samchain/econo-pairs-v1 huggingface dataset:
Mr Duisenberg discusses the ongoing dialogue on monetary policy, the overall economic situation and other activities of the Eurosystem  Introductory statement by Dr Willem F Duisenberg, President of the European Central Bank, at the Hearing before the Committee on Economic and Monetary Affairs of the European Parliament, Brussels, on 20 March 2000. *  *  *  It is my pleasure to continue today our ongoing dialogue on monetary policy, the overall economic situation and other activities of the Eurosystem. Since our previous hearing in November, the European economic outlook has brightened further, while, at the same time, the balance of risks to price stability has shifted upwards owing, in particular, to external factors. Against this background, the decisions of the Governing Council of the ECB to raise interest rates in early February and last week, as well as the reasoning behind these steps, are at the centre of my presentation today. Moreover, I should like to touch upon the overall European economic environment. Finally, I shall briefly turn to some other activities of the Eurosystem which might be of particular interest to you. 1. Current economic developments and prospects  As you are aware, the Governing Council of the ECB decided on 3 February and 16 March 2000 to increase the three main ECB interest rates. These two decisions followed the interest rate decision taken on 4 November 1999.

Whereas the interest rates were increased by 50 basis points in November 1999, on the past two occasions the main refinancing rate and the rates on the marginal lending facility and on the deposit facility were each increased by 25 basis points, so that they now stand at 3.50%, 4.50% and 2.50% respectively. All three decisions were taken in the context of the monetary policy strategy of the Eurosystem to address upside risks to future price stability in the euro area. Both pillars of the monetary policy strategy indicated that the balance of risks to price stability in the medium term had been shifting upward in late 1999 and early 2000. Starting with monetary developments in the context of the first pillar, the three-month average of annual M3 growth exceeded the reference value throughout 1999 and in January 2000. Together with the continued strong expansion, at annual rates of around 10%, of credit granted to the private sector, this signalled that liquidity in the euro area is ample, contributing to upside risks to price stability in the medium term. In the context of the first pillar, let me briefly take up the issue of the reference value for monetary growth. As you know, the reference value is an expression of the prominent role of money in the first pillar of the monetary policy strategy of the Eurosystem. Following its meeting on 2 December 1999, the Governing Council confirmed the reference value for the growth of the broad monetary aggregate M3 at 4½% per annum.
The issue is, thus, how to attain this single interest rate level. Two requirements will have to be met for that purpose. The first requirement is that, in the context of a single monetary policy that will be implemented in a decentralised manner, there should be a very high degree of harmonisation of instruments and procedures. The EMI and central banks are working relentlessly to this aim. The second requirement lies in the integration of interbank markets and payment systems. As far as interbank markets are concerned, two factors should play a key role: •  the first factor relates to the various rules market operators have to abide by. These rules apply to counterparts, market makers, brokers, rating agencies and market enterprises such as clearing houses. They take the form of codes of conduct, regulations, master agreements and market standards. An appropriate degree of harmonisation of these market rules should be reached under the aegis of central banks and prudential authorities;  •  the second factor, the use of a single range of reference interest rates would guarantee the transparency of the euro money market. In this respect, short-term maturities are of special interest to central banks. This justifies that they intervene to some extent in the process of elaborating these indicators. As a matter of fact, the EMI has recently agreed that the ESCB should sponsor the computation of an overnight reference rate for the euro area.

