samchain/econo-pairs-v1 huggingface dataset:
W A Wijewardena: The internal auditor in banking institutions – challenges and his new role Keynote address by Mr W A Wijewardena, Deputy Governor of the Central Bank of Sri Lanka, at a seminar by the Institute of Internal Auditors, Colombo, 30 November 2007. *  *  *  The precise role which an auditor should play in an organization has always been subject to much debate. Different schools of thought had held different views on the subject based on their personal feelings and ideologies. When we were studying auditing at the university some four decades ago, an adage which was firmly planted in our heads was that “an auditor was a watch dog and not a blood hound”. This principle which had ruled the sphere of auditing for decades had been established in many legal cases that had been judged in the United Kingdom and elsewhere by reference to the common practice of auditing. This simple expression amply described what role an auditor was expected to play in an organization. He was simply to keep a watchful eye on the operations of a business and alert his masters of any irregularity that was happening. Once this was done, it was the responsibility of the masters to take necessary corrective action. An ambitious audit officer may be tempted to go beyond the bound of this adage and take upon himself the responsibility of passing penal judgments on those whom he finds as miscreants of financial responsibility.

Yet despite their attraction, no more than a handful of countries internationally have so far issued GDP-linked debt instruments. Contingent convertible (“CoCo”) bonds are a second, potentially useful, debt instrument. These have been popular recently among banks. For countries, they could be designed with a duration which is automatically extended if a country breaches certain pre-set stress conditions – for example, if it is the subject of an IMF lending programme (Brooke et al (2012)). This would then deliver some automatic alleviation of short-term liquidity pressures. So far, no country has issued such instruments. There has been somewhat greater progress towards the inclusion of contractual clauses which assist in the restructuring of sovereign debts once these become unsustainable. In particular, following the Asian crisis there was a push by the international community to include Collective Action Clauses (CACs) in international bond contracts. Yet as recent Argentine experience illustrates, this has not closed the book on sovereign debt restructuring problems. Existing CACs tend only to cover one particular class of bonds. This gives rise to a potential aggregation problem if other classes of bond vote against – or hold-out from – a restructuring agreement. “Aggregation” CACs include the option for bonds to be restructured on the basis of a single vote across all affected bonds. A recent IMF paper proposed that these clauses be included in foreign law bonds, a proposal which appears to have the support of the international community (IMF (2014)). Kazakhstan recently incorporated these clauses into its bond programme.
The debate in Sweden is ahead of the international debate There is reason to believe that the experiences we have had in Sweden in recent years mean that we can make useful contributions to the international debate. For quite some time, we have had a discussion on the process of inflation and the conditions for inflation targeting, while this is a relatively new phenomenon in There is also a parallel debate on whether the inflation target should be replaced, for example, with a pricelevel target or a target for nominal GDP. However, I will not address this debate in this speech. 2 See Davies (2017). For the sake of simplicity, I will adopt Davies’ terminology hereafter and refer to the two opinions as the ‘Borio camp’ and the ‘Yellen camp’. Of course, this does not mean that all arguments can be linked to specific statements by Janet Yellen or Claudio Borio. For typical references, see Borio (2017), Borio et al. (2017) and Yellen (2017a, b). 1  2 [20]  most other countries. Almost exactly one year ago, I held a speech where I noted that the long period of below-target inflation had led to a debate in Sweden which had few equivalents abroad. Analysts and observers argued that this development, with inflation persistently below forecast and quite far below the inflation target, indicated that the target was so hard to reach that the Riksbank should abandon the attempt and instead conduct a less expansionary policy aimed at dampening rising household debt and housing prices.

