samchain/econo-pairs-v1 huggingface dataset:
Also, in the case of Turkey, monetary reform was launched, not as part of the stability program, but after having monitored the results of the program and achieved macroeconomic stability to a large extent. At this point, I would like to point out that the realization of monetary reform up to now has been mainly in tune with our forecasts and has followed a favorable course. As of 8 April 2005, the amount of YTL banknotes in the total amount of banknotes made up 73.5 percent. Within this framework, it has come to our attention that some foreign financial enterprises have recently begun to issue bonds denominated in the New Turkish Lira. Another positive impact of monetary reform which also strengthens the macroeconomic stability process is that the securities issued in international markets in New Turkish Lira can now be cleared. Due to the inability of the technical facilities of foreign financial enterprises to keep records of a currency unit with all those zeros, issues denominated in Turkish lira could not be cleared in the international systems of safe custody such as Euroclear or Clearstream before the transition to the New Turkish Lira. This obstacle has been removed with the dropping of six zeros from the Turkish lira and the introduction of the New Turkish Lira. After all, monetary reform is one of the most prominent indicators of the permanence of macroeconomic stability and of the fact that price stability will be attained within this context.

See, for example, the estimate of the impact published in Box 6 of Economic Bulletin 4/2018 entitled “Recent pension system measures: analysis of impact on public finances”. Alternatively, the AIReF has recently published an estimate that quantifies the impact of this measure as an increase in spending of 2.3 pp of GDP in 2050. 11  33  of the sustainability factor has the capacity to reduce pension spending by 0.9 pp of GDP in 2050.12 Addressing these population ageing pressures will therefore require increasing the system’s resources or alternatively reducing the rate of benefit or further increasing the effective retirement age. The specific decisions in relation to this necessary revision of the system need to be taken in the political sphere, so that the various societal preferences regarding pension levels and the resources necessary to finance them are weighted appropriately. An important objective, in this respect, is that the reform eventually implemented should involve an increase in transparency as regards the public pension system benefit levels that agents can anticipate. This would allow citizens to take decisions regarding work, savings and the time of retirement on the basis of a set of information that is as complete as possible. Likewise, whether or not the reform strategy eventually decided upon involves a moderation in spending or an increase in revenues, the redistributive consequences within each generation and across generations need to be taken into consideration. These consequences, especially the latter ones, are particularly important in every pension system.
3  Laeven, L and F Valencia (2013) “Systemic Banking Crises Database”, IMF Economic Review 61(2), 225–270, IMF. Output losses are computed as the cumulative sum of the differences between actual and trend real GDP over the crisis period in relation to pre-crisis GDP. 4  Basel Committee on Banking Supervision (BCBS) (2010) An assessment of the long-term economic impact of the new regulatory framework, August. The loss of output represents referred to represents the median cumulative discounted output loss reported by a number of academic studies assessed in the study, measured over the period from the peak to the end of the crisis. The output loss does not include permanent losses in GDP, i.e. where the GDP trend does not recover to the pre-crisis level. 5  The bank stating this was Merrill Lynch. Source: FCIC. BIS central bankers’ speeches  3  capital markets.” – This bank incurred USD 13 billion losses in Q1 2008 and USD19 billion in writedowns on real estate and related structured credit positions.6 I can assure you that there are many more similar examples to quote – the message being that the proposed reforms were overly restrictive, would damage the market and reduce activity. This illustrates that we need perspective when assessing the feasibility of reforms.

It is also standard procedure that new regulations are subject to industry consultation and in many cases additional discussions also take place with the industry itself, as well as with investors, to avoid unintended consequences. In this context, however, let me remind us all that the reactions we get from the banking industry are sometimes slightly biased, if I dare say so. A telling example is the lobbying effort during the design of the Basel II framework. As part of that work, in 2003 the Committee consulted on a new securitisation framework, which, with the benefit of hindsight, turned out to be very weak. Yet the comments from the industry on the proposed securitisation framework were in general quite alarming. Allow me to quote just a couple of the replies to the consultation proposal that the Committee received (all of which are publicly available): •  One bank wrote: “The prescribed risk weightings for securitisation exposure(s)…result in excessive risk weights compared to the economic risks of securitisation tranches, particularly for retail and mortgage portfolios.” – This particular bank happened to incur $ billion in losses from CDOs during the crisis.5  •  Another bank wrote: “If adopted, the current proposal for securitisation will materially impair the ability of banks to distribute risk from their own balance sheets into the  2  Calculations of costs are based on Laeven, L and F Valencia (2013) using data from the banking crisis database and calculations of the BIS and the Riksbank.
How can we answer this important question? Firstly, monetary union does not necessarily imply that, at any given point in time, all participating countries will have the same rate of inflation or growth, even though the creation of the euro was based on the successful completion of a convergence process. Let us take inflation for example. Inflation divergences across countries or regions are quite natural in a monetary union. In the euro area, long-term convergence to a common level of prices naturally gives rise to different inflation rates across countries. The convergence of productivity and living standards creates a trend towards price convergence. Now, present differentials in the Euro area are not very large, in comparison with those sometimes observed in the United States, which is a long established monetary union of comparable size. My intimate conviction is that we will witness further European integration and, in the medium term, an increasing correlation of economic developments in the area. Several academic studies show that business cycles are becoming more synchronous across Europe. Secondly, the question has often been raised as to whether EMU can be a success without some form of enhanced political union. Indeed, to achieve this, the correct mix is required between fiscal, economic and monetary policies. In the European Union, Member States are responsible for conducting economic and fiscal policies. We therefore believe that these policies should be closely co-ordinated.