Yet it is still appropriate to increase banks’ resilience to losses when systemic risk increases. This is the primary purpose of the countercyclical capital buffer, which is now being introduced in Norway. The countercyclical capital buffer The amendments to the Financial Institutions Act that were approved in summer include a number of new capital adequacy standards. There are new buffer requirements in addition to the minimum Common Equity Tier 1 (CET1) capital ratio requirement. Banks that do not meet the buffer requirements will face restrictions on distributing dividend and paying out bonuses. Chart: New CET1 capital requirements for Norwegian banks The capital conservation buffer is permanent and independent of systemic risk. The systemic risk buffer is designed to act as a buffer against more persistent systemic risk and will apply to all Norwegian banks. In addition, the largest banks will be subject to a separate capital buffer requirement. The Norwegian authorities are currently formulating criteria for designating systemically important financial institutions. The countercyclical capital buffer is designed to act as a buffer against systemic risk that varies over time. The buffer rate is to be  2  BIS central bankers’ speeches  assessed each quarter, and will normally be between 0 and 2.5 percent of banks’ riskweighted assets. The requirement will apply to all banks operating in Norway, eventually also branches of foreign banks. On 4 October, a new regulation relating to the countercyclical capital buffer was approved by the Government.
I would like to recall again that, in the euro area, banks are the main channel for mobilizing domestic savings and financing investment. This explains why ECB’s non-standard measures have primarily aimed at enhancing access of the banking sector to liquidity and at facilitating the functioning of the euro-area money market. Given the topic of the current conference, I would like to take the opportunity to elaborate on one of these non-standard measures, namely the Securities Market Programme, or SMP. Sovereign yields are central in the transmission of monetary policy, in particular because government bonds provide a floor to the private-sector funding costs. This is the reason why we launched the SMP. 2  BIS central bankers’ speeches  I insist that, through the implementation of all its non-conventional measures – including the SMP – the Eurosystem has fully played its expected role as a lender of last resort (LLR), by which I mean that we have and we will intervene to stem liquidity crises that threaten the stability of the banking system. Having said that, it is clear that engaging in large-scale asset purchases of sovereign bonds is well beyond what should be expected of a central bank’s role as a LLR. Moreover, largescale asset purchases are not without risks. While they may help to alleviate upward pressures on long-term interest rates in the short run, they could also affect price and financial stability in the medium-run, by endangering the value of the central-bank money.

The fact that both public and private indebtedness had followed an unsustainable pace of growth over the previous decade then makes area-wide adjustments both necessary and painful. Among the factors that contributed to the excess of the pre-crisis period stands in my view the misleading belief that sophisticated financial engineering was able to achieve close-toperfect risk diversification and market completeness led in fact to excessive risk-taking by banks. This is in sharp contrast with the current situation, in which investors have doubts about even the risk-freeness of sovereign bonds of developed economies. Restoring market confidence is a difficult and potentially lengthy task. That said, all actions that are consistent with the commitment of governments to address national fiscal imbalances and structural impediments to real growth are likely to accelerate this process. Besides, it is clear that nominal long-term anchors are also of the essence to reduce uncertainty and facilitate such reforms. The primary mandate and the best possible contribution of the Eurosystem is precisely to ensure price stability in the medium run. Then, to the extent that dysfunctional financial-markets are likely to jeopardize our ability to maintain stable prices in the medium run, the Eurosystem must intervene. This analysis has motivated our decisions in the past and will continue to motivate future ones. This brings me to the second part of my talk today. 2.
External events, the dynamics in industry and in particular economic policy can change the potential growth rate of the economy. In other words, it is possible to both raise and lower the speed limit, depending on what is happening in the economy. However, at a given point in time there is a limit that cannot be exceeded or gone below without damaging consequences. If growth exceeds the limit for a longer period, overheating and inflationary pressure will arise. If growth is too low, the opposite will apply, resulting in higher unemployment and poorer welfare than necessary. Let us compare the Swedish economy with driving a car. The Riksbank's job is made easier if the car and the road allow some speed, without accidents occurring. The work done in other political areas to promote growth in trade and industry is therefore very important in enabling the Riksbank to maintain a low interest rate. The Riksbank cannot affect potential growth; our role is to create good conditions for other private and public operators. It is their work on structural reforms, better infrastructure, education, research, entrepreneurship, innovations, etc. that improves the economy's long-term capacity to create growth and thereby welfare in the long term. The decisive factor for monetary policy is the speed limit over a longer period of time. If we have low capacity utilisation from the start, we can temporarily have higher growth, i.e. accelerate until we have achieved the economy's cruising speed.

