Yet, not only has there been no depreciation pressure on the Hong Kong dollar: it has in fact strengthened following capital inflows into Hong Kong since the outbreak of the crisis in midSeptember last year. Consistent with the principles of the Currency Board, the Hong Kong Monetary Authority (HKMA) has bought a total of $ billion, injecting $ billion into the local money market. The inflow of funds to the Hong Kong dollar was a welcome development, paving the way for monetary easing, which was fortuitously the appropriate monetary policy stance to support the economy. The reasons put forward for the inflow have not been a cause for concern for they did not seem to relate to exchange-rate speculation. Market consensus about the BIS Review 19/2009 1 causes pointed to the unwinding of carry trades and the repatriation of funds by corporates to finance operations in Hong Kong. It is also likely that there have been some inflows to position for investment in Hong Kong, in light of the better economic prospects of the region, and in particular, China. The second factor in the resilience of Hong Kong’s financial markets is our robust banking system. One of the lessons from this experience is that the stability and effectiveness of the banking system becomes even more essential when financial crisis shuts down the two other financial intermediation channels: the bond market and the stock market.	0
In one of his books he wrote: “If prices rise, the rate of interest is to be raised; and if prices fall, the rate of interest is to be lowered; and the rate of interest is henceforth to be maintained at its new level until a further movement of prices calls for a further change in one direction or the other.” Just over three decades after his address in Stockholm, Sweden had to leave the gold standard in September 1931. The objective of monetary policy was declared to be to use “every available means to maintain the Swedish krona’s domestic purchasing power”. In this way BIS Review 58/1998 -2- the Riksbank was the first central bank to declare openly that its monetary policy norm was price stabilisation. Notwithstanding this long tradition, after inflation’s rising trend in the post-war era, Swedish economic policy’s reorientation toward price stability did not begin until the late 1980s and early 1990s. That was a decade or so after such realignment had been initiated in other countries. By then, Sweden had experienced twenty years of inflation that averaged 8 per cent a year. That was the longest inflationary period since the early nineteenth century. In contrast, in the one hundred and forty years from 1830 to 1970, inflation in Sweden had averaged an annual rate of 2 per cent. So one can say that in the present decade we have been re-establishing our roots. Sweden’s policy realignment in the early 1990s was, however, more painful than anyone could have foreseen.	The example of Japan in the 1980s suggests that consumer price stability may not be a sufficient condition for precluding bubbles in asset prices and financial instability. With trend inflation averaging two per cent a year, the situation in Japan in the 1980s was very close to what we now commonly mean by price stability. Yet the Japanese economy still moved towards a period of grave financial instability. Thus, the question practitioners have to consider is how to deal with a situation where asset price effects are taken into account with reference to consumer price inflation but where there may still be a risk of asset price bubbles that may lead to financial instability, a destabilisation of the real economy and a severe downward effect on consumer price inflation later on. One could argue that the effects of a large rise in asset prices on aggregate demand may be smaller than the effects of a large fall if such a fall increases general uncertainty and leads to more cautious spending behaviour. If the collapse of a bubble in asset prices has a much stronger effect than the preceding boom, it may be optimal to increase interest rates to raise the probability of bursting a bubble even though such a policy action may temporarily lead to lower consumer price inflation in the short term than otherwise would have been desired.	1
If contingent capital became more widespread, banks’ capital ratios would be automatically stabilised over the cycle, lowering the chances of future banking crises. As several academics have argued, the same basic principles could be applied to the debt contracts issued by households, companies and even sovereigns. Take a typical mortgage contract. A rise in the value of a property relative to the loan gives the borrower equity against which they can borrow. This provides an incentive to trade-up, raising house prices and generating further equity. This amplifier operates symmetrically, as falling collateral values reduce refinancing options and drive down prices. Economists call this effect the financial accelerator. 18 It adds to cyclicality in credit provision and asset prices. US economist Robert Shiller has suggested it might be possible to devise mortgage contracts that slow, or even reverse, this financial accelerator 19. Instead of being fixed in money terms, imagine a mortgage whose value rose with house prices. So the repayment burden would rise automatically with asset prices to slow a credit boom and fall in a recession to reduce the chances of mortgage default. Mortgages would operate like a contractually pre-committed debt-equity swap between households and banks. They would automatically stabilise household loan-to-value ratios. By reducing the amplitude of the credit cycle, they ought to benefit both borrower and lender. Governments cannot issue equity. But this does not prevent them issuing debt with equitylike characteristics.	It also accounts for a significant proportion of the rise in risky debt prices: a year ago, corporate debt prices were signalling larger losses on company securities than seen during the Great Depression (Chart 6).  Third, improved liquidity in financial markets has lowered decisively uncertainty about future market prices. This has lowered the compensation investors require for such risk – the liquidity premium – boosting asset prices. This accounts for around a half of the fall in spreads on sterling investment grade corporate bonds since March last year (Chart 7). Mirroring the recovery in asset prices, there is now convincing evidence of global output having turned in the second half of 2009. The IMF projects that the global economy will grow by 3.9% in 2010, having contracted by 0.8% in 2009. Surveys of manufacturing in the major economies are at levels last seen prior to the crisis. This combination of a stronger real economy and buoyant financial markets has generated a dramatic turnaround in fortunes of the banking system. Global banks’ net income in 2009 is expected to be around $ billion, compared to a loss of roughly that amount in 2008. Income from market-making in various financial products has been especially lucrative, given higher bid-ask spreads and client activity (Chart 8). This windfall gain has helped repair banks’ over-extended balance sheets. Global banks have boosted their Tier 1 capital ratios by almost 3 percentage points since the start of 2009. UK banks’ Tier 1 ratios have increased by around 3.4 percentage points.	1
BIS central bankers’ speeches The benefits of reform Having argued for the extension of the reform race, I am conscious of the risk of fatigue. But as Ravi Menon argued more than a year ago: “it is imperative that we press on with the reform agenda and do not succumb to reform fatigue.”27 Already we can hear some of the runners, particularly those at the back, making world-weary arguments that more reform will hurt jobs and growth, and even that financial crises are just something that happens every five to seven years. If that were true, we are due for another crisis about now. Does anyone find that acceptable? As the memory of the crisis fades, it will be ever more important to explain the benefits of reform to counter the fatalism. So let me take this opportunity to take stock of the benefits of reforms, both of those already agreed and of the next phase of reform I have outlined. While we all recognise that future crises can never be ruled out, the steps taken to make banks safer and simpler have certainly reduced the likely frequency and severity of future financial crises. In doing so, they have reduced the exorbitant costs of instability. The Basel Committee assessed in 2010 that the economic cost of the median financial crisis amounted, over time, to 60% of national income. With a 5% probability of a crisis each year, that is equivalent to annual costs of 3% of GDP.	And the Basel Committee is developing the capital framework to ensure implicit offers of contingent support by banks, for example to their SIVs, will be properly capitalised. Interconnections created by derivatives are being reduced and made transparent. Requirements are being imposed, and incentives created, for banks to centrally clear derivative trades, helping to replace the complex web of bilateral deals with a central model. Trade reporting and margining requirements are being strengthened. More broadly, overall disclosure has been enhanced on the key risks arising from business models, sources of funding, market risk measures and loan forbearance policies.5 Through such initiatives, complexity and obscurity are being replaced by simplicity and transparency. A fairer financial system That goes some way towards increasing the effectiveness of market discipline. But that discipline will never be felt fully if markets believe that creditors and shareholders will be bailed out in a crisis because banks are too big to fail. Expectation of bail out was validated comprehensively last time. The US authorities sought to make Lehman Brothers a test case of moral hazard. Instead, this exception proved the rule. AIG was rescued within twenty four hours. As Barney Frank observed, the free market lasted for a day. This “heads-I-win-tails-you-lose” environment for the world’s largest banks struck right at the heart of the sense of fairness in our societies. It simply had to be fixed. Tackling the rampant moral hazard at the core of the system has not been easy but, at the Brisbane Summit, G20 Leaders marked a watershed in our efforts.	1
An important element of this proposal is that any financial institution that obtains federally-insured deposits or has access to refinancing from the Federal Reserve would be prohibited from owning, investing in or sponsoring hedge funds or private equity firms. Essentially, it aims to separate traditional banking activities from higher-risk, proprietary trading operations. It also proposes imposing limits on large financial institutions regarding their market share of liabilities, as a supplement to the existing caps on the market share of deposits. These proposals have still not been detailed in depth. Nonetheless, on the basis of what has been made public, I am of the view that the initiative is heading in the right direction and represents the first step to ensuring the financial system can effectively support the real economy and is not weakened by the most volatile market fluctuations. It is, however, not the final step. Above all, it should not be a substitute for two other lines of action, which, in my opinion, are essential for a complete reform of the system. The first is that the whole financial system should be subject to regulation, even if the specific regulations may vary according to the activities or institutions to which they apply. However, I do not want the separation between traditional banking activities and high-risk proprietary trading operations to drive the latter to be undertaken by sectors or institutions that are less vigilant or are outside the sphere of regulation.	Lorenzo Bini Smaghi: From boom to bust – towards a new equilibrium in bank credit Speech by Mr Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, at the Ernst & Young Business School seminar, Milan, 29 January 2010. * * * I would like to thank, in particular, L. Cappiello, P. Aberg, G. Wolswijk and D. Marqués Ibañez for their contribution to the drafting of this speech. The opinions expressed are solely my own. 1. Introduction There is now a broad consensus that the period leading up to the crisis was characterised by excessive credit growth. When the bubble burst, it resulted in the most pernicious banking crisis since the Second World War, accompanied by a severe economic recession. In order to revert to a more balanced and sustainable management of credit, while safeguarding the role that credit plays in stimulating growth, new rules, regulations and incentives for financial market participants are needed. This is what the regulatory authorities and governments of all major industrial countries and developing countries are working towards. This is not the end of the issue, however. Once the objective of establishing a new “steady state” has been identified, the path towards achieving this objective must be carved out. This will not be easy. If the adjustment is too swift, it could result in an over-adjustment of credit flows, i.e. be too restrictive, giving rise to recessionary effects on the real economy.	1
One thing that I of course knew from the beginning is that forecasts – regardless of the uncertainty of their accuracy – must be made when one is making a decision and future developments affect which decision alternative appears most appropriate. This applies in particular to monetary policy decisions. As monetary policy affects inflation and resource utilisation with some time lag, we need to gain an idea of how inflation and resource utilisation will look in the future to be able to decide on what is the most appropriate repo rate now. But unlike when deciding on, for instance, investment in a particular share, it is not possible to disregard the fact that the interest rate decision itself affects future developments. We therefore also make a forecast of our own future decisions, which is affected by the current decision. This makes particular demands of our forecasting. One question that one can pose is to what extent the Executive Board is involved in the forecasts of future repo rate decisions. This is a forecast of what stance we, this group of six individuals, will take at future monetary policy meetings. Today I shall therefore describe the BIS Review 65/2010 1 process leading up to the repo rate path, that is, the Riksbank’s forecast of the future repo rate. Forecasts are of course always uncertain to a greater or lesser degree. The most recent financial crisis is a very good example of this.	10 Importantly, in addition to the ECB measures, others that have also been conducive to the flow of bank funding to the economy during this crisis are the public guarantee programmes implemented by national governments and the decisions of both macroprudential and microprudential authorities to allow financial institutions to make use of their capital buffers. In particular, the public guarantee programmes would help explain the disparate performance of credit between households and firms in Spain: while the rate of decline in credit to households has increased slightly, credit to productive activity has grown at rates over 7%. More than 40% of all new credit granted to firms comes under the guarantee programme, which reflects its importance in explaining these developments. The ECB also approved a second block of measures, relating to the asset purchase programmes, designed to stabilise financial markets in all euro area countries and neutralise the downward pressures on inflation stemming from the contractionary effects of the pandemic. Since end-February, financial conditions had tightened in the euro area, with both corporate and sovereign risk spreads widening considerably. This widening of spreads implied an increase in financing costs both for governments and firms, which acted as a channel for transmission of the pandemic crisis to the real economy. The spread widening in the euro area was uneven: countries that started from weaker fiscal positions, with higher debt levels, and those that were most affected by the first wave of the pandemic witnessed a much more pronounced increase in their financing costs.	0
Indeed, the author of the Life and Times of Marlborough would likely have approved of this choice of venue for today’s launch. After all, Blenheim Palace was built as a gift to the first Duke of Marlborough, John Churchill, in recognition for his leadership of the Allied forces to victory in the Battle of Blenheim in 1704 – a victory that would decisively turn the War of Spanish Succession. Winston Churchill was born here in 1874 and proposed to his wife, Clementine Hozier, on these grounds in 1908. Banknote character Winston Churchill will replace Elizabeth Fry, the prison reformer, on the Fiver from September of this year. The new £ note will in due course sit alongside the new £ which will feature Jane Austen, the new £ which celebrates JMW Turner, and the existing £ which profiles Boulton and Watt. Individuals who symbolise the breadth and depth of British achievement across statecraft, social reform, literature, visual arts, science and commerce. This demonstrates that our banknotes do not just have economic value – the classic roles of money to facilitate trade, store value, and provide a unit of account. Banknotes have cultural value as well. By depicting characters on our banknotes, we celebrate those who have advanced British thought, spurred innovation, shown exceptional leadership, shaped this diverse society and forged its common values. In these regards, money is memory for a country and its people. BIS central bankers’ speeches 1 I have already alluded to why Churchill is a worthy choice.	This added strength means we expect polymer notes to last at least two-and-a-half times longer than the current generation of £ banknotes, generating cost savings over time. Polymer notes are also better for the environment. Because they will last longer, we will have to print fewer. That means less energy in production and transportation. And when a polymer banknote has reached the end of its useful life, it will be recycled. Importantly, using polymer means we can incorporate better security features. It allows for see-through panels, coloured foils, detailed metallic images, and a new advance: tactile features. In fact, I can announce today that tactile features will be present on all the other denomination polymer notes, leaving The New Fiver identifiable by their absence. This all means safer banknotes, with the tactile feature helping the visually impaired to recognise our different notes, ensuring the nation’s money is as inclusive as possible. By adopting polymer, we’re aligning with international best practice, alongside Australia, New Zealand, and Canada. As Churchill did, we may have to wait a while for the Americans to join up. We have exploited polymer’s possibilities in The New Fiver’s design. It features Churchill’s portrait, captured in Ottawa by Yousuf Karsh. The famous glower of the war-time hero prompted, in this case, by the photographer’s decision to take Churchill’s cigar away from him. 1 Behind the portrait is an illustration of the Houses of Parliament by Abigail Daker, viewed from the South Bank, looking across Westminster Bridge.	1
