samchain/econo-pairs-v1 huggingface dataset:
17.01.2018  PaPanel: “New challenges for central banks”** Russia and the world: values and virtues /Gaidar Forum Luis M. Linde Governor  *  On 17 January 2018, Governor Luis M. Linde participated in the 2018 Gaidar Forum panel entitled “New challenges for central banks”. The panel was structured around a debate format moderated by Ksenia Yudaeva, First Deputy Governor of the Central Bank of the Russian Federation, with the participation of Jacob Aharon Frenkel, Chairman of JPMorgan Chase International and former Governor of the Bank of Israel, and Petr Aven, Chairman of the Board of Directors, ABH Holdings S.A. This note includes the thoughts on central banking that were the focus of Governor Linde’s speech. I. Taking a step back: three main developments have defined the global economy in the 21st Century.  Globalisation. The period between 1990 and the early 2000´s was characterised by an intense process of globalisation, with rapid growth of trade and financial relations among countries. For instance, between 2000 and 2007 the growth of world imports averaged 7.4% per year, about twice as much as global GDP growth. Global banking also expanded markedly, in terms both of cross-border activities and local entry into banking sectors overseas. The crisis entailed a dramatic and severe reversal of this trend. Trade plunged by more than 10% in 2009, an extraordinary collapse by historical standards. Since 2012, trade has gradually recovered at a slower pace than pre-crisis levels, with imports growing around 3% annually.

This inaugural conference is set to mark a significant step to enhance collaboration and deepen financial linkages in Islamic finance between Malaysia and Hong Kong. The theme “Sukuk as a Viable FundRaising and Investment Instrument” is most apt, given that the ethical-based fixed income instrument has increasingly gained recognition by the global financial community as an attractive source of funding for real sectors and long-term development. Adoption of best practices for sukuk issuance The growth of the global sukuk market has been very promising. It reached a stock value of USD268 billion at the end of 2013 and since 2000 has grown at a cumulative average rate of 50% per annum. The creation of a sukuk market in Hong Kong is a timely initiative as it has the potential to further spearhead its foray into Islamic finance. Sukuk, as a new asset class, is ideal for portfolio diversification and is increasingly well-accepted all over the world. From our experience, the new venture by Hong Kong into the sukuk market may be able to deepen its bond market further and open the opportunity to tap the burgeoning investor pool seeking good quality Shariah compliant and ethical-based instruments. Being a player in an increasingly developed sukuk market, Hong Kong has the opportunity to adopt the best practices in sukuk issuances. Firstly, in the area of Shariah standards where it provides principle-based guidance on the execution of Islamic financial contracts. Such standards are designed to cover the needs of different jurisdictions.
Continued recovery in the world economy To summarise the international economic situation one can say that the new information published during the summer largely supports the picture painted by the Riksbank of a continuing recovery in the world economy. But there are some signs of weakness in the United States and Asia, while Europe looks slightly stronger than expected. Large deterioration in public finances in many countries There were concerns at the monetary policy meeting in June over the possible consequences of the public finance problems in several countries. During the spring these problems had led to increased risk premiums in the financial markets and caused difficulties for many banks. In a worst case scenario, this could lead to a much weaker development abroad, which would also affect Sweden. I said at the monetary policy meeting that in this case we must be prepared to reconsider the direction for our monetary policy. Given this, I shall now specifically discuss public finance problems and developments in the financial markets. Deficits in public finances and national debts have increased rapidly in many countries during the economic crisis. (Figure: Public finances in the OECD area). Developments have been dramatic for some countries, and especially so for Greece. The poorer public finances have pushed up government bond rates and are making it difficult or almost impossible to fund the large deficits. Many other countries are also experiencing serious problems.