On the downside, the speed of the recovery in the world economy may be held back by a number of factors, including the large outstanding debt position of corporate and household sectors; investment in the UK might remain subdued; or the weakness in pricing pressures we have seen over the past year or so may persist. But on the upside, the US might bounce back more rapidly than anticipated; consumption growth might remain robust; or the sterling exchange rate might begin to adjust downwards. Against this background of risks, it is quite possible we may see rates at current levels for some time until the way ahead is clearer. But, as you know, economic events have a habit of developing quite rapidly, so even short term predictions are never easy. For our part, we will continue to assess the case for interest rate changes on a month-by-month basis. In carrying out our task, the MPC relies heavily on having the very best information at our disposal, and in that we are enormously assisted by our network of regional Agencies. Each month, our Agents drive thousands of miles, eat hundreds of rushed sandwich lunches and, on occasion, no doubt push your goodwill to the limit as they seek out the latest news on developments in your businesses. Nigel Falls, our local Agent, is here with me tonight, and for those of you who have not already met him I really do encourage you to do so after the dinner.
  Finally, cyber criminals’ activity continued throughout the lockdown, whereas firms’ IT and cyber risk management staff had to adapt to the new way of working. Two principal methods used by criminals, phishing emails and malware, continue to rise. Many authorities have highlighted an increase in cyber risk7. We encourage firms to consider these risks carefully when starting to think about the transition out of the lockdown phase. The last priority I’ll touch on today is climate change. Addressing the financial risks from climate change is one of the Bank’s strategic priorities and last year we published expectations for firms to manage the financial risks from climate change8, which included expectations around governance, risk management, scenario analysis and disclosure. As well as having a named Senior Manager responsible for climate risks, Boards collectively need to understand the impact of climate change on their firm’s business strategy. Scenario analysis is a key tool that firms can use as part of their assessments of the impact of climate risks on their balance sheet and broader business strategy. It helps report relevant management information that will enable firm’s boards to discuss, challenge and take decisions relating to the firm’s management of the financial risks from climate change. Last year – for the first time – we included an exploratory climate stress test as part of the overall insurance stress test exercise.

Early in the crisis, the PRA recognised that the significant change in the operating environment as a result of Covid-19, would cause some firms to experience a material change in risk profile. The UK market is particularly exposed to low interest rates which result in large increases in the risk margin for annuities. Recognising this, as well as the risks posed by the advent of Covid-19, the PRA invited firms to apply to recalculate their TMTP in light of significant changes in interest rates that occurred in March 2020. In any application for permission to recalculate  3  https://www.bankofengland.co.uk/prudential-regulation/letter/2020/letter-from-sam-woods-to-insurers-on-distribution-of-profits 3  All speeches are available online at www.bankofengland.co.uk/news/speeches  3  TMTP, the PRA expects firms to be able to demonstrate how the current environment has caused a material change in their own individual risk profile. The symmetric adjustment is explicitly aimed at mitigating undue pro-cyclical effects as a result of temporary movements in financial markets. It increases capital requirements when markets are buoyant relative to their historical average and reduces them when markets are relatively depressed. The chart plots the symmetric adjustment over time. As you can see from Chart 2, the symmetric adjustment was trending upward, while conditions were relatively benign and markets were rising. When the Covid-19 outbreak began, it decreased sharply. In this way, it led to insurers building capital buffers when markets were rising, and then allowed them to be released when markets fell.
Underlying price pressures are expected to increase somewhat  Page 7 sur 9 this year, owing to short-term supply constraints and the recovery in domestic demand, although they remain subdued overall, in part reflecting low wage pressures. This assessment is broadly reflected in the baseline scenario of last March ECB staff projections for the Euro Area. It foresees annual inflation at 1.4% in 2023. There is today in the Euro Area no risk of lasting return of inflation. We will continue PEPP net asset purchases “until at least the end of March 2022 and, in any case, until [we] judge that the coronavirus crisis phase is over”. We still have ample time to judge and decide, well beyond our June meeting, as Christine Lagarde said last Friday. Let me today stress one obvious but sometimes overlooked truth: whatever the future decision on PEPP, we will still be able to play and enhance the full “quartet” of our unconventional instruments: asset purchases, negative rates, liquidity provision, and forward guidance. These unconventional instruments are here to stay, beyond Covid and its crisis tools, meaning that our monetary policy can remain as accommodative as necessary, for as long as necessary. And I would like to share some thoughts on each instrument of the quartet. Asset purchases are powerful and we still have room to do more if necessary. Reinvestments under the PEPP will remain significant, and net purchases will continue under the APP, possibly adapted.