2/4 BIS central bankers' speeches Any new form of digital money in order to succeed will need to be trusted as a store of value and as an accepted means of payment. Stablecoins must therefore promise, credibly and consistently, to be fully interchangeable with existing forms of money. In other words, they must be anchored in and thus maintain confidence in the monetary system. It is with this objective firmly in mind that the Bank of England’s Financial Policy Committee has set out its expectations to inform the design and regulation of stablecoins, and thus lay a clear foundation for sustainable innovation by setting out the public interest. The FPC’s first stablecoin expectation relates to the principles and expectations that payment regulation should aim to achieve. In this regard, UK authorities are already considering the regulatory approach for payments, including in response to both systemic and non-systemic stablecoins. The FPC’s second expectation relates to the use of stablecoins as money. This recognises that the Bank’s existing payments regulatory regime alone would not be sufficient to ensure the safety of a new form of digital money. Certain key features of the banking regime would also need to be reflected in any regulatory model meeting the FPC’s second stablecoin expectation. The Bank’s view is that these include: legal claim, capital requirements, liquidity requirements and eligibility for support from a central bank during a stress, and a separate backstop to compensate depositors in the event of failure.	Monetary policy was embarking on a path which targeted inflation and which, unlike monetarism before it, downplayed money and credit. And the regulation of banks, long the preserve of central banks, was in many countries being hived off to separate regulatory agencies. What happened next was truly extra-ordinary. Whether by coincidence or causality, the world experienced the largest banking bubble in history. Between 1990 and 2007, global bank balance sheets rose by a factor four. On the eve of the crisis they had reached around $ trillion, or almost 1.5 times the annual output of the entire planet. At the Bank for International Settlements, Andrew Crockett saw trouble brewing. In 2000, he gave a speech calling for a “macro-prudential” approach to regulation.12 Crockett argued that central banks needed to look at, and act on, developments across the whole financial system if systemic risk was to be headed-off. Credit booms, the like of which was occurring for real at the time, sowed the seeds of that systemic risk. The rest is of course history, as pre-crisis credit boom turned to shuddering bust. Or rather it would be history were it not for the fact that this crisis, whose seeds were sown in the credit boom, is still with us. Output in the UK is still well below its 2007 level. The so-called Great Recession in the UK is already as severe as the Great Depression of the 1930s. In response, the policy framework has, once more, been radically augmented. Macroprudential policy is the next big thing.	0
BIS Review 100/2010 7 1. the possibility that if a bank has more equity capital the return on equity is less variable lowering the required rate of return. (This is a partial allowance for the mechanism underlying the Modigliani-Miller result.) 2. the likelihood that the extra tax revenue that accrues to the government as banks are forced to switch to equity that is less favourably treated is used to offset any resultant rise in the cost of finance for companies using bank debt. (For example the government could use the extra revenue to increase capital allowances so that the negative impact on investment from a higher cost of bank debt is neutralised.) 3. the likelihood that the relative importance of bank funding for investment is lower than the baseline conservative estimate that banks account for 1/3 of private, nonfinancial companies (PNFCs) external finance. 4. the likelihood that the sensitivity of investment and the capital stock to a rise in the cost of funds to non-financial firms is lower than the value assumed in the baseline (where an assumption of a unit elasticity of substitution between capital and labour is used). Suppose we first allow the cost of equity to fall as more capital reduces its volatility.	The broader economy should see a recovery in the second half of this year alongside strengthening global demand and further progress in our vaccination programme. Trade-related activities such as manufacturing and wholesale trade will be supported by resilient global trade flows and robust upswing in the global tech cycle. Modern services, particularly the financial and ICT sectors, are set to expand at a firm pace this year, amid a pickup in credit intermediation activities and the ongoing digitalisation of business processes which has been accelerated by the pandemic. Moreover, compared to a year ago, Singapore is much better equipped to handle the pandemic, with more effective testing and tracing, swift isolation of infected cases, and vaccination. Singapore’s GDP growth could exceed the upper end of the 4 to 6% forecast range, barring a setback to the global economy. Last month, the official forecast range was maintained at 4 to 6% in light of the deterioration of the domestic COVID-19 situation and consequent Phase Two (Heightened Alert). MTI, together with MAS, will review the forecast range in August when preliminary estimates for Q2 GDP are available. The resident unemployment rate should continue to gradually decline. Total employment expanded by 14,000 in Q1 this year, the first expansion after four consecutive quarters of contraction. The Phase Two (Heightened Alert) measures and continued restrictions under Phase Three (Heightened Alert) however will have a transitory impact on employment in the domesticoriented services sector.	0
And we are discussing incremental enhancements to Wealth Management Connect with Mainland authorities, such as improving sales arrangements, expanding product scope, and allowing more financial institutions to participate. We will also focus on developing the offshore RMB derivatives market by introducing risk-management products to meet global investors’ hedging needs and develop Hong Kong as a risk-management centre. Swap Connect and the introduction of Mainland government bond futures in Hong Kong are important steps to allow global investors to conduct hedging for their bond investments in the Mainland. We will continue to explore the provision of more diversified riskmanagement tools to drive further allocation into Mainland bonds and openingup of the Mainland bond market. ETF Connect will give global investors direct access to the rapidly developing ETF markets on both sides, and enrich the product range under Stock Connect. The inclusion of foreign companies in Southbound Trading will make our stock exchange even more attractive as a leading fund-raising destination for international companies. Another vital step is to expand the use of RMB in equity market trading in Hong Kong. The Working Group formed by the SFC, the HKEx and the HKMA have studied the feasibility of allowing stocks eligible for Southbound Trading of Stock Connect to be denominated in RMB, and are moving ahead with the necessary preparations and discussions with Mainland authorities and agencies. We also need to promote our markets to attract more Mainland and international institutions to issue RMB bonds in Hong Kong.	At the end of last year, foreign holdings of onshore equities had more than tripled and foreign holdings of onshore bonds had more than doubled in just three years. Following a strong 2021, foreign equity and bond inflows into onshore markets have softened a bit this year on the back of COVID lockdowns in the Mainland and the divergence in monetary policy between China and the US that led to a reversal of the onshore bond yield premium. But these short-term fluctuations will not reverse the long-term trend of foreign investment in Mainland capital markets. 10. In fact, several key drivers continue to strengthen global investors’ interest in diversifying into RMB assets over the medium to long term. These include continued inclusion of onshore equities and bonds into major global indices; China’s long-term economic growth prospects; increasing recognition of the RMB as a stable reserve currency; and a lower correlation between RMB assets and other global financial market assets. 11. These factors will pave the way for a structural and long-term shift, which will motivate global investors to think more strategically about their exposure to China. This, in turn, will spur demand for RMB assets and facilitate the further opening up of the Mainland capital markets in a self-reinforcing cycle. 12. Against this background, Hong Kong must seize the opportunity to contribute to the two-way liberalisation of the financial markets by developing a deep and liquid offshore RMB market in the city.	1
The Paris Club primarily negotiates debt relief with countries – often poor countries – that do not have access to traditional international funding markets. There is no supranational body for debt negotiations for countries that have borrowed in international capital markets. Some years ago, the IMF attempted to draw up a regulatory framework for governments and creditors, but did not receive the necessary support from member countries. The IMF’s work has, however, led to more frequent inclusion of clauses in international loan agreements that facilitate constructive debt negotiations. 8 In our economic system, the bankruptcy system is a useful instrument. It enables businesses to put earlier mistakes behind them and reemploy real capital and labour. Debt arrangements for governments can play a similar role and counteract downward spirals. (See Chart: Inflation.) There are two forms of debt default. Breach of contract is one form where the borrower fails to honour the contractual obligations, as illustrated in the example here. For debt denominated in domestic currency, the state can also default by pursuing an inflationary economic policy, reducing the real value of the loan. Over the past 100 years inflation in Norway surged during the two world wars and during the Korean War. The last period of soaring inflation was in the 1970s and 1980s, which resulted in a sharp fall in the real value of the bonds issued in the 1950s and 1960s.	Public occupational pension schemes seem to enjoy slightly stronger constitutional protection than national insurance pensions, but the Supreme Court has 14 ROBEK – register of all municipal and county authorities subject to approval pursuant to Section 60 of the Local Government Act. 15 See discussion in Appendix 5 to the Report of the Pension Commission (NOU 2004:1). 8 BIS Review 123/2010 repeatedly stressed the authorities’ need for freedom of action when it comes to making changes to pension schemes. The Norwegian national insurance scheme is a pay-as-you-go system. This means that a given year’s pension payments from the scheme are covered by government budget revenues that year. When the national insurance scheme was introduced in 1967, a fund was established to provide for an expected reduction in private saving. However, pensions were still included in the central government budget at an early stage and financed by current tax revenues. Transfers to the National Insurance Fund were soon discontinued. Nevertheless, confidence in the pension system has actually remained intact, reflected in a low level of household saving, primarily through home investment. Perhaps there is some element of miscalculation here. A fall in value may occur if many homeowners free up housing capital to cushion old age. (See Chart: Government Pension Fund Global.) It was only when transfers to the Petroleum Fund were introduced in 1996 that funds were accumulated that could also be used to cover future pension payments.	1
Among the emerging market countries, those in Asia in particular have long been considered engines of vitality and technological adaptation in the world economy, and this recognition had been reflected in very high rates of GDP growth until the financial crises of 1997 and 1998. One problem those crises revealed is that in many countries, economic resources, notably capital inflows, had been misallocated. In the Asian countries, financial market and corporate sector reforms are widely viewed as necessary. It is encouraging to see that some progress has been made on financial restructuring, although the extent to which markets - as opposed to governments - have been the main shaper of change differs across countries. Other reforms appear to be less far along, and the greatest risk is that the sharp recovery so many of these countries have enjoyed will reduce the impetus to undertake and follow through on needed reforms. When we turn to Latin America, we observe an example of how important internal labor market and corporate sector reforms are. In the 1980s and early 1990s, many countries in this region made enormous strides in achieving sounder fiscal and monetary policies, especially in bringing down inflation and strengthening reliance on market mechanisms. However, in several countries, internal reforms were incomplete, with banking systems left in need of further strengthening, labor markets still remaining too rigid, and fiscal policies requiring more attention, starting with the need to ensure that all public sector spending be brought under control.	Although unemployment has been stubborn, the key challenge expressed by many Europeans is to make labor markets more flexible, and indeed, some change is evident. This past year, unemployment in the euro area finally seems to have started to trend down, falling to 9.6% in January, a seven-year low and almost 1 percentage point below its level a year earlier. Further, output growth has begun to revive from the falloff in 1998, and the outlook is for solid growth in the 11 euro countries to continue into 2000. Core inflation throughout the euro area has also been subdued, although with rising energy prices, it may edge up a bit. Producer prices for finished goods show no signs of inflation pressure. Growth elsewhere in the industrial world - the United Kingdom and Canada - also appears to be strong, with no signs of accelerating inflation. In both countries, strong private consumption - and in Canada an unemployment rate that is the lowest since 1981 - continues to keep GDP growth on a reasonably steady path. More broadly, there is active debate within Europe today about what kinds of labor and financial market changes will accelerate technological change. Countries have taken different approaches in addressing these issues. The diversity of experiences among the European countries allows each to assess the impact of the various approaches others have taken and to draw lessons from which it may benefit.	1
Profits rose sharply and bad debts were lower. This means that the clouds that have hung over the banking system for the last two years have now lifted. But it would be wrong to conclude that life for the banks will go on much the same way as it did before in the golden years before the crisis. The competitive environment for the banks is becoming increasingly intense. Of course, you can argue that there is nothing new in this. The banking system in Hong Kong has always been competitive, which is one of the reasons it was able to cope with the Asian crisis. But competition in past years was taking place in highly buoyant conditions and within defined limits, reflecting in part the influence of the interest rate rules of the Hong Kong Association of Banks. 1 BIS Review 69/2000 The competitive environment Now things are somewhat different. A number of major players in the market, including some foreign banks, are competing even more intensely than they did before. Some of them have recently increased their presence in Hong Kong or are planning to do so. In some cases, this presence may be in virtual form as banks increasingly offer their services in whole or in part over the internet. This is part of a worldwide trend towards greater competition. But it is happening in Hong Kong at a time when lending growth has still not recovered along with the economy.	Going forward, these phenomena are expected to be reversed by a further adjustment of consumption and investment, under the assumption that the policies that spurred the sharp fall in national savings will not be repeated. As I will show you shortly, over the next two years today's current-account deficit will be substantially reduced. On the external front, global inflation continues to be high, although with some moderation in some countries. Inflationary pressures are mainly concentrated in the core part of inflation, which in several economies has been driven by the strength of the services sector (figure 9). As described in one of the boxes in the Report, the U.S. labor market remains tight and under high wage pressures. To varying degrees, this situation is also present in other developed economies and poses a risk to the decline in inflation in these countries. In fact, it is one of the factors behind the tighter global monetary policy outlook considered in the central scenario of this Report. Thus, the monetary policy implemented by central banks in the rest of the world has reinforced their contractionary stance. This has been particularly visible in developed economies, where monetary tightening processes began later. Both the U.S. Federal Reserve and the European Central Bank, along with significant hikes in their benchmark rates, have signaled a more protracted tightening than was expected some time ago. In Latin America, most central banks have continued to raise their interest rates, with the exceptions of Chile and Brazil.	0
These BIS central bankers’ speeches 1 estimations conditioned the retaining of the stimulating nature of monetary policy during the second quarter of 2012. The key rate stood at the lowest historical level, providing eased monetary conditions in order to meet our inflation target and support the Albania’s economic activity. Also, the Bank of Albania has continued to inject sufficient liquidity demanded by the banking system, against an expanded collateral base and at adequate maturity terms. According to recent data from INSTAT, the Albanian economy recorded an annual fall of 0.2% in the first quarter of 2012. Industry contracted 19.3% y-o-y, mainly due to the significant decrease in electrical energy output. Also, Construction decreased its activity in real terms, by 17.6%, thus providing a negative contribution to the performance of the gross domestic product. By contrast, Services contributed positively to the economic activity, pointing to an annual growth of 6.0%. Agricultural sector grew 4.5%, y-o-y during this period, providing a positive contribution to the growth of the gross domestic product. Estimations on the aggregate demand in the first quarter of 2012 suggest a continuing weak domestic demand. The consolidated fiscal policy determined the lack of fiscal stimulus in this period and a downturn in public sector’s demand for goods and services. Private consumption remains slow, thus reflecting the prudent consumer’s behaviour and the increasing tendency for saving. Private investments also remained low.	It is now my pleasure to introduce Nancy Lee of Interise, Marlene Orozco from SLEI, and Claire Kramer from the New York Fed. 2/2 BIS central bankers' speeches	0