Broken lines represent the Riksbank’s forecasts. Repo rate and expected repo rate Per cent, all agents 5  5 Repo rate Repo rate expectations 5 year ahead  4  4  3  3  2  2  1  1  0 Jan-07  0 Jul-07  Jan-08  Jul-08  Jan-09  Jul-09  Jan-10  Jul-10  Sources: TNS SIFO Prospera and the Riksbank  M onetary policy expectations Per cent, money market participants 5  5 Repo rate Forward rate 2010-06-23 Forward rate 2010-08-18  4  4  3  3  2  2  1  1  0  0 06  07  08  09  10  11  12  13  Sources: TNS SIFO Prospera, Reuters EcoWin and the Riksbank  16  BIS Review 109/2010  The Riksbank’s outstanding loans SEK billion 400  400 SEK, commercial paper SEK, variable rate SEK, fixed rate  300  300  200  200  100  100  0  0 Jul-08  Jan-09  Jul-09  Jan-10  Jul-10  Source: the Riksbank  BIS Review 109/2010  17
Inflation has been higher in Sweden than in Germany for long periods of time. During the 1960s we more or less kept pace with Germany. However, during the second half of the 1970s and in the 1980s, inflation in Sweden was several percentage points higher than that in Germany each year. Since the beginning of the 1990s, inflation in Sweden has once again been roughly the same as that in Germany. Sweden has become a low inflation economy. What, on the whole, has happened since the 1960s? To illustrate this, I shall talk about some of the episodes of the past 30 years that have had great significance for economic developments and for my own view of the Swedish economy. I have been able to follow the economic policy decision-making process connected with these episodes at close quarters from my various posts in public administration. I would like to emphasise that this is my personal view of developments and not the Riksbank’s official view. The episode I will talk about include the cost crisis in the 1970s and overheating in the 1980s, the change in exchange rate and monetary policy, the wage formation reform and budget consolidation of the 1990s. The cost crisis of the 1970s During the 1960s, economic growth in Sweden wad good. GDP growth was at a high level, inflation was moderate, unemployment was low, foreign trade was largely in balance and public finances were strong.

The five key variables are: • • • •  inflation, measured as the CPIF, the target variable for monetary policy wage increases, according to short-term wage statistics from the National Institute of Economic Research (NIER) unemployment, according to the Labour Force Surveys (LFS) job openings, according to statistics from the Swedish Public Employment Service (Arbetsförmedlingen) on remaining job openings  I would especially like to thank Mikael Apel and Emelie Theobald for their help with this speech. Meredith Beechey, Charlotta Edler, Jesper Hansson, Ann-Leena Mikiver, Åsa Olli Segendorf, Cecilia Roos-Isaksson and Ulf Söderström have all submitted valuable comments. ∗  1 [16]  •  the krona exchange rate, according to the trade-weighted KIX index. In order to focus on the trends in these five variables, I remove seasonal variations and general noise in the series by using moving averages over twelve months throughout. We will follow the time series for these variables two at a time. By doing so, we can see the covariation between inflation and unemployment, for example. Looking at data is a good place to start It is important to understand that covariation between two variables does not necessarily mean that there is a causal relationship, a causality, between them. Instead, the covariation may, for example, depend on a third variable that is not shown. A classic example is the strong correlation between sleeping with your shoes on and waking up with a headache. But this presumably does not imply that the shoes cause the headache.
Mr. Chairman, the international work that is being done in respect of money laundering and corruption payments or terrorist financing is such that trade and service companies, like banks, are now being held accountable for what they deal in and whom they trade with – as suppliers as well as buyers. The implications of anti-money laundering (AML) are such that they extend to all forms of finance, industry and business. It is thus critical that the principles of integrity and professionalisms are applied in all spheres of institutional activities. Mr Chairman Ladies and gentlemen I thank you for your attention. BIS Review 129/2007  3

The euro area bank lending survey for the fourth quarter of 2016 indicates that credit standards for loans to enterprises are broadly stabilising, while loan demand has continued to expand at a robust pace across all loan categories. To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed the need for a continued very substantial degree of monetary accommodation to secure a sustained return of inflation rates towards levels that are below, but close to, 2% without undue delay. Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance supports economic activity. In order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European level. The implementation of structural reforms needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost investment, productivity and potential output growth in the euro area. Structural reforms are necessary in all euro area countries. In particular, reforms are needed to improve the business environment, including the provision of an adequate public infrastructure. In addition, the enhancement of current investment initiatives, progress on the capital markets union and reforms that will improve the resolution of non-performing loans, are a priority. Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union.
I would like to take this opportunity to thank everyone in our banking community for maintaining services to your customers during these extraordinary times. The speed and agility you have demonstrated in delivering the relief measures has been particularly impressive. The resilience and resourcefulness of our banking sector put us in a strong position to handle the challenges that lie ahead. 5. Despite the ongoing geopolitical tensions, I have no doubt that Hong Kong will continue to perform its special role as an international financial centre. China remains the engine of global economic growth and the biggest provider of savings. The Mainland’s opening of its financial sector continues to offer new opportunities for the rest of the world, and Hong Kong is at the nexus of it all. While our banks must continue to stay resilient against the many challenges of our times, they also need to prepare themselves for new opportunities emerging from the transformations now unfolding in our region. 6. In today’s conference we are invited to look beyond our present difficulties, to envision a ‘Brave New World of Banking’ in an age of ‘Innovation and Transformation’. I congratulate HKIB on choosing such a forward-looking topic – one to which I have also been giving a great deal of thought. Taking up this theme, I will discuss three big transformations that are already happening, and talk about how the industry and how we at the HKMA are responding to them.