Another method of raising potential growth would be to invest so heavily that the productivity of the labour force increased sufficiently to allow one worker to support one pensioner in the future. Capacity for renewal To summarise, much has changed recently in the Swedish economy. The external framework is currently characterised by a substantial fiscal policy and monetary policy stability, which facilitates planning and decision-making for both households and companies. These fundamental conditions, together with a marked increase in openness to the world around us, give reason to believe in a continued favourable development in productivity. At the same time, one should remember that many markets in Sweden still show clear signs of poor competition. This involves considerable costs. I believe that the Swedish economy has considerable unutilised potential for stronger development if we concentrate on this, i.e. how we shall increase the "speed limit" in the economy. It is not enough to have good macroeconomic conditions; a policy for growth is concerned more with microeconomics than macroeconomics. It is a question of creating good incentives for individuals and people to behave in a rational social manner in their roles as economic agents. What is profitable and attractive behaviour for the individual should also be profitable for the whole. This takes me into the field of politics, which is not part of the Riksbank's responsibilities. However, this is a field where I have been very involved in my previous career roles.
Recent developments nevertheless suggest that we have become more dependent on the return on those assets for financing tomorrow’s imports (Chart 16). 15  NORGES BANK  Chart 16 Growing dependence on the GPFG. Share of mainland GDP. Percent 13  13  12  12  11  11  10  10  9  9  8  8 7  7 Trade deficit excluding oil and gas 3 percent of the GPFG  6  6  5  5  4  4  3 2000  ECONOMIC PERSPECTIVES 13 FEBRUARY 2020  2005  2010  2015  2020  2025  2030  2035  3 2040  Sources: Ministry of Finance and Statistics Norway  Measured as a share of mainland GDP, the trade deficit is larger than the expected return on the GPFG further ahead. It should be noted, however, that a substantial share of Norway’s goods and services imports is related to activity on the Norwegian shelf. These imports will decline as oil activities wind down. On the other hand, lower oil prices or a decline in global equity markets will reduce the expected return on the GPFG. Moreover, the trade deficit has shown a substantial increase in a period where both demand in the Norwegian oil industry and the krone have weakened. For many years, Norwegian companies could afford to pay much higher wages than companies in neighbouring countries.

The most important result of international efforts aiming at sound financial markets was the approval of modern risk management techniques as a part of regular financial intermediation process. In this context the Basel II, the new capital adequacy framework, is a very important outcome of the action taken in the international arena. Although, the main aim of the original Basel Accord, which was applying institutionalized and international standards to the global financial system, has not changed in the Basel II Accord, the Basel II puts more emphasis on the risk management aspect of the financial intermediation process. It is expected that a sound and resilient risk management in the banking sector would also lead to more efficient risk management in the real sector. Therefore, in this way, as the financial system becomes more stable, less pro-cyclical and reinforced against shocks, more sources will be available for the real sector. However, it should also be considered that healthy and efficient risk management requires more than the three main pillars of the Basel II Accord. A good understanding of the risks that a financial institution might encounter, a clear definition of risk taking procedures, compliance of risk taking decisions with the strategic goals of the institution, ensuring the risks are within the limits that were set by the management and adequate capital for given risk structure are other essential elements for a more significant advance in risk management in financial institutions.
With kuna banknotes bearing my signature and the stability of the kuna having been the focus of most of my professional career, I probably have the most reason to regret its passing into history. However, we have introduced the euro for the benefit of Croatia and I have never had any doubt about this being the right way. Not only did Croatia become the twentieth member of the euro area with the  1/2  BIS - Central bankers' speeches  introduction of the euro, but it also entered into partnership with the countries using the second major currency in the world. Looking forward, the introduction of the euro has opened a new chapter of our monetary history for us at the central bank. On 1 January 2023, the Croatian National Bank became part of the Eurosystem and thus an active participant in defining a common monetary policy. Furthermore, our voice in the ECB's Governing Council has a greater weight relative to the size of our country, and for the first time in history we are in a position to influence the financing conditions in the euro area and, consequently, in Croatia. Those opposing the euro might claim that Croatia loses its monetary independence by joining the monetary union, but the truth is in fact the opposite: Croatia has gained more power.