They should gradually acquire the necessary knowledge, abilities, position and behaviour to take sound financial decisions and be able to deal with emergency situations, like the current one we are experiencing. Concluding, I would like to thank all participants and collaborators of the Bank of Albania in all its educational initiatives and programmes, and particularly for the Global Money Week. Absolutely, such themes as planning personal finance may not be quite attractive to new age groups, nevertheless being aware of their importance and impact on the life of everyone, it is crucial that our institutions never stop their efforts to bring them to the attention of the young people. This is what we have tried to achieve through the activities and competitions that will take place during GMW 2021, and which I kindly invite you to attend. I sincerely thank you for your contribution and I wish a successful performance to all participants! 2/2 BIS central bankers' speeches	Likewise, many married couples want to have children – not for GDP but because children are a source of joy and fulfilment of love. Government policies on marriage and parenthood are guided by this higher purpose. And of course, a growing labour force is a happy, economic by-product. We must make balanced choices in addressing the trilemma. We must accept a slower rate of labour force growth. The underlying demographic slowdown is so severe that it is neither feasible nor desirable to try to completely offset it through immigration or foreign workers. But we must also allow a certain rate of net immigration to augment our resident population. This is not just about numbers but about rejuvenation and expanding our talent base. 8 / 17 BIS central bankers' speeches And while we cannot keep increasing our share of foreign workforce indefinitely, we must be flexible in allowing fluctuations in the ratio according to economic cycles, changing circumstances, and opportunities. Finally, we must reframe our question on foreign workers. It is not about how many foreign workers industry wants or society can afford to have, but what number and kind of foreign workers we need to maximise the job and wage opportunities for Singaporeans. Foreign workers must be a complement to the local workforce. Let me move on to the second broad theme: that demographics is not destiny. We can sustain our economic dynamism in the face of demographic change.	0
Of course, since new forms of shadow banking activities are certain to develop in the future, FSB members will continue to monitor for emerging risks, and share data and analysis in order to support any future regulatory response. 9 The data refer to the UK, the US and the Euro Area, as of June 2009 (see Bank of England Financial Stability Report, June 2009). 5 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx 5 These include reforms to secure the tools and powers authorities need to deal decisively with failing banks. At the same time, major banks are required to make themselves easier to resolve, including by writing ‘living wills’. Most importantly, global standards now require that banks hold sufficient debt in life such that, in the event one fails, its successor can be recapitalised to support the continued operation of its most important activities. The combination of these initiatives and the determination of authorities to complete the job explains why the too-big-to-fail public subsidy for private systemic banks has fallen by 90% in the UK. Put simply, a decade on, market discipline is coming back. The system is also fairer because we are addressing the root causes of misconduct. In the wake of the crisis, a series of scandals ranging from mis-selling to manipulation undermined trust in banking, the financial system and to a degree markets themselves. The economic consequences have been enormous.	What a Difference a Decade Makes Mark Carney Governor of the Bank of England Chair of the Financial Stability Board Remarks at the Institute of International Finance’s Washington Policy Summit, the Reagan Centre, Washington DC 20 April 2017 I am grateful to Alice Carr, Wayne Chapman, Carsten Jung and Iain de Weymarn for their assistance in preparing these remarks. 1 All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx Introduction It’s a pleasure to be back at the IIF’s Washington Policy Summit. 1 Last time I spoke here (in 2011) it was still early in the international financial reform process. From the IIF’s perspective at the time, there were three major concerns: - The consistency of implementation across the G20; - The possibility of significant regulatory arbitrage in shadow banking; and - Whether the FSB/G20’s ambitious agenda would impair the recovery. Today, those debates have largely been settled. First, the new international minimum standards are being, by and large, consistently and promptly implemented in G20 jurisdictions. This progress is regularly assessed and transparently reported by the FSB 2 and the IMF. And in general, when countries have deviated from international standards, it’s because they have chosen to go further. Second, activities which give rise to similar risks are being treated consistently regardless of where they originate. A series of measures have addressed the major regulatory arbitrage opportunities that encouraged shadow banking. Contingent exposures of banks have been brought on balance sheet and appropriately capitalised.	1
BIS central bankers’ speeches Table 1 Historic equity home bias for G20 countries (a) (1995–2007)(b)(c) Advanced G20 1995 2000 2005 2007 USA 0.72 0.76 0.61 0.56 UK 0.66 0.68 0.58 0.56 Germany 0.65 0.58 0.45 0.48 France 0.80 0.78 0.59 0.62 Italy 0.71 0.65 0.54 0.54 Japan 0.93 0.92 0.84 0.84 Canada 0.67 0.69 0.67 0.68 Australia 0.81 0.83 0.79 0.74 Weighted average 0.79 0.76 0.64 0.61 Un-weighted average 0.75 0.74 0.63 0.63 Argentina 0.79 0.70 0.58 0.59 China 0.96 0.94 0.98 0.99 South Africa 0.94 0.70 0.72 0.79 Mexico 0.94 0.98 0.86 0.91 South Korea 0.98 0.97 0.90 0.82 Brazil 0.97 0.96 0.96 0.97 Turkey 0.95 0.98 0.97 0.98 Russia n/a 0.97 0.98 0.99 India 0.99 0.99 1.00 1.00 Indonesia 0.99 0.98 0.99 0.98 Weighted average 0.96 0.93 0.92 0.94 Un-weighted average 0.85 0.92 0.89 0.90 Weighted average 0.80 0.77 0.66 0.66 Un-weighted average 0.80 0.84 0.78 0.78 Emerging G20 Total G20 Source: IMF International Financial Statistics, IMF WEO database October 2010, S&P Global Stock Markets Factbook (2010), updated and extended version of dataset constructed by Lane and Milesi-Ferretti (2007), Thompson DataStream, UN Census Bureau, Penn World Tables and Bank calculations.	Andrew G Haldane: The big fish small pond problem Speech by Mr Andrew G Haldane, Executive Director, Financial Stability, of the Bank of England, at the Institute for New Economic Thinking Annual Conference, Bretton Woods, New Hampshire, 9 April 2011. * * * The views are not necessarily those of the Bank of England or the interim Financial Policy Committee. I am grateful to Shekhar Aiyar, Shaheen Bhikhu, Martin Brooke, Damien Charles, Spencer Dale, Andrew Hauser, Robert Hills, Glenn Hoggarth, John Hooley, Marius Jurgilas, Priya Kothari, Salina Ladha, Lara Lambert, Chris Peacock, Jonathan Rand, Maureen Snow, William Speller, Jo Spencer, Iain de Weymarn and Peter Zimmerman for comments and contributions. 1. Introduction Global capital markets are engaged in a footrace. On the one foot, capital markets in emerging market countries are widening and deepening in order to improve domestic capital intermediation. On the other, international investors in developed countries are diversifying their portfolios in order to boost returns and spread risk. Both are typically seen as essential ingredients of global financial liberalisation and integration. Yet their implications for global financial stability are potentially quite different. The first determines the absorptive capacity of high-return, capital-recipient countries. The second defines the distributive capacity of lowreturn, capital-providing countries. Any imbalance between the rate at which international capital is distributed and absorbed may spillover to global capital markets. Reducing these spillovers may require a rethink of the rules of the international financial system. Experience during 2010 provides a good illustration.	1
For example, the foreign investor’s total holding of Government securities reduced from K1,054.7 billion in the third quarter of 2008 to K446.2 billion by the second quarter of 2009. Similarly, the flow of foreign investments at the Lusaka Stock Exchange switched from a net inflow of $ million during the period January to May 2008 to a net outflow of $ million in the similar period this year. Exchange rate volatility and domestic inflation The global financial meltdown caused a contagion effect to our foreign exchange market and led to volatility in the exchange rate of the Kwacha against major currencies. This unfavourable development was partly a consequence of reduced earnings from copper exports arising from the fall in copper prices as reflected in the lower supply of foreign exchange on the market by mining companies. For instance, the supply of foreign exchange to the market by mining companies declined by 35.7% to a monthly average of US $ million in the first half of this year from an average of US $ million in the last half of 2008. In addition, the weakness of the local currency was a consequence of increased risk aversion to emerging and developing economy financial assets, as stated earlier, attributed to the deepening global financial crisis. In this regard, the supply of foreign exchange by foreign portfolio investors for the purchases of Kwacha financial assets, such as Government securities and domestic company equities, declined significantly, with most non-residents preferring to liquidate their investments and externalising the foreign exchange.	For instance, during the fourth quarter of 2008, the overall balance of payments deficit widened to US $ million from US $ million recorded the previous quarter. Merchandise export earnings declined to US $ million from US $ million realised in the third quarter of 2008 following a sharp reduction in metal export earnings. Metal export earnings declined by 23.1% to US $ million in the fourth quarter of 2008 from US $ million the previous quarter. Metal export earnings at US $ million in the first quarter of 2009 were 52.6% lower than the US $ million recorded in the similar period last year. A slide in both copper and cobalt export earnings owing to lower prices accounted for this outturn. Nonetheless, it should be noted that commodity prices on the international markets have since recovered considerably and have thus started to bring improvement in Zambia’s external position. Foreign capital inflow reduced Ladies and Gentlemen, the global financial crisis led to a decline in the foreign portfolio investment inflows as investors generally reduced their exposure to financial instruments from emerging markets. The risk aversion towards emerging markets thus led to a reduction in foreign portfolio inflows and holdings in Zambia’s Government securities. This resulted in a 2 BIS Review 161/2009 net outflow of foreign portfolio investment since funds that matured were not rolled over and new funds coming in were being scaled down.	1
If the marginal social benefits foregone of the wrong choice are large, relative to the private costs incurred, then quantitative restrictions are optimal. Why? Because fixing quantities to achieve pollution control, while letting prices vary, does not have large private costs. When the marginal social benefit curve is steeper than the marginal private cost curve, restrictions dominate. The results flip when the marginal cost/benefit trade-offs are reversed. If the private costs of the wrong choice are high, relative to the social benefits foregone, fixing these costs through taxation is likely to deliver the better welfare outcome. When the marginal social benefit curve is flatter than the marginal private cost curve, taxation dominates. So the choice of taxation versus prohibition in controlling pollution is ultimately an empirical issue. To illustrate the framework, consider the path of financial regulation in the US over the past century. The US announcements in January are in many respects redolent of US financial reforms enacted during the late 1920s and early 1930s. Then, restrictions were imposed on both bank size and scope, in the form of the McFadden (1927) and Glass-Steagall (1933) Acts. The history of both, viewed through Weitzman’s lens, is illuminating for today’s debate. 9 Basel Committee on Banking Supervision (2009). 10 For example, Brunnermeier et al (2009), NYU Stern School of Business (2009). 11 For example, Kay (2009), Kotlikoff (2010). 12 Stern (2006). 13 Weitzman (1974).	And add-ons to these capital and liquidity buffers for institutions posing the greatest systemic risk are being discussed to address the second. 9 In essence, this is a taxation solution to the systemic risk pollution problem. 10 There is a second approach. On 21 January 2010, US President Barack Obama proposed placing formal restrictions on the business activities and scale of US banks. Others have made complementary proposals for structural reform of banking. 11 Typically, these involve separation of bank activities, either across business lines or geographies. In essence, this is the prohibition solution to the systemic pollution problem. This sets the scene for a great debate. It is not a new one. The taxation versus prohibition question crops up repeatedly in public choice economics. For centuries it has been central to the international trade debate on the use of quotas versus subsidies. During this century, it has become central to the debate on appropriate policies to curtail carbon emissions. 12 In making these choices, economists have often drawn on Martin Weitzman’s classic public goods framework from the early 1970s. 13 Under this framework, the optimal amount of pollution control is found by equating the marginal social benefits of pollution-control and the marginal private costs of this control. With no uncertainty about either costs or benefits, a policymaker would be indifferent between taxation and restrictions when striking this cost/benefit balance. In the real world, there is considerable uncertainty about both costs and benefits. Weitzman’s framework tells us how to choose between pollution-control instruments in this setting.	1
We are continuously estimating this lag, which is quite small and adheres to the standard accepted in other countries. Therefore, even the reduction of 0.25 pp may drag down rates for the ultimate borrower. Having said that, risk assessment factors for specific borrowers are essential for banks, and we can see that this factor prevails. Question from Bloomberg: Before asking my question, let me congratulate you on behalf of all my colleagues on the Russian President’s decision to launch the procedure for expanding your mandate. It proves that your policy is correct and, as far as I can see, everybody is satisfied with it. My question is as follows. When you participated in the online reading of ‘The Master and Margarita’, you read a passage from Chapter 29 of the novel, in which Matthew asks Woland to let the Master have some peace. Have you asked for some peace from the President? And anticipating your answer, what will be your objectives for the new term? Thank you very much. ELVIRA NABIULLINA: Thank you for your question. Peace is something we can only dream of, I would say. Though I would prefer external factors to display more certainty and structural reforms to progress faster. This would make it easier for us to pursue our monetary policy. As for objectives, our monetary policy goal is, as a I have told you today, to ensure low and stable inflation everybody could rely on and feel the benefits of.	And as far as I am aware, neither France nor Italy has become a champion of growth in Europe. France and Italy are lagging behind today because of a lack of national reforms. The euro cannot and will never be able to replace them. And this is good news since it means that there remains much room for our domestic policies, our collective debates, and our creative efforts. c) European monetary policy fosters inequality For some, the ECB’s current low rates are generating social inequalities: savers who have put their money in fixed-rate products are being penalised by lower returns, while those who own shares or property are benefiting from the rise in asset prices. The reality is very different. First, because savers and asset holders are generally one and the same. Second, and most importantly, because this very piecemeal analysis ignores the macroeconomic impact of monetary policy, which benefits us all. Our measures create very favourable financing conditions, which are stimulating demand via consumption and investment, and speeding up the decline in unemployment. All this helps to reduce inequality, as unemployment tends to hit the poor and less-qualified the hardest. According to estimates, as a result of our actions, euro area economic growth was boosted by 1.5 percentage points between 2015 and 2018. With regard to inequality, now is precisely the time for us Europeans to talk about our experiences.	0
They have other issues that frustrate them, such as why average wages are still two to three times lower than those in Germany and many other countries after 25 years of transition, when at the same time many products carrying the “Made in Germany” label are assembled on our territory. Or why so many companies pay such large dividends to owners abroad and we are unable to be attractive enough for foreign capital to be reinvested on our soil. And this is us – we have a tendency not to accept that there are always trade-offs, there are no free lunches, that for every plus there is a minus. We want everything at the same time, sometimes even mutually inconsistent things. But that is another matter. There is one area, however, where the Czech population has been very conservative over a very long period of time, and that is the area of euro adoption. In the Eurobarometer – a poll you all know – the Czech Republic remains the country where by far the largest share of the population has a negative view towards adopting the euro out of all the non-Eurozone countries. Roughly two thirds of Czechs are against the euro. This is a higher figure than in Sweden, which rejected the euro in a referendum in 2003. Well, public opinion is not as anti-euro as in the UK, where at some point the euro was only “slightly more popular than ebola”, as I read in one British newspaper.	But still, being for the euro is simply a total political non seller. If I were to summarise the arguments against joining, be it on the side of the general public or professionals, they would be roughly threefold: A. The first one is sentimental rather than economic. We have been living with our Czech koruna, or crown, for quite some time and our country has a long history of monetary stability and stabilisation. By the way, we have had the same name for our currency ever since 1892, from the times of the Austro-Hungarian monarchy (the crown is a monarchist name – what a paradox in our republic) and there has never been any reason to rename it. The old adage says: If it ain’t broke, why fix it? If you have low and stable inflation on your own, you don’t need any credibility for your currency from abroad. B. The second argument is more economic. Money matters. And monetary stabilisation matters. If you have shocks in the economy, something has to move to offset the shock. Something has to be flexible. It is easier to accommodate shocks through flexible interest rates or a flexible exchange rate than through wages, unemployment or budget expenditure. We discussed yesterday how hard it can be if you don’t have monetary policy to adjust to shocks. This is a classical argument of monetary economics for the active role of elastic money when you don’t have flexible prices or wages. Simple as that.	1