These taxonomies help mobilise capital by reducing the need for financial institutions to conduct their own assessments of environmental impact. At present the two leading taxonomies are those recently developed by the Mainland and by the European Union. The two taxonomies differ in some important aspects, including definitions of economic activities eligible for green investment. Such differences could present impediments in tackling what is a global challenge: this has particular relevance for Hong Kong, which is a regional hub for global institutions committed to responsible investment. 24. It is therefore gratifying to know that in May this year, the Mainland authorities have taken important steps to reconcile some of the critical differences between the two taxonomies. For example, clean coal is no longer considered green in the revised bond catalogue. We 3/5  BIS central bankers' speeches  expect more harmonisation work to be done by the two sides, though this may take a bit of time. 25. We are making progress on “harmonisation” within Hong Kong, too. This year, the HKMA, together with other financial regulators and relevant Government bureaux, formed the Green and Sustainable Finance Cross-Agency Steering Group. The Steering Group has two main aims: to co-ordinate management of climate and environmental risks to the financial sector; and to help accelerate the growth of green and sustainable finance in Hong Kong.
We are seeing this concept more keenly being exploited in profit and risk sharing ventures, and Islamic fund and wealth management which are emerging as rewarding banking activities. Developing a pool of the required skills and talent, and putting in place of  4  BIS Review 55/2006  proper risk management systems and good corporate governance practices becomes vital to sustain the growth momentum of the industry. As we move towards the final phase of the Master Plan and into a more competitive landscape, we require robust financial institutions that are resilient, effective, efficient and well placed to serve the nation, and thus support sustainable economic growth and transformation. In the area of Islamic banking and finance, our aim is to be a leading international Islamic financial centre. To achieve this, we have to strengthen our position and focus our resources on achieving two broad aims. The first is to become an international leader in the origination, issuance as well as trading of Islamic capital market and treasury instruments, fund and wealth management services, offshore Islamic financial services, and takaful and re takaful . As a services sector, the robustness of the industry is a direct function of the calibre of the workforce in the industry. As such, our second goal is to position Malaysia as a centre of excellence for Islamic banking and finance education, training, consultancy and research.

On the regulatory front, a series of enhancements to the risk management regulatory framework has been introduced with the aim of promoting a more robust and comprehensive risk management practices within banking institutions. In addition, significant effort has also been put in place to prepare the industry towards the implementation of Basel II, which is targeted for January 2008 for the standardised approach and January 2010 for the IRB approach. The industry has responded well with various improvement measures that have been instituted, and investments made to enhance their systems and approaches to elevate their capability to manage risk exposures. This will contribute towards enhancing further overall financial stability, and towards the development of new products with better pricing of the financial services. The Islamic banking and takaful industries have been among the most dynamic in the sector. In terms of assets, the annual growth rate of Islamic banking and takaful averaged 19 percent and 25 percent respectively. In 2005, profitability of Islamic banking surpassed the RM1 billion mark for the first time, while its assets breached the RM100 billion threshold. As of end-March, the Islamic banking assets accounted for almost 12% of the total assets of the entire banking system. The takaful industry's assets stood at about 6% of the industry total. The Islamic banking industry has begun to maximise the competitive advantages of the Islamic banking concept of profit and risk sharing.
As regards foreign assets, however, the picture is clear, as the pension funds have indeed built up a very significant stock of these through the years, amounting to 26% of their total assets at the end of 2007. They amounted to 7% of total foreign assets and 29% of foreign securities owned by Icelandic residents as recorded in Iceland’s international investment position. In addition to shifting part of the future pension burden abroad, these assets proved to be important reserves when Iceland faced a sudden stop of capital inflows during the financial crisis. The clearest effects of the accumulation of the pension funds have been on financial market developments, where the funds contributed very significantly to the growth of these markets. At some points, there were even concerns that the funds were becoming too predominant. Thus their share of marketable bonds was almost 40% at the end of 2002. For a while, the overgrowth of the Icelandic banks laid any such concerns to rest, but when the dust has settled after their collapse, these concerns might come back. However, at the moment, with capital controls having temporarily stopped further foreign investment by the pension funds, they play an important role in the heretofore relatively easy domestic financing of the large fiscal deficit amounting to 13.5% of GDP last year and projected at 10.2% of GDP this year. You might have noticed that I have spoken mostly in the past tense when assessing the strengths and weaknesses of the Icelandic pension system.