Examples are inadequate supply of land, excessive tax burden on housing and construction, and inefficient urban planning and approval procedures that delay market responses to the rising demand for housing. Over-rapid liberalization of supply constraints were also one reason for the emergence of excess supply. •  Fourth, the high global liquidity that appeared has improved access to funds, which resulted in excessive exuberance on asset price inflation. The Impact on Hong Kong 26. Amidst the recent attacks to the regional currency markets, no economy in Asia has been totally immune, not least Hong Kong, despite the strong fundamentals. 27. If we identify the real issues in Asia as one of structural competitiveness in the global economy, caused by shifts in global resources and rising productivity outside the region, then structural adjustment must come through changes in either the internal price or the external price. With a fixed exchange rate regime and therefore a fixed external price, such as in Hong Kong, the adjustment comes through changes in the internal prices, especially the asset markets. In those economies with floating exchange rates, there may be adjustment in both the internal and external prices. This is exactly what is happening right now. Using the US dollar still as the benchmark currency, it is very interesting to see that since the beginning of the year, the Hang Seng Index has declined by 26% as of last Friday, Singapore Strait Times Index by 32%, the Nikkei 225 by 28% and the other ASEAN indices by between 50-60%.
Accordingly, the value of collateral and thus owners’ assets continued to grow, as expected. Against this background, banks for their part were more optimistic about credit risks as the number of loan defaults remained low thanks to rising property prices and favourable credit conditions. As both credit volume and real estate prices rose higher, economic agents felt vindicated in their optimism. But if such a period of excessive optimism is followed by a downturn, the impact on these highly indebted agents is huge. The trend on the real estate market in Switzerland reversed in 1989 (cf. slide 14). Systemic risks materialised and considerable losses were registered. As investments were largely debt-financed, there was a flurry of loan defaults. Ultimately this led to banks in Switzerland having to write off more than 40 billion francs. 18 To cut a long story short, the Swiss economy slid into recession at the beginning of the 1990s, unemployment rose sharply to 5% and the economy subsequently recovered only very slowly (cf. slide 15). Ladies and gentlemen, having shown you in the first part of my speech that loans are an essential basis for economic growth, I have now explained how excessive lending can seriously damage the economy. I have also outlined how a combination of rational behaviour and distorted expectations of borrowers and lenders can lead to harmful excesses in the credit market. What role do central banks play in the credit cycle?

My main focus thereby will be on what central banks can and should do. Why are loans useful from an economic perspective? Lending is one of the cornerstones of a successful economy based on the division of labour. This fact has been recognised since ancient times (cf. slide 5). As much as 5,000 years ago in Mesopotamia, seeds for crops were made available on loan, with repayment including interest due after harvest. Loans were also commonly used in ancient Greece and Rome. 1 Lending in its present form dates back to the emergence of the ‘modern’ banking system in Europe in the late Middle Ages. 2 To this day, banks fulfil key functions in brokering loans. Without them, efficient large-scale lending as we know it would not be possible. 3 Most recently, alternative methods of credit provision have emerged thanks to digitalisation – P2P or crowd lending for example. Nevertheless, banks remain the mainstay of an effective credit system. I will now explain why growth and prosperity would be significantly lower without an efficient credit system. To do so, I need to clarify the two basic functions of loans (cf. slide 6). First, loans enable borrowers to have future income at their disposal now. And second, loans allow creditors to make optimal use of their available capital. Loans enable borrowers to have future income at their disposal now  Let me explain this in greater detail. Regarding function number one: Without loans, expenditure at any given time is limited to one’s savings and one’s current income.
There are also a wide range of domestic and international policy changes ranging from the creation of the New Payments Architecture to the implementation of PSD2 so now seems an opportune time to promote the transformation of the payments landscape. The Bank is committed to introducing the new service in a safe and sustainable way which ensures the integrity of the high-value payments system and provides for close levels of co-ordination with participants. 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  A core objective in the renewal programme is to ensure the resilience and safety of the UK’s payment infrastructure whilst also supporting competition and innovation in the financial services industry. We want to support new ways of doing business and serving society’s payment needs. Our vision of the future RTGS 1  was set out in a Blueprint published in 2017. In developing this vision we undertook considerable dialogue with industry: it is essential that the new system meets its needs. Our vision  Five guiding principles sit behind our vision for the renewed Real-Time Gross Settlement service. Higher resilience: Resilience to operational and security issues will be at the heart of the new service, as it is today. The renewed RTGS will continue to offer best-in-class resilience which means it will be designed to deliver an improved objective of zero or near-zero downtime for currently known resilience problems.