In terms of foreign exchange market efficiency, Hong Kong is the fifth FX activity centre supported by a unique network of real time gross settlement systems in USD, Euro, RMB and the HKD. Hong Kong has a high standard of market transparency, disclosure, prudent supervision and without exchange controls which is crucial for centralized treasury functions. 18. A unique advantage of Hong Kong, which is difficult for other centres to match, is its proximity to Mainland China and status as the premier offshore RMB centre. For managing treasury activities denominated in the RMB, we have the largest offshore RMB liquidity pool exceeding RMB 1.1 trillion, a vibrant CNH market with daily settlement exceeding RMB 800 billion, the deepest offshore RMB (or Dim Sum) bond market, the unique access to the A share market through the Shanghai Hong Kong Stock Connect (which will soon be extended to include the Shenzhen Stock Exchange), and critical market infrastructure such as the CNH HIBOR fixing benchmark for pricing RMB financial products and the development of related risk hedging instruments. 19. We, of course, cannot afford to be complacent. Our study has also identified room for improvement in particular in the tax regime for corporate treasury activities. Hong Kong’s tax system has many strengths: tax rates are low and the tax regime is simple with no tax imposed on dividends and capital gain. Hong Kong is also probably the only major jurisdiction in Asia without an interest withholding tax.	To stay ahead of the game, corporate treasurers need to ensure that the treasury function can be transformed to better support international growth in order to capture the immense opportunities in Asia, and at the same time sharpen the management of capital, liquidity, funding and treasury related risks in order to navigate safely in the post crisis intricate market environment. 11. So, as the agenda of this Summit suggests, corporate treasury management can no longer afford to remain in a passive maintenance mode, but need to adopt a proactive and strategic mode. To use a soccer analogy, an effective corporate treasurer needs to be like a good mid-fielder who is able to make lethal passes to the strikers to score goals, and at the same time organise and support the defence to consolidate the victory for the team. 12. Like the mid-fielder in the soccer team, the corporate treasury function needs to be strategically located to support the front line business team in spots where they can strike business deals and where defence can be efficiently organise to handle the risks that may be encountered by the team. In the context of Asia, there is a compelling case for MNCs to set up corporate treasury centres in a financial centre where they can easily capture the China opportunities and where the key treasury functions can be organised efficiently. 13.	1
Some stylised experiments affecting the natural interest rate So if it’s not monetary policy, what might have caused the long decline in the real risk-free rate of interest in the past twenty years or so, both before and since the financial crisis? Chart 3 provides a basic visual framework for thinking about these things. What follows, based on a simple asset-pricing model, gives a slightly more quantitative flavour. Any such model will generally allow for three sorts of influences on asset prices: the underlying discount rate (the extent to which people care less about the future than the present), expected economic growth and the degree of uncertainty about that growth. The particular model I’m using here allows for two sorts of uncertainty – a generalised, two-sided risk and, on top of that, the possibility of a large downside hit to growth.6 The first of these terms is connected with saving. All else equal, a lower discount rate means people want to save more – at the margin, they’re prepared to tolerate a lower rate of return on any asset. In terms of Chart 3 you can think of this as a rightwards shift in the saving schedule. In the simple model, the effect of a 1%-point drop in the discount rate on the risk-free interest rate and the value of equities is shown in Chart 6(a). Interest rates fall and, at least on impact, equity prices jump. This is because the present value of future profits increases, not because the profits themselves do so.	Bandid Nijathaworn: Regional financial integration and development of local markets Speech by Mr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at the JP Morgan Investor Seminar during the IMF/WB Annual Meetings, Singapore, 17 September 2006. * * * First, let me start by thanking JP Morgan for inviting me to speak this morning. The topic today is “Regional Financial Integration and Development of Local Markets”. Given the limitations of time, I want to focus my talk this morning on just two issues. The first is on what has been achieved so far in East Asia in regional financial integration. And the second is the prospect for regional financial integration as we move forward, and what role should policy play. To begin, I think one important defining phenomenon that has been a key driver of East Asia’s recent rapid growth is the increased interdependency amongst economies in the region, especially in trade, and especially in the trade between China and the rest of the region. Intra-regional trade is now the largest component of total trade in most East Asian economies. For example, total trade share of Asia10 with Asia-10 has risen to 41 percent this year, compared to a share of about 21 percent fifteen years ago. And Asia-10 now trade among themselves more than with the G3 economies.	0
We, at the Banque de France are very attentive to those issues because our institution has been entrusted by law to support financial inclusion. Our contributions in that area are today quite diverse and are a major part of our mission to provide services to the public, in the line with three major objectives: improving fair access, preventing inequalities of treatment and improving financial literacy. As regards fair access, one good example is the Banque de France’s involvement in the “right to an account” procedure set up by French law. If banks refuse to open a bank account for a client, he or she can make a request to us and we will designate a bank within 24 hours. This specific bank account will provide basic services free of charge. In 2019, 51,000 people made use of that right. As regards the second objective to help preventing inequalities of treatment, the Banque de France is involved in preventing and addressing households’ overindebtedness issues. Along with other stakeholders, we help them find solutions to their financial difficulties. In 2019, more than 150,000 such situations were examined. The Banque de France also chairs the observatory for banking inclusion, which is in charge of promoting financial inclusion and especially of monitoring the banking industry’s commitment to cap payment incident fees for all financially vulnerable customers. Lastly, the Banque de France promotes financial literacy, through its role of national coordinator of involved stakeholders, by providing specific tools, resources and training for social workers. II.	For instance, some recent figures for the euro area, and Germany in particular, as well as China seem to show that over time the contribution of the external sector may be decreasing. The ability of global trade to sustain growth and contribute to global recovery also seems to have been stronger than expected. The implications for global finance Let me now turn to the second issue, namely the implications of rising public indebtedness in advanced economies. Although deficits are expected to start narrowing gradually next year, the fiscal burden remains huge. Government debt levels among advanced economies are expected to increase further and approach 100% of GDP. The International Monetary Fund estimates that by 2015 the general government gross debt will reach 110% of GDP in the United States and 95% of GDP in the euro area. This amounts to an almost doubling in the United States and an increase of around 40% in the euro area. Looking forward, the issue of the sustainability of the debt in several industrial countries is looming. This raises several analytical problems, which in my view have not been fully examined in the literature, but which are very important for policy-makers and financial market participants. Here I will consider two of them. The first analytical problem relates to the assessment of a country’s solvency. This task is not as simple as assessing the solvency of a company, a household or a financial institution.	0
Miroslav Singer: Regulatory earthquake Welcoming remarks by Mr Miroslav Singer, Governor of the Czech National Bank, at the Basel Consultative Group Workshop on the impacts of Basel III on emerging market and smaller economies, Czech National Bank, Prague, 26 August 2013. * * * Dear participants of the Basel Consultative Group Workshop, Ladies and gentlemen, Let me warmly welcome you to the Czech National Bank, which is proud to host this workshop on the impacts of Basel III on emerging market and smaller economies. I am very glad that my institution is involved in this workstream because I believe it is important for emerging economies not to be merely passive recipients of the regulatory “earthquake” in the banking industry which is spreading from advanced countries. Emerging economies should not and cannot blindly adopt new regulatory measures, as their financial markets have their own specific features. What is a priority for regulators in the most developed economies may not be a priority for regulators in emerging economies. On the other hand, the proposed measures within the Basel III framework may have unintended consequences for these countries, so it is worthwhile either to be prepared for them or to try to mitigate them if they are negative. Let me start by underlining what I consider to be the two fundamental difficulties of the current regulatory push.	Tarisa Watanagase: Current topics of the economy and monetary policy of the Kingdom Dinner talk by Dr Tarisa Watanagase, Governor of the Bank of Thailand, to the Japanese Chamber of Commerce, Bangkok, 24 March 2010. * * * Good Evening, Ladies and Gentlemen, First of all, I would like to thank the Japanese Chamber of Commerce for the invitation to speak again at this annual event. It is indeed a great pleasure to be back here for the institution that has, for a long time, been playing a key role in promoting a closer cooperation and better understanding between the Thai authorities and the Japanese business community in Thailand. Tonight, I would like to focus my remarks on three issues. The first is Thailand’s current economic conditions and outlook. The second is the key challenges for policymakers going forward. And the third is the Kingdom’s policies to ensure a sustained growth recovery along with price and financial stability. Many of you may recall that my speech here last year took place during the most testing time for both the global economy and policymakers. In the western economies at the core of the crisis, the financial and real sectors have been severely impacted. And for Thailand, it was the first time in ten years that the Thai economy registered negative growth, as the collapse in global demand led to a sharp contraction in the Thai exports. Fortunately, the global economy has now turned the corner and recovery has continued to gain stronger momentum.	0
History has shown that countries that suddenly gain access to an abundance of resources have a tendency to deplete the values rapidly and then fall into decline. 9 Since the introduction of the fiscal rule in 2001, oil revenue spending in Norway has been increased by close to NOK 110 billion. Oil revenues now fund about 1/6 of government expenditure. Without a fiscal rule, spending 9 The Paradox of Plenty. Oil Booms and Petro-States by Terry Lynn Karl (1997) provides a good description of the problems facing oil-exporting countries. 6 BIS Review 109/2010 would probably have been higher. In the 1950s, 60s and 70s, the tax burden was steadily increased to finance higher government expenditure. The return on our oil wealth has now taken over as the source of funding for increased public consumption. Chart 2 Oil revenue spending1 In billions of NOK, 2002–2010 1 Structural non-oil deficit. Source: Ministry of Finance. But looking ahead, funding Norway’s welfare system will be demanding. Increases in oil revenue spending cannot be sustained for much longer. Oil production will decline. At the same time, we have been through a period in which the need for welfare services has been fairly stable. The age-dependency ratio has shown little change. The demographic landscape will not be as auspicious in the decades to come. Even though sound institutions have been built for the management of Norway’s oil wealth, it is too early to assess the effectiveness of our management.	Denis Beau: What role should banks play in the twin digital and climate revolution? Speech by Mr Denis Beau, First Deputy Governor of the Bank of France, at the conference at the Jean Monnet University, Saint-Etienne, 15 April 2022. * * * Accompanying slides can be found on the Bank of France website. [SLIDE 1] Students, faculty, ladies and gentlemen, We now have sufficient distance to say that, if the health crisis unleashed by Covid-19 was not compounded by a financial crisis, this was in part because our prudential framework has made banks considerably more resilient. The new framework, coupled with the exceptional support measures introduced by governments and the European Central Bank (ECB), enabled banks to continue financing businesses during the health crisis. Today, it is enabling them to cope with the economic and financial impacts linked to the war in Ukraine. That being said, for this new architecture to be consolidated, the Basel III Accord still needs to be fully implemented in a manner that is fair, reasonable and definitive. Yet this strengthened abilities to withstand shocks cyclical crises must not blind us to more structural vulnerabilities, which the health crisis has helped to amplify, I am thinking in particular of digitalisation and the transition to a sustainable economy.	0
Lower interest rates should contribute to easing current tensions in the financial markets and also to facilitating the flow of credit. But monetary policy alone cannot resolve the financial and economic crisis. Corrective actions at other levels of policy are required, and these have indeed been taken by national governments and central banks as well as by international institutions. It will, however, take a while for confidence to return to a level that would permit the financial system to fully service the needs of a globalised economy. So why did the ECB increase rates in the first place in July? Consistently with its interpretation of the mandate, at that time the ECB perceived that there were strong upside risks to price stability. Decisions are always based on the latest information available and on a full analysis at a given point in time. The slowdown in economic activity has been very sudden, and projections for inflation have in the meantime been revised downwards. 2 BIS Review 152/2008 Do you think the cuts should always be passed on to the customer? In some cases the local banks have refused to do so, or they didn't reduce them to the full extent. In Malta, banking practice has generally been to set interest rates with reference to the official policy rate. Where such is the case, we would expect most of the ECB's interest rate cuts, one percentage point in the past month, to be passed on to customers, particularly at a time of weakening growth prospects.	This is evidence that we have not experienced a spike in inflation directly attributable to the euro. A lot of people would tell you that everything went haywire after March... Yes, we have since had an increase in inflation but this is largely attributable to the delayed higher international energy prices and the spike in food and cereal prices. We have been importing inflation, and the way we have administered prices in the energy sector has not helped. We have tried to protect ourselves for too long from market prices, and then when you make changes they tend to be bigger than if you had allowed the gradual movement of prices to take place. To what extent has the introduction of the euro helped to cushion the impact of the financial crisis? Where would we be with the Maltese lira? I was one of those who always expressed the belief that Malta's small open economy in a liberalised global environment and with its own currency was becoming increasingly vulnerable. That is why I was an advocate of EU membership and of early euro adoption. We only need to look at the example of Iceland, which stayed out of the EU, and the financial disaster it is now experiencing. Look at Denmark – an advanced stable country which is also pegged to the euro. Because of this turmoil, the Danish central bank has had to increase interest rates. This is the price of going it alone in times of stress. How much Maltese lira remains in circulation?	1
UK banks have roughly doubled the proportion of assets they fund with equity since the end of 2007, and they have cut the share of total funding accounted for by shortterm wholesale funding from nearly 30% in 2007 to 10%. They have tripled their liquid asset holdings. Trading assets have been reduced by a third and inter-bank exposures have shrunk by two thirds. In addition, the major UK banks have demonstrated they are resilient to severe but plausible hypothetical stress tests designed by the Financial Policy Committee and PRA Board, and to recent real stresses in global financial markets – which saw UK bank debt spreads increase by much less than in previous episodes of stress. (ii) Resolution tools and powers The second plank is making sure the authorities have the necessary powers and machinery to manage the failure of a bank. Astounding though it may seem, the UK went into the crisis with no single institution formally responsible for dealing with failing banks. It was assumed the Governor of the Bank of England’s eyebrows would deal with such problems as they had done it in the past. But the Bank had always relied on informal methods – it had no statutory powers in this area. Nor was there any special insolvency regime for banks that gave priority to the needs of depositors and ensured they did not lose access to their accounts for an extended period.	They need to challenge themselves to think through how a crisis might unfold and how they would respond – as there may not be the luxury of time or discretion to prepare when it is occurring. Resolvability also cannot be a static concept – firms’ capabilities may need to be improved or refined, and will need to be in step with the changing nature of their businesses. Therefore it is important that these are kept ‘live’. The more that firms can truly embed these capabilities into their management processes, the more confidence we and they can have that they are ready. The UK is now much better placed to deal with the failure of a UK bank. We have a resolution regime built on robust and coherent principles. As of now the UK banks are on track, as they should be 12 years after the end of the Global Financial Crisis, but it is vital that momentum is sustained. As and when – for it is ultimately not likely to be an ‘if’ – we are called upon to use our powers to address a bank failure, we can be confident that the options available and outcomes arising will be superior to the alternatives and past experience. In the UK through establishing the RAF, we hope to embed the lessons that were so hard learnt to be able to demonstrate that banks are resolvable in a transparent manner.	0
