samchain/econo-pairs-v1 huggingface dataset:
Michelle Neal: Advances in digital currency experimentation Remarks by Ms Michelle Neal, Executive Vice President and Head of Markets of the Federal Reserve Bank of New York, at the Singapore FinTech Festival 2022, Singapore, 4 November 2022. ***  As prepared for delivery Good afternoon. It is a pleasure to be here with you at the Singapore Fintech Festival. It is exciting to be a part of this gathering of industry professionals, policy leaders, and investors to discuss key developments in the fintech industry. Digital innovation has the potential to benefit the financial system writ large by reducing transaction costs, increasing competition, and broadening access to a wider range of participants. However, harnessing the full potential of financial innovation and related technologies – especially regarding cross-border settlements and payments – will require collaboration across a range of international partners. In my remarks today I will discuss the landscape of digital assets and some of the ways that the Federal Reserve System is engaging in research and experimentation that support ongoing innovation. As always, the views I express today are my own, and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System. Digital Assets and the Federal Reserve We are all experiencing the incredible pace of growth and change within the digital asset domain, which encompasses a range of opportunities and risks.

A CBDC would need to protect against cyber and operational risks, safeguard the privacy of sensitive data, and minimize risks of illicit financial transactions. Additionally, one of the most important aspects in our deliberations is that any form of a CBDC in the future would need to be intermediated. This means that the private sector would need to act as intermediaries in that system, and a direct account approach would not be contemplated. While the Federal Reserve has made no decision on whether or how to issue a CBDC, we are actively conducting technical investigations into both retail and wholesale CBDC design. Project Hamilton, which is a partnership between the Federal Reserve Bank of Boston and MIT, has experimented with potential approaches to a digital dollar, with work focused on retail uses and payment channels. In the use case they explored, the Hamilton team was able to demonstrate the potential for usage at scale, which would be a key design element of a retail CBDC. 6 As a complement, and in line with the New York Fed's unique role in the Federal Reserve System with wholesale payments in both domestic payments and foreign exchange, the New York Innovation Center is researching technical aspects related to wholesale CBDCs. In addition to CBDC, the broader digital assets landscape, which includes stablecoins – cryptoassets that are backed by assets such as U.S. Treasury securities to stabilize their value – and unbacked cryptoassets, has grown significantly in recent years, and continues to evolve quickly.
The Basel Committee is thus introducing quantitative liquidity requirements for banks for the first time. Basel III works with two liquidity measures – one short-term and one long-term. The shortterm measure is based on, in principle, every bank having sufficient liquid assets to survive for at least 30 days. It is difficult to see such a requirement as unreasonable. The long-term measure, in principle, limits the gap between the maturity of a bank’s assets and the maturity of its debts. This limits the duration risk of the bank. …and particularly the regulation of systemically-important banks A particular focus has been placed on systemic risks and the most systemically-important institutions. To a great extent, this is a work in progress. So far, the Basel Committee has  1  2  In principle, Basel III defines Common Equity Tier 1 as share capital and previous profits. BIS central bankers’ speeches  identified almost 30 global systemically-important banks (G-SIBs). The list was published last week and includes one of the major Swedish banks, as you may have noticed. The Committee feels that it is particularly important that these banks have extra strong resilience. Those identified as G-SIBs should thus have an additional capital buffer, the size of which depends on how systemically important each bank is deemed to be on a global level. A framework should be put in place for how the authorities in different countries should handle them if they find themselves teetering on the brink.

