The combination of the size and liquidity of the market and the risk-free credit status of the instruments made Treasury securities extremely appealing at the height of the financial turmoil. Treasury bill yields actually went negative for a time after the Lehman bankruptcy, as investors were willing to pay for the opportunity to hold this instrument. Longer-term Treasury yields also declined sharply, with the ten-year yield falling to nearly 2 percent at one point. BIS Review 40/2010  1  While government securities around the world benefitted from safe-haven flows during the crisis, there are several features of Treasury securities that made them stand out even relative to other sovereign markets. At more than $ trillion, the size of the Treasury market provides investors with a homogenous asset class in which they can place large amounts of funds. Moreover, Treasury liquidity seems to compare favorably to the liquidity of other sovereign debt markets, whether measured by average daily trading volumes, turnover ratios or other metrics. The Treasury market is supported by a sound and extensive infrastructure for trading, deep financing markets, sizable derivative markets and an active dealer community. This is not to say that Treasury market liquidity was not tested during the crisis. Liquidity did suffer some in the face of greater volatility, strong investor flows and deleveraging by primary dealers. Despite these strains, however, investors were able to continue to trade Treasury securities in decent size at reasonable cost and with transparent pricing throughout the crisis.

Finally, advancements in cryptography and distributed-ledger technology have led to a proliferation of digital assets and tokens, some of which circulate in parallel infrastructure outside of regulatory control and oversight. It has also spurred a concerted effort by central banks to harness these new technologies, through CBDCs and other initiatives, in order to ensure that central bank money remains fit-forpurpose in a digitalized monetary system. Shifting conceptual frameworks A radically different economic and financial landscape has forced some deep fundamental rethink of conceptual frameworks guiding policy, tracing out a second fault line. Facts on the ground are increasingly testing long-standing analytical paradigms on which central banks can rely to inform their policies. Most prominently, the recent surge in inflation has upended the Phillips curve as a model of inflation. The supposedly low sensitivity of inflation to measures of slack, or in other words the flat Phillips curve, turned out to be anything but low; the lack of any internal persistence generating mechanism implies that the framework underplays the possibility of wage-price spirals, and the assumed independence of structural parameters to the level of inflation rules out self-reinforcing transitions from low to high inflation regimes – a very real danger that central banks are grappling with. The upshot has been a systematic underprediction of inflation. We definitely need a better model of the inflation process: one that can capture how relative price shocks translate into persistent price movements as well as non-linearities in expectations and cost passthrough.