Paul Fisher: Managing liquidity in the system – the Bank’s liquidity insurance operations Speech by Mr Paul Fisher, Executive Director, Markets, and Member of the Monetary Policy Committee of the Bank of England, at the Loan Market Association Syndicated Loans Conference, London, 30 September 2010. * * * The Bank of England uses its balance sheet to support its core objectives of both monetary and financial stability. The financial crisis over the past three years has clearly placed more emphasis on the latter. So, this morning, I want to set out how the Bank has developed its “Sterling Monetary Framework” in order to support financial stability: in particular what we refer to as the “liquidity insurance” operations. Since the liquidity of the banking system is crucial to the functioning of financial markets, this should be of direct interest to the LMA’s members. I intend to briefly describe the main facilities as they now stand, including changes made during the past three years. I then want to address some topical issues that have arisen. Central bank money and monetary policy The balance sheet of a Central Bank plays a crucial role in the implementation of its policy objectives. In a Quarterly Bulletin article earlier this year, we set out an analysis of how the Bank of England’s balance sheet evolved during the financial crisis. 1 Let me briefly spell out the main elements.	If an institution cannot meet its target through the inter-bank market, it can use the Bank’s standing deposit and lending facilities. Under these facilities, reserve account holders can deposit with, or borrow from the Bank overnight for unlimited amounts at a fixed penalty to Bank Rate. So in practice, these facilities impose a narrow corridor on either side of the Bank Rate. For example, if it becomes cheaper for a commercial bank to borrow under the standing facilities than to borrow in the 1 Cross, Fisher and Weeken (2010), Quarterly Bulletin, 50, 1, pages 34–42. 2 For the rest of this speech I will take references to “banks” to include building societies. 3 Exceptionally at the current moment, the main asset is a loan to the Bank of England Asset Purchase Facility Fund. BIS Review 126/2010 1 market, then it will do so, providing a natural ceiling to short-term market interest rates. That in turn ensures that overnight interest rates 4 remain close to Bank Rate set by the MPC. Exceptionally, to fund the programme of asset purchases in 2009/10, the Bank unilaterally increased the size of commercial bank reserves on a massive scale – from around £ at the start to a peak of around £ Since that level was far in excess of the commercial banks’ own targets we suspended the reserves averaging system and agreed to pay Bank Rate on all reserves held with us.	1
To complicate matters, we must not forget the geopolitical risks in the Middle East, terrorism and other surprises. This year, we have already had several reminders of the risks in the system. The Chinese stock market has experienced a few incidents of volatility following expectations of and actual government action. It remains vulnerable to further corrections. In the US, the sub-prime market has imploded. More recently, US treasuries have come under severe selling pressure, causing interest rates to rise and generating unease in stock markets. Nevertheless, the financial system has been resilient so far. Have we learnt our lessons from past crises and are now better prepared? Or are we just plain lucky? Whichever the answer, we should remain vigilant. As bankers, you will be familiar with the saying that bad loans are made in good times. This saying is particularly worth repeating when the environment appears rosy and serves as a reminder that vigilance is our constant responsibility. With this in mind, MAS initiated a survey of risk managers and traders, many of whom are based in Singapore, about their key risk concerns. This poll was conducted between April and June this year. A roundtable discussion was also held with risk managers. Let me now share with you some of the findings from this survey. The feedback received was open and honest and many views were shared. Most respondents believed that asset prices were frothy and that a big shock could happen. Some speculated that this could happen before the end of 2008.	Banks should pay attention to consumer feedback for early warnings of potentially larger issues and proactively take steps to address emerging customer concerns early. The ABS Code of Consumer Banking Practice is premised on four key principles – fairness, transparency, accountability and reliability. These principles are a good foundation for building a trusting and open relationship between customers and their banks. As members of ABS, we encourage you to uphold and observe these principles. You are best placed to raise standards through market discipline, industry codes and guidelines. Together, ABS and banks can do more in monitoring consumer feedback on industry practices and taking steps to manage consumers' concerns at an earlier stage before they become broader public issues. For example, ABS could initiate measures to identify emerging issues, conduct research to better understand consumers' concerns and work with member banks to address them. Individual banks could also do more by reviewing their customers’ feedback, sharing their observations on concerns regarding industry practices and working with ABS to manage these issues. MAS will continue to share with the industry our observations from feedback received from members of the public. We will also continue to work with the industry to encourage best practices by banks, with the aim of achieving good consumer outcomes. This more collaborative and consultative approach, we believe, is more desirable than formal and often more prescriptive regulation. Conclusion The Singapore financial services sector looks set for another year of good growth.	1
The first is that we are striving to attain high GDP, high employment and low unemployment, and resource utilisation is related to these targets. But we should only do this when it is compatible with the inflation target. The inflation target takes precedence. This differs from the United States, where the central bank has the double target of achieving price stability and maximum employment. In addition, the preparatory works for the Sveriges Riksbank Act only refer to “high” employment (as compared with the United States’ ”maximum” employment) and not to any particular level of unemployment.3 The other reason to care about resource utilisation is that it serves as an indicator of future inflation. The positive relationship between resource utilisation and inflation is illustrated in Figure 3, which shows the correlation between three different measures of resource utilisation and CPIF inflation 1–12 quarters ahead.4 The connection is fairly strong 3–8 quarters ahead. The connection is stronger and faster for the hours gap than for the GDP gap and the RU indicator. This may be because the development of the labour market usually follows behind output and because it is very important for the development of prices and wages. Of course, it is difficult to draw any conclusions from the covariation of two variables, but the same type of relationship also exists in more developed empiricallyestimated models.	Here I am thinking about variables like the economy’s potential growth rate, the output gap and the NAIRU etc. Why should identifying asset market misalignments, excessive credit growth and a rapid decline in private financial balances be more difficult than forming an opinion about variables such as these? My view about monetary policy in this respect is of course closely bound up with my experience of the Swedish banking crisis, but it is also in line with a central bank’s mandate to achieve long-run price stability. If anything, a financial crisis substantially increases the risk of outright deflation after some time. The central bank could manage this risk in two ways: by at least trying to prevent the bubble from building up by tightening monetary policy at an early stage, and then by loosening monetary policy aggressively if a bubble builds up and bursts anyway. To my mind, both such actions would be in line with focusing on long-run price stability, whether the central bank follows an explicit or an implicit inflation targeting approach. Although I will be leaving my job as governor of the Bank of Sweden towards the end of this year, I have no qualms about forecasting that financial stability will remain on the agenda and be a key challenge for financial authorities for many years to come. 2 BIS Review 68/2002	0
As I have discussed previously, important research by Stanford economist Raj Chetty and his co-authors has shown that intergenerational income mobility in the United States—a child’s chances of moving up in the income distribution relative to his or her parents—has remained stable over the past half century.1 However, because of the increase in income inequality and stagnant or declining incomes for the least well-off, the consequences of being born to low- versus high-income 2/3 BIS central bankers' speeches parents are greater today than in the past. These trends have contributed to a steady decline in “absolute” upward income mobility in the United States, as defined by the share of children who earn more in real terms than their parents. This fraction has fallen from 90 percent to 50 percent over the past half century. Recent work by Chetty and his co-authors has investigated the importance of higher education in achieving upward mobility. They find that many highly qualified lower-income students do not attend selective colleges, while those low- and middle-income students who do—despite facing greater challenges—fare almost as well as affluent students who attend the same colleges. Their research also indicates that some colleges are better engines of upward income mobility than others, and that colleges that offered the largest number of low-income students pathways to upward mobility have become less accessible to them during the 2000s. As a result, highereducation’s contribution to increasing intergenerational mobility has diminished. It is unclear why access has fallen to colleges with relatively high mobility rates.	And, while we are working hard to improve available information, we lack sufficient historical depth to be able to use the past as a guide to estimate future developments. In addition, there is no previous experience of structural changes of this magnitude, which also require a very long-term perspective, and where the presence of non-linearities and irreversible tipping points are likely, conditioning the methodologies to be used. And there is limited research, and accompanying data, that explore how climate risks feed into the financial risks faced by banks. In this context, many supervisory and/or prudential authorities are opting to use stress tests and scenario analysis. 1 As a result, we should accept that efforts to translate climate-related risks into quantifiable financial risks are in their early stages. And we will have to step up our efforts to address these problems and limitations. It’s also crucial that these efforts are coordinated at the global level, given the global dimension of the risks and the potential spillovers that can arise through interconnections between the real and financial sectors. In this regard, in the case of banks, at the Basel Committee on Banking Supervision (BCBS) level we are planning to conduct a “gap analysis” to identify areas in the current Basel Framework where climate-related financial risks may not be adequately addressed or are not captured. This gap analysis will be comprehensive in nature, and will cover regulatory, supervisory and disclosure elements. Building on the analysis, we plan to explore practical solutions to address any identified gaps.	0
However, it is first when private consumption has accelerated in recent years that GDP growth has increased so strongly that unemployment has also fallen. Many factors have led to households starting to consume: Cuts in public finances no longer burden household budgets – instead lower taxes have increased disposable income. Unemployment has fallen at the same time as real wages have risen markedly. Finally, household net wealth has increased due to increasing property and share prices up to summer last year. However, household’s expectations about the future seem to play a crucial role for household’s propensity to consume. In the last few years, investments in the business sector have increased quite strongly in volume while it is only just recently that investments in housing construction have started to increase. The strong growth we have seen in recent years is higher than that sustainable in the long term. The Riksbank makes the assessment that annual increases in production of 2- 2.5 per cent are possible in the long term. The amount that GDP can increase is determined by the increase in productivity and by how much employment can increase. The larger increase in production in recent years is primarily due to there being a lot of unused resources in the economy after the problem years in the early 90s, when there was a substantial drop in production. While the productivity of the business sector has increased, it has primarily been increased employment that has created scope for growth.	Estimates of unfunded pension liabilities range up to several trillion dollars. While widespread, underfunding of public pensions is not universal. Many states have found ways to keep their public pensions reasonably well funded, demonstrating that pushing today’s costs into the future is not an inevitable outcome of a democratic government. Nonetheless, we have seen evidence that high debt levels combined with diminished services provision can, in cases such as Detroit and Stockton, make the public sector finances unsustainable. At a certain point, the debt service burden clashes with maintaining a sufficient ongoing provision of services to forestall people from voting with their feet. This may occur well before the point that debt service capacity appears to be fully exhausted. In other words, the prioritization of cash flows to debt service may not be sustainable beyond a certain point. While these particular bankruptcy filings have captured a considerable amount 2 BIS central bankers’ speeches of attention, and rightly so, they may foreshadow more widespread problems than what might be implied by current bond ratings. We need to focus our attention today on addressing the underlying issues before any problems grow to the point where bankruptcy becomes the only viable option. So, I am especially pleased to see that your agenda today focuses, in part, on helping cities and states avoid such levels of fiscal stress, where the risks of going past such a tipping point become significant. In summary, state and local governments have enormous financial obligations, as well as critical service delivery responsibilities.	0
But central banks have also long been worried that, left to themselves, banks will try to avoid holding the best-quality, most liquid assets, because they yield less. If, in an attempt to induce banks to hold truly liquid assets, the central bank were to declare that it would lend against only the highest-quality collateral, the banking system would know that those assets could be converted into money in all circumstances. But if an otherwise solvent bank gets into trouble and still faces a liquidity problem after taking all of its eligible high-quality assets to the central bank, the authorities face a choice between letting it fail through a lack of liquidity or lending against a wider class of assets. Their choice will turn on an assessment of the trade off between, on the one hand, the risk of financial instability today that could flow from immediate bank failures and, on the other hand, the risk of financial instability in the future that may flow from the central bank being seen to protect banks from their mistakes. 11 If during peacetime a bank judges that its failure would be likely to cause widespread systemic distress, it will probably conclude that the central bank’s collateral policy will, during wartime, be relaxed, leading it to choose to hold less of the highest-quality eligible assets than otherwise. Crucially, the central bank may then, after all, not be able to stick to its declared collateral policy, just as the bank suspected.	In particular, while growth and employment rates have been converging upwards across the euro area, significant gaps still remain in terms of levels. In large parts of the euro area there are still substantial under-utilised resources, reflected in a negative output gap and high unemployment rates. And this is of course crucial for our assessment of the path of inflation – namely, whether we see a sustained adjustment that would warrant a scaling back of our exceptional degree of monetary policy accommodation. Let me remind you that we have established four criteria to confirm a sustained adjustment: first, that headline inflation is on a path to levels below but close to 2% over a meaningful mediumterm horizon; second, that inflation will be durable and stabilise around those levels with sufficient confidence; third that inflation will be self-sustained, meaning it will maintain its trajectory even with diminishing support from monetary policy. And finally, it goes without saying that in each case the relevant metric is euro area inflation not the inflation rates of any individual country. For the first criterion, the assessment does now seem to be improving: our latest projections foresee the path of headline inflation now much closer to the target over 2017–2019. But the inherent uncertainty in the forecasting process needs to be mitigated by cross-checking with other available information on inflation dynamics. Particularly useful here are measures of underlying inflationary pressures, since they can be monitored in real-time and tend to be more informative than headline inflation for medium-term price developments.	0
So the central bank’s mandate needs to permit a temporary undershooting of its inflation target if it thereby reduces the risk of a subsequent painful bust. The past few months have, however, seen questions asked of our inflation-targeting framework for other reasons. According to some, the framework has constrained the ability of monetary policy to support the recovery; an objective giving higher priority to growth or employment might have produced a better outcome. A particular, and increasingly popular, variant of this involves combining growth and inflation into a single target for nominal income. The first thing to be said is that the MPC’s mandate already incorporates a growth and employment objective. While our primary objective is to maintain price stability, subject to that we are also expected to support the Government’s policies for growth and employment. The Chancellor’s annual remit letter puts flesh on those bones, by specifying not only the 2% target for CPI inflation but also the Government’s desire for high and stable growth and employment. And the letter goes on to note “that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances (and that) attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output.” If we had tried to offset the impact on consumer prices of, say, sharp movements in import prices, then we would need to engineer countervailing movements in domestically generated costs, in particular pay.	Eddie Yue: The development and future of the offshore Renminbi market Keynote address by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority, at the Euromoney Global Offshore RMB Funding Forum 2013, Hong Kong, 8 May 2013. * * * Tony (Shale)1 Richard (Morrow),2 Distinguished Guests, Ladies and Gentlemen, Good morning, and thank you all for coming. I’m honoured that Euromoney has invited me to speak at the Global Offshore RMB Funding Forum for the second year in a row. I recognise many familiar faces in the audience today, and I note the presence of a wide range of panellists who will no doubt examine the offshore RMB market from every possible angle and perspective. Here in Hong Kong – the world’s premier offshore RMB business centre – we have had a front row seat to watch the offshore RMB market take shape over the past few years. Since I last addressed this forum in May 2012, this market has continued to expand and evolve at a dizzying pace, which will provide for an interesting and timely dialogue today. However, before we get into what will be a spirited discussion, I want to use my role as the opening keynote speaker to take a step back and gain a broader perspective of developments to date. I also want to look at the macro context, which is likely to play a major role in shaping future developments.	0