SPEECH DATE:  6 Dec 2017  SPEAKER:  Deputy Governor Per Jansson  VENUE:  Fores, Stockholm  SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 registratorn@riksbank.se www.riksbank.se  The ideological debate on monetary policy – lessons from developments in Sweden∗  These are unusually exciting times to be working at a central bank. Challenges have always been present, of course, but I think that it could be claimed that seldom have they been of such a fundamental nature as they are today. One example is the debate on limiting central banks’ independence that has arisen recently. This has come about after several countries have found themselves unable to conduct monetary policy using policy rate adjustments alone. Instead, they have had to complement this with tools that some observers feel have blurred the boundary between monetary policy and other economic policies. Another example is that technological progress within the area of payments has led to the rapid decline of cash usage in a number of countries, not least Sweden. Whether and how this trend will affect the conditions for conducting monetary policy and whether it provides reason for the central banks to issue electronic money as a complement to physical cash will be the focus of intense discussions in the period ahead. These are important and fundamental issues.
The UK Government has already introduced a range of measures to underpin the banking system, including requiring the injection of additional capital, guaranteeing bank debt and providing insurance against losses on some of the risky assets on banks’ balance sheets. That has served to stabilise the banking system. But we are still some way from having banks that feel sufficiently secure that they can lend normally, and investors that have enough confidence in the banks to provide them with sufficient funds. The Bank will continue to work alongside the Government and the FSA in trying to ensure an adequate flow of funds to business. Unfortunately, past experience in other countries suggests that it often takes time for the banking system to mend after a crisis, and it is possible that the supply of credit will remain impaired for some while. There are two reasons for optimism about the strength of the recovery. First, we have the advantage of a substantial depreciation in sterling, whose trade-weighted value is about a quarter down on its value before the crisis broke. That should encourage buyers to switch to goods and services made in this country and make it more profitable to produce them. As a result, it should facilitate the necessary re-balancing of the economy. Second, an unprecedented policy stimulus is working its way through. In particular, the Monetary Policy Committee has lowered Bank Rate to 0.5%, a level unmatched in the Bank's 315-year history and only marginally above its floor of zero.

But that is not the end of the matter, as investors need to do something with the proceeds from their asset sales. They could just sit on the proceeds, but it is more likely that in due course they will buy other assets, including those that offer a higher return. So, in the course of time, the whole range of equity and bond prices are driven up, lowering the cost of finance to companies and increasing its availability. Our purchases of corporate assets are intended to have the additional effect of improving the functioning of those markets. By standing ready to buy commercial paper and corporate bonds, we hope to improve their liquidity, lowering the spread above safe assets of equivalent maturity, and with it the cost of finance to business. 2  BIS Review 62/2009  There are signs that these measures are having a beneficial impact too. Spreads on commercial paper eligible for purchase have fallen by around ½ percentage point and the size of the market has increased by around 10%. Similarly, average spreads on sterling investment grade corporate bonds for industrial companies have declined by some 60 basis points and gross issuance of bonds by UK companies has been strong. These developments may reflect a range of influences, but feedback from market participants suggests that our purchases have indeed played a helpful role. In addition to these channels, the banks, finding themselves flush with extra reserves, may choose to lend them on, providing a further kick by boosting the supply of credit.
For the euro to be sustainable, we need a stronger framework, particularly in relation to structural reform, where we need a strong and shared decision-making mechanism. Fiscal union is part of this debate, but it can only be implemented when there is a sufficient degree of homogeneity between countries and when a mechanism for political responsibility becomes available. Fiscal union without democratic control is not possible and is incompatible with democracy. This subject will come up, but not until further down the line. 4  BIS central bankers’ speeches