The costs of higher capital adequacy requirements are limited and largely private, as opposed to the true economic costs. The advantages in the form of a safer banking system are considerable. A reduced risk of financial crises is good for the real economy, good for taxpayers and also good for the banks’ shareholders. The Riksbank will soon present a report that clearly shows that the benefits of higher capital adequacy requirements exceed the costs. An increased capital adequacy requirement may also need to be matched by a tighter leverage ratio requirement. The European Systemic Risk Board (ESRB) has recently submitted recommendations covering lending in foreign currency. We could see the risks of this type of lending to households at close quarters in the Baltic countries a few years ago. A few of the ESRB’s recommendations are (i) better consumer information and credit reviews of borrowers, (ii) taking exchange rate risk into consideration in the national capital adequacy requirements, and (iii) supervision of the risks in liquidity management. Swedish banks need to limit these risks better in the future. The Swedish banks’ liquidity measures need to take into account that it can be difficult to obtain certain currencies in stressed situations. Basel III’s short-term liquidity requirements also need to be met on a per-currency basis. Furthermore, we are examining whether the Riksbank’s reserve requirement can play a part in this regard. The low Swedish risk weights are a cause for concern.
The whims of French kings were replaced by parliaments that were accountable to the people. It is no coincidence that the name of the most prominent great power’s monetary unit – the pound – reflected a measure of weight: the value of a pound of silver. 10 Credibility hinged on orderly government finances and a stable political situation, which contained seignorage temptations and in turn strengthened public confidence in the value of money. A number of conditions need to be in place to enable a central bank to keep its promise! When Norges Bank was established in 1816, the government sought to ensure credibility by establishing a tax-financed silver fund. A par value against silver for the new paper money – the speciedaler – was announced. However, the market value of the speciedaler was considerably below par value – the authorities in our young country were in a difficult financial situation and had not yet established confidence. It was not until 1822 that the authorities were able to establish a more orderly system when the Storting adopted a longterm strategy whereby the silver value of the speciedaler would gradually increase to par value. 11 This goal was reached in 1842, twenty years later, bearing witness to long-termism and persistence in policy implementation. And persistence was rewarded. The rest of the 1800s and the period to the Second World War were generally characterised by price stability and strong growth in the Norwegian economy, even though there were also periods of weaker growth.

BIS central bankers’ speeches  7  Conclusion Let me conclude. In Norway, inflation has on average been somewhat below, but close to, 2.5 percent in recent years. Activity has been close to a normal level and unemployment has remained low. At the same time, house prices have risen sharply since the 1990s and household indebtedness is at a historically high level. Against this background, it has been appropriate to keep the key policy at the chosen level in order to dampen the build-up of financial imbalances. When assessing various considerations, Norges Bankmust pursue the primary objective of monetary policy – low and stable inflation. If financial imbalances build up further, it will be appropriate to assess the level of the countercyclical capital buffer for banks. Banking regulation and supervision must be the first line of defence against shocks to the financial system. At the same time, we cannot proceed under the assumption that new regulations will eliminate the risk of financial stress. A robust monetary policy should therefore take into account the risk of financial instability. Monetary policy will then also contribute over time to stable economic developments in line with Norges Bank’s mandate. 8  BIS central bankers’ speeches
First I will review the harmful effects that the ongoing crisis will have on the future development of financial markets. Next I will discuss financial bubbles and booms in monetary policymaking, and the nature of the present crisis and possible consequences, to wrap up with the implications of the world growth scenario on the Chilean monetary policy. In the present turmoil, authorities have acted as lenders of last resort providing liquidity to ensure proper market functioning. Nonetheless, regarding financial bailouts two costs have to be balanced: averting a financial collapse with catastrophic consequences on the one hand, and the negative signals that come from said bailouts, on the other. Not only have the too-big-to-fail institutions been rescued, but also entities whose connections with the system are such that if they fail the whole financial system may be shaken. Troubled companies’ shareholders should not be bailed out, because it is important that risk evaluation is done more diligently in the future. Care must be taken in rescuing debtors of defaulted firms, because it may relax borrowing and repayment discipline, and punish good creditors by comparison. The tradeoff between these two objectives is clearly illustrated with the developments of the past week. Allowing the demise of Lehman Brothers was a sign that bailouts would not be up for grabs and even the downfall of a large investment bank would be accepted, but this may have accelerated the devastating chain of events that followed.

In response, the US and other major industrial countries introduced a series of extraordinary measures from late 2008, which successfully stabilised and prevented the collapse of the global financial system. However, these extraordinary measures, including quantitative easing policies, do not seem to be very effective in stimulating economic growth and creating jobs. In the US, for example, the sharp fall in housing prices has significantly damaged household balance sheets. Such kind of balance-sheet driven recession has substantially impaired the responsiveness of the economy to monetary stimulus, as consumption and credit growth will remain sluggish until household balance sheets are repaired. I believe that US households still have some way to go in repairing their balance sheets through de-leveraging, before they regain confidence in consumption and investment. At the same time, the US fiscal conditions have deteriorated since 2008 and this has restricted the headroom for the government to launch further fiscal packages to stimulate growth and create jobs. The situation in Europe is in no better than the US. The sovereign debt problems of the Eurozone have already spread to Spain and Italy, and have even threatened the stability of the debt markets in the core countries of the Eurozone. It now appears that the rescue package announced by the European Union in late October is no longer sufficient, and hence the market is expecting the European Union Summit tonight to introduce stronger and more effective solutions to resolve the European debt problems.
So the message has to be not one like "we think it’s too risky to extend more credit to this sector” but instead more like “have you thought about the entire range of relevant risks in extending more credit and are your underwriting criteria in line with the riskier environment?" It’s important in publishing a financial stability report to present its findings as a range of possible outcomes which the private sector can then be encouraged to factor into its own risk management practices. Stress tests and scenario analysis provide the intellectual backbone for financial stability reports. Stress testing, in particular, has come a long way in recent years. The HKMA’s requirements on stress testing by banks have been in place for some time. Our Supervisory Policy Manual Module on Stress Testing, issued in early 2003, requires banks to have in place a stress-testing programme and to integrate stress testing into their risk management processes. For our own internal purposes we also conduct stress tests by applying a range of shocks to the supervisory data that is reported to us. These shocks take into account various adverse movements in banks’ liquidity, interest rate and market risk positions. However, the techniques of stress testing are rapidly evolving and are becoming increasingly more sophisticated. The first generation of stress tests simply took a variable and subjected it to a shock. It was basically just a matter of saying "let’s see what happens to capital if NPL’s go to 20 percent."