The monetary policy mandates of the Federal Reserve are clear: We must foster monetary and financial conditions that support maximum employment and price stability. Since January 2 BIS central bankers’ speeches 2012, the Fed has set an explicit goal for inflation of 2 percent, as measured by the price index for total personal consumption expenditures, or PCE. So, how are we doing with respect to this 2 percent target and our Zimbabwean risks? Despite many earlier predictions of unacceptably high inflation, total PCE inflation has been hovering around just 1 percent since early 2013. Other inflation measures, notably, the wellknown Consumer Price Index (CPI), are also well below their related benchmarks.1 Forecasters often look at core inflation, which excludes volatile food and energy prices, because it is a better predictor of where overall prices are headed than is total inflation. Our progress toward the inflation target is not noticeably faster by this metric either. Core PCE inflation was just 1.1 percent over the past year and has been at this rate since last spring. Most private sector forecasts and survey measures of inflation expectations have remained well anchored and do not ring any alarms of high inflation. Expectations embedded in asset prices tell a similar story. Sophisticated models that extract inflation expectations from the yield curve show that investors’ inflation expectations at the three-year horizon are below 2 percent and will be below 2 percent for several years. All told, the risk of high inflation seems very low.	In the case of Chile, this duty to impart information is stipulated in the Central Bank’s Constitutional Organic Law which mandates that once a year the Bank must inform the President of the Republic and the Senate about its deliberations and developments. This takes place in September when the Central Bank Board presents its Monetary Policy Report to the Senate. Nevertheless, the Central Bank of Chile goes beyond this requirement and reports not only to the Senate in September but also presents a monetary policy report to the Senate’s Finance Committee in January and again in May. The same happens with the Financial Stability Report which is published in January and June each year. Similarly, the Bank gives an account of its management of international reserves once a year as part of its Annual Report. However, this is not enough. The legitimacy of the Central Bank is upheld by direct, open, and non-excluding communication with the general public and so these documents are uploaded on the Bank’s website at the same time as they are being presented. Moreover, the Bank issues other reports, communications, minutes, specialized studies and statistics, all of which are available to the public. There are also press conferences and interviews with Bank board members and staff. The time when the workings of central banks were something complex and mysterious has also passed. We want the community to understand our work since it consists of providing a public good – stability – which enables the country to progress.	0
For example, “popular narratives” can emerge which shape collective expectations among the public – optimism or pessimism, exuberance or depression – and which can then drive aggregate economic fluctuations. 19 Recent research has demonstrated just how powerful those emergent popular narratives can be, economically and financially. As one example, the work of Nick Bloom and co-authors has constructed various measures of businesses’ degree of uncertainty around key issues, based on the words used in media reporting. 20 These narrative-based measures of uncertainty have been found to be important for explaining the investment behaviour of companies over time. David Tuckett and co-authors have constructed measures of the popular narratives used by participants in 21 financial markets. They find that these narratives can play an important role in explaining asset price dynamics, over and above the impact of macro-economic fundamentals. In a similar spirit, the work of Michael Bailey and co-authors has found, using Facebook data, an important role for shared social narratives in explaining behaviour in the housing market. 22 At a macroeconomic level, the work of George Akerlof and Robert Shiller has looked at the popular narratives which emerge during periods of boom and bust. 23 Using words extracted from newspapers, they find the prevailing popular narratives about the economy have played a significant role in accounting for the heights of the peaks and depths of the troughs during macro-economic booms and busts. Public expectations, embedded in the stories they tell, are a key macro-economic driver.	Jon Cunliffe: The role of the leverage ratio and the need to monitor risks outside the regulated banking sector Speech by Sir Jon Cunliffe, Deputy Governor for Financial Stability of the Bank of England, at the Financial Reporting Council annual conference, London, 17 July 2014. * * * In early 2009, around the height of the financial crisis, the market valued the combined equity of the major UK banks at less than 2% of their total assets. In other words, the market thought these banks were, on average, over 50 times levered. Measured by their regulatory returns, average leverage was “only” 30 times or so. And on a risk weighted basis, the banks had 6.7% common equity capital – well above the 2% minimum. Tier 1 capital ratios were almost 9%. This was of course the time when fear in the market was at its peak. The message was crystal clear. When it mattered most, the market did not at all believe the published numbers for bank capital adequacy. And the market reacted accordingly bringing funding markets to a halt. This episode tells us two things. The first is that financial reporting matters. It matters at all times. But it matters most in times of stress. As an illustration here, I can recall heated discussions between European leaders about mark to market rules and about the transfer of assets from banks’ trading to their banking books in 2008 and 2009.	0
9 The ARRC Selects a Broad Repo Rate as its Preferred Alternative Reference Rate 10 Information about SOFR can be found at apps.newyorkfed.org/markets/autorates/sofr. 11 In addition to the London Interbank Offered Rates, the other major interbank offered rates (IBORs) are the Euro Interbank Offered Rate (EURIBOR) and the Tokyo Interbank Offered Rate (TIBOR).	But the fact that firms are starting to grapple with implementation means that they’ve got past denial and bargaining and settled down to acceptance. Smaller firms may be lower down on the preparation curve, although presumably their total risks are also smaller. In December, the Federal Financial Institutions Examination Council presented a one-hour webinar on LIBOR transition that drew about 1,300 participants from supervised firms. Of those who responded to a polling question during the webinar, about one-fifth said it was the first time they were hearing about the topic. To continue forward, several issues must be resolved. For example, what events should trigger the shift from LIBOR to SOFR or another alternative rate? A definitive end to LIBOR is an obvious trigger. But, short of that, what events should prompt the switch? What if LIBOR was nominally available, but the UK FCA used its supervisory power to declare that LIBOR is unrepresentative of the underlying market? Last month, an FCA official highlighted the possibility that this is exactly how the end of LIBOR might come about, and urged market participants to seriously consider this possibility when crafting their fallback triggers.23 In their various consultations on fallback language, the ARRC has proposed that such a declaration by the FCA would trigger the switch to an alternative rate. A clear majority of respondents supported that proposal. I think every market participant should ask how the fallback triggers in their contracts would respond. In addition, the precise mechanism of changing from LIBOR to, say, SOFR will vary.	1
1 This broad based deterioration in the global economy was carried through into the first and second quarters of 2009. The most recent projections by the IMF suggest that global growth will contract by 1.4% in 2009 before recovering to a growth rate of 2.5% in 2010. For the United States of America and the Euro Area, growth in 2009 is projected to contract by 2.6% and 4.8%, respectively; whilst in Japan and the United Kingdom, growth is projected to contract by 6.0% and 4.2%, respectively. Although emerging and developing economies are projected to perform much better, with a projected growth rate of 1.5%, this rate of growth is significantly below the estimate of 6.0% growth in 2008. Further, growth in Sub-Saharan Africa is projected to decelerate sharply to 1.5% from 5.5% in 2008. Thankfully, as we meet today there is growing evidence that in many parts of the world, the worst of the crisis may be over. At the epicenter of the crisis, i.e. the United States of America (USA) and Europe, the collapse in output has decelerated – with the most recent evidence pointing to some increase in growth both in terms of actual output as well as some of the leading indicators of output. In the USA, second quarter GDP growth figures of -1% indicate a deceleration in the pace of contraction. Further, in the second quarter of 2009, important Euro areas economies such as Germany and France actually posted positive rate of GDP growth.	It is expensive to use, however, and in one way or another we all as bank customers pay for the use of it. For reasons of security and efficiency in retail payments, a more widespread use of cards would be desirable. Forces driving the development of the card payment market The forces of supply and demand shape the evolution of the card payment market in much the same manner as they influence the evolution of any other market. Demand is influenced by factors such as acceptance, convenience and relative prices. It has sometimes been argued that demand for payment instruments is not price elastic - that relative prices 1 do not greatly influence users' preferences for different payment instruments. The Nordic experience does not support this view. The rapid expansion of card payments and other electronically initiated instruments in Norway clearly point in a different direction. Norwegian consumers' shift of preferences followed immediately after banks' change of pricing strategy, where (among other changes) a price was put on the use of cash (as a small fee on ATM withdrawals). In Sweden, as previously noted, the use of checks fell sharply when banks started to charge for their use, although the charge was fairly small. Of course, good substitutes must be readily available. But if alternative ways of payment are present, fees seem to matter and matter a lot.	0
Despite the importance of the labor force increase, its impact on trend growth is not immediate or transmitted one for one. The economy must undergo a process of adjustment while the sharp increase in the supply of labor is completely absorbed, so that new workers are placed in positions that match their skills. The international experience is not conclusive regarding the duration of this transition, because, as I mentioned, the characteristics of the migratory processes have been very different. In any case, it can be expected that as the immigration flow is accommodated, a gradual increase in capital accumulation and productivity will be observed. Thus, we estimate that the trend growth of the Chilean economy is between 3.25% and 3.75% for the period 2019-2028 (Table 1). This estimate compares with the 3.0% to 3.5% range that we considered before. It is important to note that the use of a range reflects the uncertainty regarding several of the factors that have been mentioned. In particular, this projection considers that the total factor productivity of the non-mining sector will grow 1% in the next ten years. However, there is uncertainty in light of this variable’s volatility of recent years. II.4. Potential GDP The updating of trend GDP is important for determining the potential GDP of the economy. Regarding the latter, we estimate that in the period 2019-2021 it will be around 3.4% (around 3.2% was the previous estimate), somewhat below its trend growth (Table 2).	It must be noted that this occurs in the context of high inventory buildup towards the end of 2018 and the increased uncertainty surrounding the external scenario. In any case, the other part of investment—construction and other works—has remained dynamic and forward going forward signs are still positive. On one hand, related stock market data point to a favorable development. On the other, the large-scale investment projects that are currently in progress—especially in mining—do not register delays and have been unfolding according to plan. Along the same lines, the various surveys of investment projects have not seen any downward and continue to foresee larger amounts for 2019-2020, compared with the amounts invested in the period 2017-2018 (Figure 8). Turning to concessions, the authorities have announced a significant increase in them as from 2020, in particular in hospitals, roads and airports. Add to this the announced approval of a set of complementary works that will be executed in 2019 and 2020. The information of the Association of Engineering Consulting Firms (AIC) for the first quarter of 2019 shows that detail engineering—which covers projects scheduled for one or two years ahead—shows high annual growth rates. In terms of housing investment, although it began the year with a zero contribution to construction GDP, sales remain high and the outlook reflected in the May Business Perceptions Report is positive. In any case, the Monthly Entrepreneurs Confidence Index (IMCE) for the construction sector posted a decline most recently but is still higher tan its all-time average.	1
It can be said, in simple terms, that the application of quantitative easing entails a focus on the liability side of the balance sheet, while the state of the asset side becomes less important even though this is also reflected in the balance sheet. The express purpose of this shift from price to quantity is usually that "the price" can no longer be affected as the policy rate is zero. It could therefore be said that quantitative easing is a type of monetary policy that is more directly dedicated to dealing with a zero interest rate than credit easing. The latter focuses more directly on reducing the spreads and improving the supply of credit in the economy. It should be emphasised, however, that a zero interest rate is not necessarily a precondition for either quantitative easing or credit easing and it may sometimes be possible to find a use for both methods even when the policy rate is positive. The measures that the Bank of England began to implement at the beginning of March can be characterised as quantitative easing. In its communication, the Bank of England has 12 BIS Review 41/2009 talked about injecting money directly into the economy. This is done by buying government securities and, to a certain extent, securities issued by private players, for example corporate bonds. The latter implies that the strategy also includes elements of credit easing in the sense that the supply of credit to companies is eased.	Global imbalances were built up If we are to understand the origins of the crisis, we cannot ignore certain factors in the macroeconomic landscape. This applies in particular to the major global imbalances that were built up over a long period of time. In the rapidly-developing economies in the oilproducing countries and Asia, particularly China, domestic saving reached a level that was higher than required to fund domestic investments. This led to substantial current account surpluses. Large amounts of capital were built up which sought an outlet on the global financial markets. These were used, for example, to buy assets in the West. At the same time, the economies in the West, especially the USA, experienced an unusually long, uninterrupted period of favourable conditions with strong growth and low inflation. Policy largely focused on maintaining these good conditions. It was possible to stimulate domestic demand at the cost of a gradually increasing current account deficit. The large capital flows on the financial markets helped to keep interest rates down. With consumer prices held in check, it was also felt that there was no real reason to conduct a stricter monetary policy. The result was that significant global imbalances arose – a lasting savings surplus in some countries and a deficit in others.	1
So it is important to ensure the presence of suitable mechanisms that facilitate the necessary co-ordination. In the arrangements recently proposed by the new government in the United Kingdom that is to be achieved by putting both the decision makers – the Monetary Policy Committee and the Financial Policy Committee – in the same institution and ensuring that they have a number of members in common. 6. Concluding remarks To conclude, we return to the elements of the pre-crisis policy consensus outlined in the introduction and ask what remains or how it needs to be modified. 1. The role of fiscal policy. Fiscal policy is the topic of the next session. But we should at least note that the collapse of private demand after the demise of Lehman Brothers prompted not only the operation of the automatic stabilisers but also additional discretionary fiscal policy measures in the most affected economies, with the total fiscal impulse coming in at around 4 per cent of GDP. But the effectiveness of those expansionary fiscal policies in stimulating demand remains a matter of debate, both in policy making circles and academia. On the one hand, there are those who believe the fiscal multipliers are negligible, either because of Ricardian Equivalence or because of crowding out through the impact of high public debt and deficits on long-term interest rates.	a: The coefficient δ in the regression Δρt = α + βt + γ1Δρt-1 + γ2Δρt-2 + δρt-1 + εt, where ρt is the deviation of the actual price level from a price path implied by the target measure of inflation. b: 90% critical level = -3.14 (-3.16 for euro-area regression). c: The coefficient δ in a pooled regression (omitting the euro area), where δ is constrained to take the same value in all jurisdictions. d: Adjusted t-statistic, following Levin, Lin and Chu (2002).	1
In Sweden, we have STIBOR (Stockholm Interbank Offered Rate) for contracts in Swedish kronor. STIBOR is used, among other things, to price variable-rate loans aimed at companies and the public sector, when pricing various derivatives in the financial market and to determine the interest rate for variable-coupon bonds. In Sweden, it is rare for households to encounter interest rates directly linked to STIBOR. However, households and consumers are still affected because the reference rates affect pricing in other parts of the system before the funding reaches households. So reference rates are very much an important component of the financial system that affects us all. Those of you listening today have no doubt come across STIBOR in your loans. You may also have issued securities where the coupon follows STIBOR and you may be handling your interest rate risk with derivative instruments linked to STIBOR. Perhaps you also have leasing agreements connected to STIBOR. According to STIBOR’s administrator, the Swedish Financial Benchmark Facility (SFBF), STIBOR is used in financial instruments and contracts to a nominal value of about eight times Sweden's annual gross domestic product. Interbank rates resting on increasingly weak foundations But – and now I come to the answer to the question why we have developed a new reference rate – the foundation on which the interbank rates rest has gradually been eroded. LIBOR, STIBOR and the other interbank rates are determined daily on the basis of reporting from a panel of banks.	Why “rebalancing?” Because we were steadily raising interest rates toward normal territory amid global and domestic economic recovery. Well, that was one year ago. One year can be a long time, especially for financial markets. And, indeed, things have changed a great deal since then. We had the flood; and the euro crisis. Interest rate hiking was put on hold and rebalancing postponed amid post-flood recovery and reconstruction and especially amid global uncertainty due to the euro. Now we project global economic recovery to be weaker than believed since the financial crisis in 2008. So if last year was the “year of rebalancing” what is this year? For monetary policy, this year is a year of risk and reassessment. By risk I refer to the possibility that the euro crisis may spread to Asia and Thailand. And by reassessment, I refer to how monetary policy must reconsider rebalancing and carefully re-examine all the options, given how the balance of risks has significantly shifted toward growth and away from inflation. We are therefore faced with three key questions. First, how will the euro crisis play out? Second, can Thailand grow through the euro crisis? And third, what should monetary policy do? Let me now turn to the first question. How will the euro crisis play out? In my view, the short answer is this. The euro zone will mostly likely remain intact and avoid a liquidity seizure similar to the one seen during the Lehman crisis. However, the euro zone will face a slow and difficult recovery.	0