Further, in our initial investigations we had established evidence that many respondents would prefer to give a range rather than a point estimate and that most households were able to answer questions about their uncertainty over future inflation. We had also found our measure of individual forecast uncertainty to be positively correlated with the width of any range of responses given to the standard point forecast questions. Thus, we added questions eliciting from our panel their subjective uncertainty about future inflation. I will show you an example of such a question in a minute. As emphasized above, anchoring forward inflation expectations is crucial for monetary policy. In the Michigan survey, information on forward inflation expectations is generated by a question asking about “the change in prices in general over the next 5 to 10 years.” Our initial exploratory work confirmed that many households were confused by this wording but that there was overwhelming evidence that long-term average expectations were being reported. Considering the rather elaborate structure of the Michigan questions shown in Chart 5, it also appears that small changes in the various challenges could lower the median response by a significant margin. Further, asking about the rate of inflation directly produced answers more consistent with the concept of forward inflation expectations of interest to central banks. Rather than replicating the Michigan long-term inflation expectation question replacing “prices in general” with the “rate of inflation” we decided to work with a medium-term explicit horizon and use only a probabilistic version of the question.
The current weakness of the dollar, although it had been expected for some time, is a cause for concern for us especially as it comes at an unfavourable time. We watch therefore the exchange rate development very closely. In the present economic situation it is not easy to identify positive factors. One of them is definitely the environment of price stability and strong competition which is keeping inflationary expectations at an historical low level. As a result, monetary policy can remain expansionary. This is clearly the case in Switzerland. A second positive element are the structural adjustments. In Switzerland, the private sector has adjusted courageously to the new low-growth environment in which the price/quality ratio becomes a key factor of success. I think that our economy is well positioned now to benefit fully from an upturn in international trade. Last but not least - and here we join Poland - our main source of hope lies in Europe. Since Switzerland is heavily dependent on exports, sluggish economic performance in Europe, and especially in Germany, is a major cause for concern. But there are now signs of hope : the German government is considering a reform programme which should increase potential growth, and manufacturing orders are improving; in France GDP growth is positive; in the UK industrial production is accelerating again. We can now expect a gradual improvement in the overall economic picture and a progressive strengthening of consumer and investor confidence.

Switzerland as an independent monetary zone  As is the case in most countries today, the Swiss National Bank pursues a monetary policy that is independent of the political authorities. We regard this independence as a key prerequisite for a successful policy. Our main goal is to maintain price stability. Thereby we create the basis for rational investment and expenditure decisions, and we contribute to a balanced economic growth. Price stability has been the traditional objective of our policy for decades, but our monetary strategy had to be adapted to changing circumstances. Following the transition to floating exchange rates some 30 years ago, monetary policy was based on the control of the monetary aggregates. We had to fight against inflation by far exceeding today’s levels. Inflation could be sustainably reduced in the second half of the 1990s, although the monetary aggregates became increasingly unreliable as monetary indicators. Monetary policy needed to be redesigned. In 1999, we adopted a new strategy based on three elements: ·  The first element is an explicit definition of price stability: price stability is achieved when inflation, as measured by the consumer price index, is less than 2%. We want to achieve this objective over the medium term since controlling inflation on a short-term basis would translate into high costs to the national economy. A monetary policy geared to medium-term price stability also helps to smooth out cyclical fluctuations.
The level of 4.0% will be reached by 2017. In addition to scenario II, scenario III assumes a more significant decline in oil prices, i.e. down to $ per barrel in 2017. The GDP growth rate in this scenario slows down to less than 1%. The scenario forecasts the use of the Reserve Fund within the framework of existing budget rules in order to stabilise the situation in the economy. As a result, the fiscal policy, in our opinion, will make a more pronounced positive contribution to the aggregate demand dynamics. In scenarios II and III the reduction of inflation to the medium-term target of 4.0% will require more time than in the baseline scenario; we believe it possible to reach this level in 2017. According to the forecast, the inflation will be 6–6.5% in 2015, 4.5–5.0% in 2016 and 4.0–4.5% in 2017. In both alternative scenarios, the Bank of Russia will focus on ensuring financial stability, preventing the reduction of confidence in the domestic financial system and national currency. To do this, we will be ready to use additional tools, including non-standard ones that have not been applied earlier. Currently, the Bank of Russia is also developing the so-called stress scenario – an emergency scenario, which implies a sharp and more significant drop in oil prices over the forecasted horizon. We consider the possibility of adding this scenario to the Guidelines at the next stage of the document finalisation.