Islamic finance has proven beyond reasonable doubts its viability and the value proposition that it brings. Many of its tenets contribute to economic and financial stability; for example, restrictions on overleveraging; linkage of transactional activities to the real economy and a requirement for strong governance and transparency. In Malaysia, Islamic finance has gained acceptance amongst all, irrespective of race or religion. Non-Muslims make up more than 50 percent of the customer base of Islamic banks. Similarly the sukuk market that totalled USD160 billion as at December 2013 are characterised by the involvement of diverse set of players and of all creed. The players include multinational corporations and institutions such as the World Bank, Toyota, Nomura Holding Japan, AEON Credit and Shell to name a few. Islamic finance is competitive and able to fulfil the needs of the modern globalised economy. It competes on an equal basis with conventional finance. It is in the mainstream and no more a novelty. It can stand on its own. From my experience, the reason why nonMuslims use Islamic finance is that it makes business sense and it is as competitive and provides a welcome alternative to conventional banking. The availability of established global best practices and standards. There are established global best practices and international standards in Islamic finance. New and emerging jurisdictions need not go to the trial and error period of the more established centres. New entrants can avoid costly mistakes. Global best practices, standards can be adopted and adapted to local circumstances.
Shops will be in the firing line when the euro notes and coins are introduced. Cashiers will have to handle kronor and euro side by side for a time and customers BIS Review 41/1997  -4-  will no doubt have many questions about prices and conversion rates. Besides calling for resources as well as training, this will require a good deal of adjustment in retail trade. I shall now consider some of the foreseeable changes and also take this opportunity of commenting on the requirements formulated by the Research Institute for a changeover to euro. Banknotes and coins The Madrid meeting in 1995 agreed that euro notes and coins are to be introduced at the latest by 1st January 2002. Many people have reacted to an introduction at the turn of a year, which is when retailing tends to be most hectic. The agreement, however, stipulates 1st January 2002 as the latest date, so perhaps a start might be made in the autumn of 2001. The alternative of spring 2002 has also be mentioned. This matter is still being discussed; the Riksbank shares the trade's opinion that the turn of a year should be avoided and is therefore working for another date. The timing of the practical changeover arrangements is to be decided by each country; for Sweden the Riksbank hopes that it can be managed in a much shorter period than the maximum of six months. The public will be informed in good time about how the changeover is to be carried out.

Retailers have expressed a wish that this should continue to be possible with the euro, in which case an active introduction of the 1 and 2 cent coins would not be called for and we could round to the nearest 5 cents (approximately 43 öre). We appreciate this view and have promoted it at various levels but without gaining much support. So we do not yet know the outcome. It must be realised, however, that if we join the euro area, even the smallest denominations will be legal tender. So there is no way of entirely avoiding the small coins in Sweden. Cash receipts Today's cash registers are capable of recording total sums in two currencies. If each item is to be registered in both currencies, however, it seems that all the existing cash registers would have to be replaced. I agree intuitively with retailers that it would hardly be reasonable to do this throughout Sweden in order to register two currencies for a period that is likely to be shorter than six months. Perhaps we can make do with receipts that give the total in euro as well as kronor together with the conversion rate. That would be much the same information as the banks have agreed to provide on statements of account. Once again, however, this is a matter where retailers and consumers must get together and discuss what is reasonable. As I have said, EMU will affect each one of us.
It would ensure regular supply of international liquidity, but could only provide partial protection against exchange rate volatility and valuation losses. There is an important trade off, there, which is the essence of a new “Triffin dilemma” and which cannot be avoided when looking at the public supply of international liquidity, whether by one nation or within a multilateral framework.   More fundamentally, a new currency which would provide a reliable store of value would, in fact, grant its holders a collective guarantee against exchange risk. That guarantee would benefit surplus countries and would be given by deficit countries. This issue was intensely debated when the substitution account was discussed and negotiated within the IMF, more than 25 years ago. It became clear, at the time that it would not be accepted by many countries unless some explicit, binding and symmetric rules on balance of payment adjustments were agreed upon simultaneously. Most likely, those questions would be raised again today and the creation of a new reserve currency would have to be part of a broader framework. Conclusion and provisional policy lessons Looking at the next decade, one can project two alternative – and polar – scenarios for the evolution of the international financial system. First, a scenario of progressive and partial fragmentation: no significant capital account opening would occur in many parts of the world.

As to the source, a possibility would be to create a process of periodic general allocation of SDRs, according to a predetermined schedule. Those SDRs, however, would not be immediately available for use by their beneficiaries. Rather, they would be “frozen” and unblocked only in pre – specified circumstances (Landau, 2009). Criteria for use would not be defined on the basis of individual countries’ situations, but on consideration of the conditions prevailing in the global economy and international capital markets. If properly constructed, such a scheme may provide, for no cost, the kind of insurance that countries are currently seeking by building excess reserves. How would countries access to this new source of liquidity? The traditional approach would allocate contingent liquidity to countries according to their quota shares in the IMF. However, those are very imperfect representations of countries’ liquidity needs especially in times of crisis. Taking inspiration from the contingent capital literature, one could imagine that countries could “buy” the access to contingent liquidity in crisis times by paying, in normal times, a premium to the issuer (the IMF?). This could prove less costly than accumulating excess reserves. Going one step further, and transposing an idea from Caballero and Kurlat (2009), the IMF could issue tradable instruments giving access to contingent liquidity once it  6  BIS Review 120/2010  has been activated. If broadly traded between public entities, the price of such instruments would give a useful indication of underlying systemic tensions in international financial markets.