Almost half the increase is attributable to a lower interest rate level. Debt burdens are still high, but the stabilisation of employment at a relatively low level has contributed to reducing uncertainty. The interest rate level remains low. In addition, house prices have increased. The saving ratio is therefore expected to fall, and growth in private consumption is projected at 5 per cent in 2010. Reports from Norges Bank’s regional network in February suggested that output growth will remain relatively weak in the coming quarters, but with wide variations across industries. Suppliers to the offshore sector expect activity to continue to shrink. The building and construction industry also expects a further fall in output, while reports from household suppliers and exporters suggest and increase in output ahead. There are still few regional network enterprises reporting that capacity constraints will make it difficult to accommodate higher demand. Since autumn 2009, it seems that capacity utilisation has increase somewhat in coastal regions from the southwest to the north. Many of the industries that are faring well are located in these regions, such as fish farming, fisheries, parts of the metal industry and suppliers of operating services to the oil sector. Employment stopped falling in the fourth quarter of 2009. Total mainland employment had then declined by about 30 000 since autumn 2008. The fall in employment has been smaller than the decline in output might imply. Productivity has fallen markedly. During the downturn, the number of hours worked has decreased somewhat more than the number employed.	Thank you for your attention BIS Review 38/2010 5 6 BIS Review 38/2010 BIS Review 38/2010 7 8 BIS Review 38/2010 BIS Review 38/2010 9 10 BIS Review 38/2010 BIS Review 38/2010 11 12 BIS Review 38/2010 BIS Review 38/2010 13 14 BIS Review 38/2010 BIS Review 38/2010 15 16 BIS Review 38/2010 BIS Review 38/2010 17 18 BIS Review 38/2010	1
Within this view, some members put more emphasis on the continuing shortfall in the level of GDP relative to pre-Covid, while others emphasised the continuing direction of travel towards closing that gap and the evidence of cost pressures accompanying the closing. But all of this group were of the view that the stimulus to monetary policy enacted in response to Covid would need to start to unwind at some point, that unwind should be enacted by an increase in Bank Rate, and if appropriate would not need to wait for the end of the current asset purchase programme. The other view places more weight on current evidence of cost and price increases and accompanying signs of labour market and capacity pressures, leading to more persistent excess demand and higher inflation. Moreover, a policy change now would contribute to ensuring medium-term inflation expectations remain well anchored. From this, I would draw out a number of important points. The great strength of the MPC process is that nine reasonable and I would say well informed people can differ on these interpretations, and we do so transparently. But, all of us believe that there will need to be some modest tightening of policy to be consistent with meeting the inflation target sustainably over the medium-term. Recent evidence appears to have strengthened that case, but there remain substantial uncertainties and we are monitoring the situation closely. Let me finish with a thought which builds on the whole area of supply shocks.	Pulling this together, the recovery has slowed and the economy has been buffeted by additional shocks. The switch of demand from goods to services, as Covid has faded in terms of its economic impact, has not taken place to date on the scale expected. Meanwhile, supply bottlenecks and labour shortages have weighed on output, and are continuing. Indeed the number of high profile supply bottlenecks appears to be increasing. I must say that when I heard that we were suffering a shortage of wind to generate power, I was tempted to ask, “and when are the locusts due to arrive”. The hard yards ‐ speech by Andrew Bailey \| Bank of England Page 2 A number of these supply bottlenecks are not obviously a product of Covid, though others are. It is also possible that the economic fragility created by Covid has amplified the impact of other shocks – either that or the gods really are against us. I think it is more likely Covid amplifying at work. I want now to turn to the labour market, because here we appear to have a big puzzle. Let’s start with the very good news. So far we have not seen a major upturn in unemployment or substantial corporate distress, despite one of the largest economic downturns in history. That is a notable success for economic policy all round. Put simply, if the authorities have the tools and the credibility, they can do a lot to help.	1
These two examples are of course extremely simplistic, and are not realistic parameterisations of the Bank’s actual RSS. In broad terms, the elasticity of the Bank’s RSS is pinned down by three broad considerations. First, the Bank sees merit in allocating some funds regularly against wider collateral, to ensure counterparties remain familiar with the auction structure and continue to participate. Second, the Bank should not undermine the incentives to manage liquidity prudently. And third, the auctions should permit an increased allocation against wider collateral to the system in the face of adverse liquidity shocks and the associated heightened demand for liquidity. While the principles underlying the Bank’s RSS are clear, the precise configuration of the RSS is not revealed to the market, so reducing the scope for firms to game the Bank, and encouraging them to bid according to need. The Bank’s supply curve should be continuous but otherwise need not be linear. In particular the Bank can use the results from each operation to determine the degree of stress in the market and hence adjust the scale of the operations accordingly. Equilibrium The equilibrium point, which pins down the clearing spreads and the share of funds allocated to the two collateral sets, is determined by the intersection of the observed demand curve, and the Bank’s RSS. Chart 7 illustrates that using our hypothetical auction bids from Table 1 above, and three hypothetical linear RSS schedules. In case of intersections such as those given by curves A and B, a unique equilibrium is well defined.	The fruits of that labour were revealed in the summer of 2010, when the Bank replaced the extended LTRs with its new permanent Indexed Long-Term Repo (ILTR) operations. In the ILTR auctions, counterparties can submit bids against narrow collateral, wider collateral or both. The Bank then allocates a proportion of the funds on offer to the bids against wider collateral, where that proportion depends on the spreads offered. These new auctions solve the problems of the old LTRs. For example, expressing the bids as spreads to Bank Rate (with a minimum spread of zero) eliminates the interest rate risk arising from unexpected movements in the spread of market rates to Bank Rate. Moreover, the price of liquidity against wider collateral is determined within the auction – as the market becomes more stressed, counterparties are willing to pay more to borrow against wider collateral. So the Bank no longer has to make a judgment about the appropriate spread to charge counterparties. The most innovative aspect of ILTRs is that is that, as the degree of market stress increases (as the clearing spread on wider collateral rises relative to that on narrow collateral) the Bank automatically, within the auction, lends a greater proportion against wider collateral. And it gets a signal about the need to expand the overall size or frequency of the operations in future. As far as we know, the new format represents a global first for a public auction in any field.	1
When thinking about the major challenges for maintaining financial stability I find it useful to first look at the notion of how the “real world” deviates from the “frictionless” ideal world of academic textbooks. In order to organise my reasoning, this can serve as a useful starting point, since in the ideal world there is no such thing as financial instability. Indeed, most of the concerns over financial stability actually stem from the fact that our “real world” financial markets have frictions or - in other words market imperfections. A fundamental friction is that financial market participants very often have imperfect information. When information is not perfect - or when markets are not fully transparent - investors’ decisions may be constantly subject to reassessment, which can lead to inevitable volatility in market prices. This does not necessarily mean that there is an inherent threat to financial stability. On the contrary, the very existence of some level of volatility indicates that markets are serving the function they are supposed to deliver - that they are an efficient exchange mechanism among economic agents. Nevertheless, some recent episodes of extreme volatility have drawn our attention to more accurately delineating the boundary between “normal” and what could be called “harmful” volatility. The second source of friction is that we also fall short of the ideal of having complete markets.	This is partly because these can cause instability in both the real economy and prices when the bubble bursts and partly because the stability of the banking system could be threatened. Measures to avoid financial imbalances being built up are thus motivated on the basis of both of the Riksbank's objectives; to maintain price stability and to promote a safe and efficient payment system. However, the question is how effective the interest rate is as a weapon – perhaps other means can be utilised. Examples of such measures are monitoring the financial institutions and making capital adequacy requirements of them. The analyses made by the Riksbank in its Financial Stability Report are also aimed at drawing the attention of the banks and other authorities to any problems and they thus play a role in this context. BIS Review 39/2001 3 How great are the problems created by the imbalances in the USA? Is there a risk that the imbalances in the American economy are so great that the process of adaptation back towards a balance will dramatically intensify and prolong the economic slowdown? It can be noted that none of the ten major economic analysts of the American economy assesses that the USA will suffer a recession during the next few years. Firstly, it is probable that the growth potential that can be created by developments in technology is far from exhausted. There should thus be good reason for at least some of the optimism that has comprised a basis for earlier developments.	0
Over the last two decades, China has grown into one of the two largest economies in the world. At the same time, authorities are constantly announcing new steps to increase the renminbi (RMB) convertibility and develop its use in international transactions. It is therefore natural to wonder whether the RMB will emerge as a major international currency in the foreseeable future. In line with my introductory remarks, I will refrain from any geopolitical speculation on this question and present a few technical – and personal – remarks on the nature of a global currency. What does it take to become a reserve currency? It is generally assumed that this status brings important privileges, some of them “exorbitant”. It is also forgotten that it comes with significant obligations. First, being a reserve asset means that the currency enjoys full and unconditional capital account convertibility towards both residents and non-residents. The economy is therefore fully integrated with global capital markets and fully exposed to external financial shocks. This creates a very demanding environment. Convertibility essentially means that you accept the judgment of “foreigners” as to the true value and purchasing power of your domestic currency. Although it is not often perceived as such, it entails some abandonment of sovereignty, through the loss of some independence in monetary policy. This is the famous “Mundell trilemma”: no country can simultaneously have a fixed exchange rate, full capital 2 BIS central bankers’ speeches convertibility and monetary policy independence. Indeed, all reserve currencies today have fully flexible exchange rates.	This may be, for the future, an interesting precedent: a new global currency can emerge without destabilizing the system. It is also worth noticing that the euro crisis had no major effect on its international role. In particular, the share of foreign reserves invested in Euro securities has barely moved. And, when the Swiss authorities decided to peg their currency, they chose the euro as an anchor. Does the euro have a “sphere of influence”? As you know, we have taken a very neutral stance on this issue and neither encouraged or discouraged the use of the euro as a reserve currency. In fact, the euro is increasingly used in international transactions and accepted for payments (including retail ones) in many countries – as European tourists can experience every day. Recently, the Eurozone seems to exert a stronger influence on global monetary conditions. For the first time in many decades, long-term rates in Europe have significantly decoupled from those of the US. Also, there is some evidence of “reverse causality” with Euro long term rates increasingly impacting US rates, creating new channels for monetary spillovers and feedbacks. However, the euro is not yet widely used as a unit of account: most global transactions – especially in commodities – are denominated in dollar. A majority of new securities issuances are also denominated in dollars. New global currencies? As the geography of the world economy changes, so will the shape of the international monetary system.	1
Macroeconomic developments and main assumptions Now, I will talk about the macroeconomic outlook and our assumptions on which our forecasts are based. First, I will summarize the recent inflation developments, and then continue with the domestic and foreign demand outlook upon which we based our projections. In the fourth quarter of 2015, consumer price inflation (CPI) increased by about 0.86 points quarter-on-quarter to 8.81 percent, overshooting both the projections of the October Inflation Report and the uncertainty band around the year-end inflation target (Chart 11). Unprocessed food prices were the main drivers of this higher-than-forecasted rise in annual inflation. In fact, inflation excluding unprocessed food and tobacco was close to the October Inflation Report forecast in this period (Chart 12). The lagged effects of the Turkish lira depreciation were particularly evident through the core goods channel. Yet, the continued fall of import prices in the fourth quarter limited the rise in CPI inflation. Chart 11. October Inflation Forecasts and Realizations (Percent) Chart 12. October Inflation Forecasts and Realizations Excluding Unprocessed Food and Tobacco (Percent) * Shaded region indicates the 70 percent confidence interval for the forecast. Source: TURKSTAT, CBRT. In the fourth quarter, despite the decline in USD-denominated import prices, cost pressures on inflation continued due to food prices and exchange rate developments. We see that these rising cost factors limit the improvement of the underlying trend of core inflation BIS central bankers’ speeches 5 (Chart 13).	In order to reduce the intermediation costs of the banking system and provide additional support to core liabilities, we raised the remuneration rates on TL required reserves by 50 basis points each month in September, October and December 2015. Additionally, we made some adjustments to the coverage of reserve requirements on 9 January 2016. Accordingly, some funds at participation and investment banks were made subject to reserve requirements and the coverage of non-core liabilities was expanded. BIS central bankers’ speeches 3 Chart 7. Maturities of Non-Deposit Liabilities (Percent) Chart 8. ROM Reserves, FX Deposit Facility and External FX Liabilities of the Banking Sector Due in 1 Year (Billion USD) Source: CBRT. Source: CBRT. In the road map released in August, we also included some measures to enhance the flexibility of the foreign exchange liquidity management. To this end, we hiked the transaction limits for banks at the CBRT Foreign Exchange and Banknotes Markets on 1 September 2015. Consequently, the sum of FX deposit limits allocated to banks and gold and foreign exchange assets held at the CBRT under the reserve option mechanism (ROM) reached a level that is considerably above the external debt payments of banks which are due within one year (Chart 8). Moreover, in the “Monetary and Exchange Rate Policy for 2016”, we announced further steps to strengthen the stabilizing feature of the ROM. All these measures taken in line with the road map have increased Turkey’s resilience against global volatility.	1
In the last 10-20 years, where energy prices have risen at a faster pace than other consumer prices and the tax level has increased somewhat, the CPI-ATE has tended to underestimate underlying inflation. This is illustrated in the chart, which shows the difference between the year-on-year rise in the CPI and the CPI-ATE over a moving 10-year average. Since 1997, the difference has been about 0.35 percentage point. However, even when taking into account trend increases in energy prices, inflation is still moderate. The indicators that provide the best expression of underlying inflationary pressures in the economy may vary over time. Driving forces ahead Oil prices are of importance for the activity level in the Norwegian economy and government revenues. In recent years, oil prices have risen sharply. High demand for oil, limited idle production capacity and uncertain production levels in many oil-producing countries have contributed to this. Oil prices have risen to over USD 70 per barrel, partly as a result of the uncertain political situation in a number of producer countries. Futures prices for Brent Blend are now also above USD 70 per barrel until autumn 2008. Futures prices indicate that oil prices will remain around this level several years ahead. This is higher than the level assumed in the previous Inflation Report. Statoil and Hydro gas prices have also increased sharply in recent months. Petroleum production is expected to increase gradually in the period to 2011, and decline thereafter. Developments in the gas market will become increasingly important.	House sales totalled NOK 44 billion, twice the total for the previous year. Syndication companies and property funds account for almost half of total sales. In Sweden, the share of foreign investors has been relatively high, and rising, for several years. In comparison, foreign ownership in the Norwegian property market is modest, but probably increasing. For example, the German property fund DIFA purchased parts of the Norwegian School of Management’s college premises in Nydalen in Oslo, and the Scottish Kenmore Property Group has purchased commercial property in Norway for more than NOK 1.4 billion. In a comparison of property markets conducted in 2004, Norway was classified as “highly transparent”. 1 Increased liquidity and transparency promote foreign interest in Norwegian property. 1 2 Jones Lang LaSalle, Global Real Estate Transparency Index 2004. BIS Review 41/2006 The economic situation The mainland economy expanded by 3.7 per cent in 2005. Growth in private services, construction and electricity production was strong. So far, a substantial share of output growth has been attributable to a sharp rise in person-hours worked. The fall in sickness absence in 2004 provided an additional supply of labour to enterprises, but sickness absence increased through 2005. Wage developments reflect and influence business cycles. Strong employment growth in the 1990s resulted in a rise in labour costs, which in turn had a dampening impact on growth. Moderate wage growth in recent years is being accompanied by a strong cyclical upturn. The labour market continues to tighten.	1