Mr Heikensten looks at the current economic situation in Sweden Speech by the First Deputy Governor of Sveriges Riksbank, the Swedish central bank, Mr Lars Heikensten, to Forum ’99, the Swedish Federation of Rental Property Owners, in Stockholm on 15/02/99. I should like to begin with a word of thanks for the invitation to talk here today about economic developments, inflation and the interest rate. Before taking a look at the current economic situation and saying something about our deliberations in the Riksbank, however, I feel there may be grounds for adopting a somewhat broader perspective and even for striking a slightly optimistic note. Sweden certainly has economic problems; further measures are needed, not least to improve the conditions for growth. But at times it may also be fitting to recall the things that have turned out well. Swedish economic policy was realigned in the early 1990s with the aim of establishing a regime of low inflation. Previously, Sweden had had a long tradition in this respect but in the 1970s and 80s the accepted truths were discarded, including the idea that low inflation provides a good foundation for growth and employment. Following the collapse of the Bretton Woods system, stabilisation policy no longer offered any hard and fast rules. Sweden’s external debt – both government debt and the total stock – was allowed to grow at a dramatic rate, accompanied by spiralling prices and wages. Today, Sweden is in the sixth successive year of good economic growth.
As I have discussed here, this is a multifaceted issue that must consider crisis predictability, management, and the role of research in providing rigorous frameworks – albeit incomplete ones – with which to analyze reality. Nonetheless, that macroeconomic theory has failed is an overstatement. In particular, the comparatively better performance of emerging economies – with the exception of a few cases such as Eastern Europe that remind us of our mistakes of the past – demonstrate that economic research has taught us something. In particular, the majority of macroeconomic policies have sought not to replicate past mistakes. Now it is necessary to analyze more carefully the role of financial markets, their virtues and, of utmost importance, their vulnerabilities. This crisis is an admonishment to professional arrogance. We must recognize that the real world is much more complex than what our models can explain. This is why so-called  6  BIS Review 112/2009  professional orthodoxy is discredited. However, we must also avoid the arrogance that comes from ignorance, which leads to abandoning all we have learned about the fundamentals of good macroeconomic policies. References Berg, A., E. Borensztein and C. Pattillo (2004), “Assessing Early Warning Systems,” IMF Working Paper, 04/52. Bernanke, B. (1983), “Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression,” American Economic Review 73(3): 257-76. Bernanke, B. and H. James (1991), “The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison,” in G. Hubbard (ed. ), Financial Markets and Financial Crisis, Chicago: Chicago University Press.