One of the key changes will be the creation of the UK Common Credit Message (CCM).The proposed CCM would provide a set of definitions, structures and rules for inputting data into a payment message for Payment Service Providers and users. Domestic adoption of the CCM will ensure that the majority of the content in high-value and retail payments is aligned, streamlining processes for payment services providers and potentially enabling rerouting of payments between different payments systems in the event of operational disruption. Other benefits arising from ISO adoption will be much improved information concerning the identities of those in payment transactions. This will include the adoption of Legal Entity Identifiers (LEIs), which when rolled out more widely have the potential to enable banks and non-bank payment service providers to deploy next-generation fraud prevention measures. The Bank will ensure that this functionality is in place but it will be up to industry to deliver these enhanced services for customers. As with the overall RTGS Programme the Bank is committed to proactively engaging with industry to get this right. A consultation on ISO 20022 closed in July 2018 and the Bank, in collaboration with the NPSO, is reviewing the responses received. There will be an update on next steps and how the Bank will structure future ISO engagement towards the end of the year. We are also maintaining an active dialogue with the NPSO as it takes forward plans for the New Payments Architecture which will also deploy on ISO 20022.
Dec 19  Jun 20  Dec 20  80 Jun 21  Sources: OECD Quarterly National Accounts, IMF World Economic Outlook and Bank calculations. Across the advanced economies in aggregate, spending on services in first quarter of the year was 5% lower than at the end of 2019; spending on goods was 5% higher (Chart 7). Shifts in demand happen all the time and, as long as supply can shift in response, they needn’t have any impact at the macro-economic level. But this one was far larger, more widespread and occurred much faster than most. And, far from shifting in response, and meeting that extra demand, the pandemic meant the global supply of goods was actively impaired. Local lockdowns affected production in many Asian countries and effective capacity in shipping and other forms of transport was also hit. Earlier this year my own guess was that these things would visibly start to reverse by the end of it. Because they were caused by the pandemic it was reasonable to expect the shifts in demand to reverse, and the problems in supply chains to abate, as vaccinations took effect. As yet it’s clear that hasn’t happened to the degree that I, at least, expected. Shipping costs remained very high throughout the autumn; as we’ve seen, energy (and particularly gas) prices took a huge lurch upwards; at the retail level there is no sign yet of any deceleration in goods prices.

The recent reforms to strengthen the euro area fiscal framework – the so-called six-pack and the fiscal compact – are welcome and go in the right direction. But they remain within the logic of the Maastricht Treaty where responsibility for fiscal policies is exclusively in national hands. This creates an inherent credibility problem, as for fiscal frameworks to be fully credible, they have to enforceable. This is impossible without a further and deeper sharing of budgetary sovereignty. This could be achieved by giving European institutions greater competence to effectively compel euro area Member States – in a graduated manner if and when the situation deteriorates – to take the necessary fiscal policy decisions. This would correspond to a further sharing of national sovereignty. But for both weaker and stronger countries, it is in fact an opportunity to regain substantive sovereignty as opposed to formal sovereignty. For the weaker countries, measures that put the soundness of their fiscal policies beyond doubt will allow them to be fully sovereign, in the sense that they can use fiscal policy in its vital economic stabilisation role and take free decisions about taxes or types of expenditure without fear of excessive discipline from financial markets. For the latter, sharing sovereignty at the European level will allow them to effectively protect their domestic economies from spillovers from the rest of the euro area. Moreover, they will no longer be placed into situations where they are de facto forced into taking decisions to avert imminent catastrophe.