If oil prices rise further or remain at the current high level for a long period, petroleum investment may again amplify the cyclical upturn to a greater extent than projected. Monetary policy and the outlook for the Norwegian economy The analyses in Inflation Report 2/05 are based on a baseline scenario where the key rate until 2007 follows forward interest rates, and then rises somewhat faster. Forward rates on 24 June indicated expectations that the key rate would increase to approximately 2¼ per cent towards the end of 2005 and to 2¾ per cent at the end of 2006. The krone exchange rate is assumed to shadow the forward exchange rate, which remains broadly unchanged over the next three years. Capacity utilisation in the Norwegian economy is expected to increase this year and next and exceed its normal level. There are prospects that inflation will gradually pick up and be close to 2½ per cent at the three-year horizon. Monetary policy that gradually becomes less expansionary will stabilise the economy over time, thereby curbing inflation and preventing it from overshooting the target. New information since the publication of the last Inflation Report does not provide grounds for changing the assessment of developments in the real economy. Nor has there been any substantial change in the inflation outlook. Monetary policy cannot fine-tune economic developments, but it can seek to hamper the most significant effects of disturbances to the economy.	At the monetary policy meeting of 11 August, the Executive Board stated that new information since the previous monetary policy meeting does not suggest that we should deviate from the interest rate path envisaged in the June Inflation Report. Monetary policy easing through 2003 and into 2004 has resulted in low real interest rates. Short-term real interest rates may now be considerably lower than the level that implies long-term balance in the economy – the neutral real interest rate. A low real interest rate, and expectations of a continued low real interest rate, will contribute to stimulating activity even after the effects of the interest rate fall unwind. Calculations may, on an uncertain basis, indicate that the neutral real interest rate for Norway lies between 2½ and 3½%. It has probably fallen somewhat in recent years. Although the projections are based on rising real interest rates, the real interest rate will be lower than the neutral rate during the entire period. The monetary policy stance is therefore expansionary. So far, the effects do not appear to be stronger than expected, but we have little experience of such low interest rates. It is uncertain how quickly prices and wages will react when growth in output and employment picks up. There is also a risk that an interest rate that is kept low for a longer period may lead to expectations of a persistently low interest rate. This may involve a risk of persistently high capacity utilisation and inflation eventually overshooting the target.	1
As a result, by issuing securities in a segmented TIPS market, the Treasury may keep realized yields on bill and nominal coupon securities lower than they otherwise would have been. The last noteworthy fiscal benefit from TIPS issuance is the fact that it reduces risk to the U.S. government in terms of the variability of its net financial position. The rate of inflation influences both the cost of TIPS and the government’s tax receipts. Thus, some level of TIPS issuance may reduce the variability of the government’s net financial position. This, in turn, should lead to a more regular and predictable pattern of issuance, which should help minimize interest costs. In summary, our analysis of the ex-ante costs of the TIPS program and the more difficult-tomeasure benefits suggests that TIPS issuance provides at least a modest net benefit to the Treasury. So, now I want to turn to a related question: Are there ways to increase the benefits? 6 See Fleming (2002), Krishnamurthy (2002), Laubach (2003). BIS Review 14/2009 5 I would be willing to make two modest suggestions here. First, it may make sense to emphasize longer-dated TIPS issuance rather than shorter-dated issuance. Analytically, the logic goes as follows. Inflation uncertainty is likely to increase at longer time horizons. Thus, investors are likely to pay a greater premium for inflation protection at longer-time horizons. This implies that the cost savings associated with TIPS are likely to be greater for longer maturities rather than shorter maturities.	This is partly because these can cause instability in both the real economy and prices when the bubble bursts and partly because the stability of the banking system could be threatened. Measures to avoid financial imbalances being built up are thus motivated on the basis of both of the Riksbank's objectives; to maintain price stability and to promote a safe and efficient payment system. However, the question is how effective the interest rate is as a weapon – perhaps other means can be utilised. Examples of such measures are monitoring the financial institutions and making capital adequacy requirements of them. The analyses made by the Riksbank in its Financial Stability Report are also aimed at drawing the attention of the banks and other authorities to any problems and they thus play a role in this context. BIS Review 39/2001 3 How great are the problems created by the imbalances in the USA? Is there a risk that the imbalances in the American economy are so great that the process of adaptation back towards a balance will dramatically intensify and prolong the economic slowdown? It can be noted that none of the ten major economic analysts of the American economy assesses that the USA will suffer a recession during the next few years. Firstly, it is probable that the growth potential that can be created by developments in technology is far from exhausted. There should thus be good reason for at least some of the optimism that has comprised a basis for earlier developments.	0
That includes ensuring that the common monetary policy is properly transmitted to all sectors of the economy and to all countries, and to prevent the financial fragmentation of the area. We also stand ready to adapt all our instruments should it be necessary. Naturally, we must also remain vigilant regarding the risks to financial stability. Evidently, the banking sector is facing this crisis from a healthier position than in the previous recession, which highlights the importance of the far-reaching changes made in this sector over the past decade. The ECB has also taken resolute action here. Among other measures, it has allowed banks to use the capital buffers available, which were created precisely for situations such as the present one. But, undoubtedly, the crisis will significantly impact the quality of banks’ credit portfolios, on a scale that will depend on its ultimate severity and which will be uneven across banks. The outcome will depend on banks’ starting position, on their business model and on the distribution of their exposures to the sectors and regions most affected by the pandemic. Accordingly, we supervisors must continue to closely monitor the risks to financial stability and we must be ready to provide a forceful, panEuropean response should such risks materialise. In short, European and national economic authorities must share the objective of preventing the current crisis from being accompanied by an across-the-board tightening of financing conditions or from seriously harming the stability of the financial system.	In particular, along with the adverse impact that the social distancing measures we may have to maintain in the future may exert on activity, there is a further effect. This is more difficult to measure a priori and relates to the possible and potentially persistent changes in agents’ behaviour in response to the “new normal”. These changes might include modified patterns of consumption and saving, or changes in supply chains or in certain aspects of firms’ operations. All these considerations would warrant qualifying the current recovery as uncertain, to take the second of the adjectives I used earlier to characterise this recovery. Additionally, from the standpoint of the sectors of activity, not all of them suffered on a comparable scale the consequences of the pandemic lockdown measures, as they are not equally susceptible to the imposition of social distancing measures. And the gradual startup in activity is not taking place at the same pace in the different sectors. The earlier normalisation of manufacturing and of certain services coexists alongside a slower than usual recovery in levels of activity in those other services, such as leisure and hospitality, where personal interaction is greater. Here, full normalisation is not likely to be attained until we have an effective medical solution. These differences in the pace at which normal levels of activity in productive sectors are being restored allows us to characterise this recovery as uneven, taking the last of my three adjectives.	1
Although policies have now been in crisis management mode for five years, the interbank market has yet to return to its normal state, reflecting the extent of the lingering damage within the financial sector. To a considerable extent, the common currency masked vulnerabilities related to the build-up of various imbalances, since such imbalances could no longer be addressed by exchange rate corrections. BIS central bankers’ speeches 1 These factors have raised questions on the viability of the European single currency model as this has perhaps failed to achieve the targets it was primarily set-up for. The extent of these fragilities is reflected in Chart 1, which shows a convergence in sovereign yields in the run-up to the formation of the monetary union, followed by a decade-long stability. In retrospect the low yields were clearly not consistent with the underlying fiscal positions or economic fundamentals at the national level. Indeed, low interest rates enabled governments to pile on additional debt at relatively cheap interest costs. This period coincided with deterioration in competitiveness and wider current account deficits as peripheral countries continued to finance such deficits via capital inflows. Eventually, when markets switched their focus to economic sustainability, the flow of capital reversed direction, sovereign debt was downgraded and yield spreads widened dramatically, as seen in Chart 1. Chart 2 provides a contrast between two groups of countries.	While each financial institution is best positioned to monitor its own risk exposure, it does not have the incentives to internalize the costs it may impose on other financial institutions should it experience difficulties. Second, supervisors are able to obtain and monitor proprietary information about an institution’s risk exposures, its management information systems and its internal controls when such information is not publicly disclosed. Third, supervisors are in a unique position to observe trends across groups of financial institutions and, based on these insights, to provide the industry with a perspective on what constitutes best practice. Fourth, official supervision is needed to enforce compliance with applicable laws and regulations. We have observed that poor compliance, beyond simply being wrong, can result in serious operational problems, including capital allocation deficiencies, managerial oversights and increased reputational risk. As we have seen, such problems can threaten the wellbeing of a financial institution and carry the potential for systemic risk. Finally, supervisors are able to assure that prompt corrective actions are taken when serious financial or other problems are identified, particularly if the problems are not known to the market. The importance of the role supervisors can play in problem cases, both through public enforcement and through other less visible means, cannot be overstated. Changes in the financial services industry present new challenges for how official supervision is to be carried out most effectively.	0
It gives market participants the opportunity to make secure profits at even lower interest rates and hence sets a lower bound for how low the interest rate on short-term government securities can fall. 18 It seems reasonable that this price development has been caused by our bond purchases and that the interest rate on government securities with short maturities has been pushed down by at least 0.3 percentage points, and that a similar price effect has also been exerted on government bonds with longer maturities. As the public sector budget is more or less balanced, the government’s total borrowing requirement does not increase over time, but the government must nevertheless take out new loans when older ones mature. In other words, new government bonds and treasury bills need to be issued on a continuous basis. According to the Debt Office’s latest forecast, bond borrowing will amount to about SEK 90 billion a year in 2015-2017 while borrowing via treasury bills is expected to amount to just over SEK 110 billion a year. Government bonds have an effective maturity of just over 7 years while all treasury bills by definition mature within a year. If the Riksbank’s bond purchases push the nominal interest rate down by 0.3 percentage points on average, this produces a total profit in terms of lower interest expenditure of approximately 0.003(790+110)*3 = SEK 7 billion for these three years.	We will, in any event, reassess the value of each portfolio component before making the transfer to the special purpose vehicle. The lowest valuation will be applied. To secure initial financing for the operation, we will obtain US dollars through a Dollar-SwissFranc swap with the Federal Reserve. Thereafter, we will turn to the market for refinancing. The SNB will therefore not incur any currency risk. Since the entire operation will be effected in US dollars, it will not affect the National Bank's monetary policy in any way. Reasons for operation This operation is nevertheless unprecedented with regard to the reasons for it. In carrying it out, we are making a contribution to an essential element of the Swiss financial system, at a time when financial markets have been in turmoil for some months now. A better functioning of the financial markets – in particular the banking sector – is essential so that our country will be able to weather the economic difficulties resulting from the anticipated global economic slowdown in the months ahead. It is therefore preferable that we go ahead with this operation now, in an orderly fashion, despite the fact that the markets have regained a certain degree of optimism in the past few days – rather than at a later point under potentially more adverse conditions. The Federal Council and the Swiss Federal Banking Commission have been kept abreast of the preparations underway and our negotiations with UBS. BIS Review 125/2008 1	0
Surely, they say, enormous increases in the monetary base are likely to be accompanied by substantial price level increases. The problem with this story is that the banks have not been lending these reserves nearly enough to generate big increases in broad monetary aggregates. And even if they did, as an indicator of inflation, the monetary aggregates lost their predictive content many decades ago. The evidence, again, is that inflation remains low. But what if? What if lending picks up? Well, that would be really terrific. Dramatically higher bank lending would surely be associated with higher loan demand and a generally stronger economy. Strong growth and diminishing resource slack would be part of this story, and a rising rate environment would be a natural force diminishing the rising inflation pressures. In the meantime, monitoring the entire state of the economy along with 6 Evans and Fisher (2011). BIS central bankers’ speeches 5 inflation seems like a sensible and appropriate safeguard against this currently low probability scenario. Third, another potential source of inflationary pressures would be rising inflation expectations. Here, I mean a breakout of inflation expectations separate from any fundamentals that might accompany the previously discussed cases of rising commodity prices and stronger bank lending. One could think of this as the spontaneous combustion theory of inflation. The story goes like this: Households and businesses simply wake up one day and expect higher inflation is coming without any further improvement in economic fundamentals.	Pridiyathorn Devakula: Monetary policy in Thailand: current challenges and prospects Speech by M.R. Pridiyathorn Devakula, Governor of the Bank of Thailand, to the APFA 2001 Conference held in Bangkok, 24 July 2001. * * * President of APFA, Distinguished Guests, Ladies and Gentlemen, It is an honour to address the 8th Asia Pacific Financial Association Annual Conference, and to welcome the distinguished members of the Asia Pacific financial community. Judging by the attendance I trust that this three-day event will prove most fruitful and rewarding for all participants. I would like to discuss today the current challenges facing monetary policy in Thailand and what we, at the Bank of Thailand, have set out to do to meet those challenges. In so doing, I will briefly review the progress of the past few years, and look forward to some key emphases of our current policies. The current situation On July 2nd this year newspapers in Thailand ran headline stories to remind us of the four-year ordeal since the floating of the baht and the ensuing economic and financial crisis. These have been difficult years as the economy fought hard to regain macroeconomic and financial stability, and the confidence of financial markets. Economic growth shrank by more than 10 percent in 1998. Underlying this was a sharp correction in the current account in response to the depreciation of the exchange rate. The correction was substantial.	0

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Dataset Card for "econo-pairs"

Econo-pairs is a dataset made of pairs of sentences extracted from worldwide central banks speeches and other public financial institutions. Each pair is labelled as a positive (1) or negative (0) one. Positive pairs are made of sentences extracted from the same speech. Negative pairs are made of sentences extracted from a random other speech.

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A collection with my models and datasets related to economics • 4 items • Updated Apr 18