I would like to say that the draft Guidelines are available on the official website of the Bank of Russia. We are now discussing the document with experts and analysts. It was reviewed at a Russian Government meeting. Based on the discussion outcomes, including the today’s discussion, we will be ready to finalise the document and submit it for consideration to the State Duma. Thank you very much for your attention! 4  BIS central bankers’ speeches
The IMFC Deputies group could also be strengthened by convening also in between the annual and the spring meetings. It is important that all  4  BIS Review 43/2005  countries participate at a high level (today, many countries participate with their Executive Directors). One likely reason that the BIS functions more smoothly, a part from the fact the issues discussed are of a less political nature, is that those who take the decisions on the domestic front are the same people that meet in Basel. 6. Overhaul the IMF's internal organisation. As multilateral surveillance becomes more important, the country departments should work (even) closer with the departments that possess knowledge of institutions and institution building. It is also reasonable that the IMF’s current resource base, which primarily consists of economists, be broadened with people that have a financial background and practical experience of policy work and institution building in their own countries. Concluding remarks To sum up: •  The IMF’s overall objective is still valid;  •  The IMF’s instruments for reaching this objective – surveillance, lending and technical assistance – are, in general, functional and effective, in theory;  •  In practice, however, many of the IMF’s member countries do not allow the Fund to play the role that it could have. The IMF has untapped potential, not least in the area of surveillance;  •  The untapped potential is closely related to political issues.

The problems are not a consequence of shortcomings in the borrowing instruments. I do not see any immediate need for new types of lending instruments, such as non-borrowing programs or a reintroduction of Contingency Credit Lines. There are already surveillance methods in place to deal with such situations, and today's borrowing instruments are sufficiently flexible to meet the existing requirements (and demand). Nor do I believe that the problems to any great extent are due to incorrect analysis or erroneous assessments, even though the situations faced by the Fund are often difficult and the advice given has been open to question from time to time. Nonetheless, there are a number of things that can be done in this area. Shortcomings still exist, as I mentioned earlier, as regards the Fund's participation in crisis resolution. There is scope for further development of those instruments that exist today. The reason why this has not happened is because some countries oppose it for political reasons. This brings me into the role that “political considerations” play for the IMF to work well. In my view, the central problems of the IMF are often political in nature. These problems exist at several different levels: •  Individual countries are sometimes for political reasons not willing to take the sometimes bitter medicine prescribed by the IMF’s staff and Executive Board and engage in serious dialogue.
This affected employment, and the resulting uncertain labour market situation had a dampening impact on private consumer spending which rose at a below-average rate. The real estate sector, by contrast, benefited from the continuation of favourable financing conditions. Oil prices rose again at the beginning of the year, continuing to act as a brake on the world economy, and the situation remained particularly gloomy in Europe. Given these developments, it is most unlikely that the 1.5% growth for 2005 forecast in the last monetary policy assessment will be attained. However, signs of an improvement in the Swiss economy became evident in the first quarter of the year, with exports picking up in April and May. We expect this trend to be confirmed in the months to come, and now forecast real GDP growth of about 1% for the year 2005 as a whole. This delay in the recovery of the economy will have a dampening effect on price developments in the year 2006. Now I would like to outline my assessment of monetary developments, which remain more or less unchanged with respect to the assessment presented in March. The three-month Libor rate has remained at a low level for a long time now: it has been below one percent for almost three years, since July 2002. Real rates of interest for three month maturities have been negative for two years. Given the unusually low level of interest rates, the willingness to invest in liquid assets remains high and, according to our estimates, the money overhang persists.

International capital markets play an important role for Norway. We drew on borrowing opportunities abroad when the petroleum industry was under development. We did the same in order to expand welfare schemes and to finance the countercyclical policy of the mid-1970s and the early 1990s. In the past 15 years, international financial markets have enabled us to convert national oil and gas resources into foreign equities and bonds. See chart “Real return on the fund” at the end of the speech. Since its establishment in 1998, the fund’s average annual real return after costs has been 2.9 per cent, or somewhat lower than the expected long-term return. This figure is marked by the challenging character of the financial crisis. The fund lost NOK 633 billion 4 in 2008, but a market reversal in 2009 has resulted in a positive return of NOK 716 billion over the past five quarters. So far, the fund seems to have fared relatively well through the most severe financial crisis for many decades. We still consider a real return of 4 per cent as realistic over time. This is based on the assumption that investment in sound government securities in the market can provide a reliable real return of about 2½ per cent. At the same time, the fund can reap a return of 2 to 2½ per cent in the long term from the three-fifths equity portion, some gains on corporate bonds and returns from active management.