Part 2: The Eurosystem’s vision for 2020 •  To deal with the technological and strategic challenges to its market infrastructure, the Eurosystem has developed three key action points it will work on in the run up to 2020;  •  The first is to explore synergies between TARGET2 and T2S, potentially even merging them into a single platform in the future, with the goal of achieving a consolidated market infrastructure for large-value payments and securities settlement;  •  The enhancements envisaged for Europe’s financial market infrastructure will benefit users by providing access to all available services via a single gateway;  •  Moreover, these enhancements will provide an opportunity to further increase the resilience of the system, which is also beneficial from a financial stability perspective;  •  The second action point is to consider new service opportunities that the closer integration of TARGET2 and T2S would bring;  •  in particular, the Eurosystem is considering enhancing the TARGET2 services with instant payments, at least in the settlement layer;  •  Third, there are plans to review the harmonisation of Eurosystem arrangements and procedures for collateralisation;  •  The three action points are currently in the design phase, and it is expected that decisions on the actual implementation of the projects will be taken over the summer;  •  For all three action points, the Eurosystem will continue to work closely with the market in order to benefit from its knowledge and experience as well as to ensure that Europe’s future financial market infrastructure fully meets the needs of its users.
Also, the direct exposures of U.S. banks to the countries in Europe that are facing the most intense fiscal challenges are actually quite modest. The bad news is that the exposures of the U.S. banks climb quite sharply when one also considers the exposures to the core European countries and to the overall European banking system. This means that if the crisis were to broaden further and intensify, this could put greater pressure on U.S. banks’ capital and liquidity buffers. Third, if the European situation were to deteriorate further, financial markets would likely become more stressed. This could tighten the availability of credit to U.S. households and businesses. It could also cause equity prices to fall and this would have a negative impact on Americans’ pension and 401(k) holdings. This tightening of financial conditions would damage the U.S. recovery and result in slower output growth and less job creation. At a time that U.S. unemployment is very high, this is a particularly unacceptable outcome. In the extreme, U.S. financial markets could become so impaired that this would dry up the flow of credit to households and businesses. III. U.S. dollar swaps  In terms of what actions the official sector in the United States has taken or could take with regard to Europe, I wish to emphasize that any and all such actions pursued by the Federal Reserve are motivated by the mandates Congress has given to the Federal Reserve to promote price stability and maximum sustainable employment here in the United States.

When the Federal Reserve System was created by Congress in 1913, it was given the responsibility of providing liquidity to the financial system in times of stress in order to shield the economy, to the extent possible, from the severe effects of financial instability on economic activity and jobs. While the economy and the markets have evolved substantially in the century since then, this basic principle continues to guide our efforts today. Central banks around the world have an important lender of last resort role. This role is important in order to protect the economy against financial instability. In today’s globally integrated economy, banks headquartered outside of the U.S. play an important role in providing credit and other financial services in the U.S. – providing a total of about $ billion in overall financing within the U.S. For these banks to provide U.S. dollar loans, they have to maintain access to U.S. dollar funding. At a time when it is already hard enough for American families and firms to get the credit they need, we have a strong interest in making sure that these banks can continue to be active in the U.S. dollar markets. Banks headquartered outside the U.S., like banks that are headquartered here, make extensive use of dollars in their financing activities. In part, this is due to the fact that the U.S. dollar is the world’s number one currency – a status that brings with it many benefits for our country.