4  BIS Review 112/2009  the existence of cars. However, it seems more reasonable to build safer cars, buckle up and drive prudently. Crises will continue to happen, but the proper way to act is to strengthen the financial system and macroeconomic policies, in order to minimize their consequences and probability of occurrence. We must not remain in the notion that a crisis cannot be prevented and thus there is nothing we can do about it. Going back to the car analogy, the fact that accidents will always happen does not mean that we must allow driving at any speed and with no regulation. Quite the contrary, we know that crises are especially severe when they affect the financial system, so it is reasonable to improve regulatory mechanisms, particularly to allow financial innovation while keeping vulnerability under control. Meanwhile, it is necessary to continue devoting efforts to the detection of early alerts, although, as I have already pointed out, unambiguous indicators are impossible to find. But there are symptoms of fragility, very common in emerging economies. High and persistent current-account deficits, misaligned exchange rates, currency mismatches in the financial and corporate sectors, excessive increases in the prices of assets and credit, all signal a potential problem, although they do not result necessarily in a crisis. 8 Therefore, a look at the indicators is not enough, it is important to put them together to detect fragilities.
The group is made up of senior line supervisors – that is, the people who actually assess banks’ risk profiles – and is led by Nick LePan, the Canadian Superintendent of Financial Institutions. Applying the Basel Accord in the non-G-10 countries Many other countries are similarly preparing for the final leg of our journey, and I applaud your persistence and dedication to this endeavor. At the same time, the Committee recognizes that some countries have only recently adopted the original 1988 Accord and may still be working to ensure a basic level of capital adequacy. I would like to take a moment to address the supervisors of those countries and emphasize that the Basel Committee’s efforts to revise the Accord are focused on the international banks that compete in the global capital markets and that have the greatest potential to create systemic risk. The need for a common approach to capital adequacy regulations for such banks is what drove the Committee to create the 1988 Basel Accord. As I have noted, however, the original Basel Accord has in some sense become the victim of its success, having been adopted in a number of countries and applied to entire banking systems, including banks both large and small. Now, as the Basel Committee is clearly moving away from a single approach to capital, it is important for the Committee and supervisors worldwide to reflect on the choices available to regulate the capital of banks that are neither highly complex nor internationally active.

Even this very summary review illustrates how the changeover to a single currency in Europe will affect conditions for the financial system. The financial markets will become larger, accompanied by increased competitive pressure. Some activities will be modified or disappear entirely. Others will be concentrated to one or a few financial centres. But there will probably also be some new activities. These developments will leave their mark even in countries that do not join the euro area but are adjacent to it. This, too, is a process that has already begun. Banks are being merged into large units. Cost-cutting has come to the fore. Modes of distribution are being overhauled along with a buildup of specialist knowledge. Systems for pricing different products are being changed. Financial transformation not straightforward Today there is a widespread conviction that free trade in goods and services enhances prosperity in the long term. In the same way, most things suggest that in time, free trade in the financial field leads to increased economic growth. But we have also learned that the transformation and development of the financial field are not without problems. In the past decade there have been bank crises in a number of countries as well as several heavy corrections and large fluctuations in money, equity and currency markets around the world. There is nothing inherently new about financial crises. On the country, they have occurred from time to time for many centuries.
On the fiscal side, the authorities can cut taxes or increase spending to support income and demand during the deleveraging phase that follows the financial crisis. But the ability of such stimulus to continue to support economic activity ultimately encounters budgetary limits. For example, the need to keep the long-term fiscal trajectory on a sustainable path limits the size and duration of federal fiscal stimulus measures. For state and local governments, the statutory requirements for balanced budgets meant that fiscal policies turned restrictive relatively quickly once budget surpluses and rainy day funds were exhausted, and this was only temporarily mitigated by federal transfers to the states as part of the initial fiscal stimulus program. Fiscal policy is now a drag rather than a support to growth in the United States, and this will likely continue. BIS central bankers’ speeches  3  Monetary policy I would give each of these four explanations some weight for why the recovery has been consistently weaker than expected. But I would add a fifth, monetary policy, while highly accommodative by historic standards, may still not have been sufficiently accommodative given the economic circumstances. Now let me be clear. I believe the evidence overwhelmingly indicates that our monetary policy has been effective in easing financial conditions and supporting economic activity.

First, the spending decisions of the older age cohorts are less likely to be easily stimulated by monetary policy. That is because such age groups tend to spend less of their incomes on consumer durables and housing. Second, as the population ages and the number of retirees climbs, the costs associated with Social Security, government pensions, and healthcare retirement benefits increase. This creates budgetary pressure and leads to a choice of raising revenue to fund these costs, cutting other government programs, or cutting benefits. Now if this all had been fully anticipated by retirees and near-retirees, then this would already be factored into their spending and saving decisions. But, I doubt that this has been the case. I suspect that many have been surprised by the swift change in economic circumstances as the housing boom went bust. I doubt that many fully anticipated the budget crunch and the prospect that their future retiree and healthcare benefits would likely be curbed or their taxes would have to rise in the future. When households begin to anticipate this, they reduce their assessment of their sustainable living standards. This downward reassessment then feeds back to current spending and saving decisions. A fourth reason why the recovery has been slower than expected may be that we overestimated the capacity for fiscal policy to continue to provide support to growth until a vigorous recovery was achieved.