samchain/econo-pairs-v1 huggingface dataset:
The Federal Council, parliament and the SNB have all come out in opposition, but the final decision rests with Swiss electorate, who will vote in a referendum on the matter later this year. As an alternative to the concept of sovereign money, some academics have launched the idea of making digital central bank money accessible to all. This means that sight deposit accounts with the SNB would no longer remain the sole preserve of banks and a few other financial market participants. The aim of this proposal is thus to broaden the public’s access to central 1  Accounts of the current situation published by the Bank of England and the Deutsche Bundesbank found considerable resonance in the media and the economic blogosphere. Cf. M. McLeay, A. Radia and R. Thomas (2014), Money Creation in the Modern Economy, Bank of England, Quarterly Bulletin, Q1, pp. 14–27; Deutsche Bundesbank (2017), Die Rolle von Banken, Nichtbanken und Zentralbank im Geldschöpfungsprozess, Monatsbericht, April, pp. 15–36. Page 2/12  bank money, without prohibiting banks from creating deposits through lending. However, as I will show, this too leaves a number of questions unanswered. We therefore take a critical stance on this proposal. Let me now turn to the basics of money creation in our present-day financial system. Money creation in today’s financial system Types of money  When speaking about money, we need to distinguish between various types of money.

They feared that if systemically important financial institutions were to suddenly fail, financial sector lending might collapse and the economy implode. So the sovereign money initiative, with its focus on payment transaction accounts, does not resolve the ‘too big to fail’ issue. Regulatory adjustments, of the kind that are already being implemented, offer a better solution. The Swiss sovereign money initiative would likewise have a number of problematic consequences for our monetary policy. The initiative requires that the SNB manage the money supply, an idea we abandoned some 20 years ago. Today, the SNB steers monetary conditions via money market rates, a strategy which has served it well over the years. A switch to monetary targeting would therefore be an unnecessary step backwards from our perspective. Another problem for monetary policy would arise from the mechanism for issuing sovereign money set out in the sovereign money initiative. Sovereign money would be created ‘debtfree’, rather than through the SNB’s market operations, i.e. purchasing securities or granting secured loans. It is by no means the case that the SNB’s monetary policy goals only ever require an increase in the money supply; they can also require a reduction, but it is far from clear how the money supply could be reduced if money were to enter circulation ‘debt-free’, as a sort of ‘gift’. Finally, a more general and significant objection to the sovereign money initiative is that the acceptance of the initiative would plunge the Swiss economy into a period of extreme uncertainty.
Market participants should both have the right tools to make the right choices and want to make the right choices. The various principles on governance then build upon that ethical foundation. They highlight some of the key structures that a firm should have in place to support responsible behavior by its individual employees and as an organization overall. The principles within the execution section were those that occupied the most hours of focus during the last two years. Principle 8, for example, is the first execution principle and is quite short: “Market Participants should be clear about the capacities in which they act.” Although short, this principle generated very active discussion. Reaching consensus on how to describe various roles in the market was unexpectedly challenging. Terms relating to these roles, like principal and agent, may be used differently across different regions and by different entities. Moreover, they may have legal definitions, and the Code is not intended to interfere with legal definitions. Within the Code, acting as an ‘agent’ is described roughly as executing orders on behalf of a client without taking on market risk in connection with that order. Acting as a ‘principal’ is described as taking on one or more risks in executing a client order. In doing so, a principal may have discretion in the execution of a trade and, if so, that discretion should be communicated clearly and exercised fairly and in such a way that is not designed or intended to disadvantage the client.

So far there has been little sign of significant deterioration in these areas. But as you know, bad debts are a lagging indicator of the state of the economy. The most reasonable assumption is that bad debt provisions and charge-offs will increase, though we do not yet know to what extent. •  Provisions may also increase as a result of a decline in property prices and collateral values caused by SARS. The value of bank premises may also be affected. Some of these effects may prove to be short-lived. Others may take longer to emerge, as in the case of the impact on asset quality. The overall impact on earnings is thus difficult to quantify. As of now, and assuming that the SARS problem does not drag on for too long, most banks seem to think that the adverse effect on profits will not be too severe. It bears repeating that the balance sheets of the banks remain strong. We have updated our stress tests to take account of the SARS outbreak, and these continue to show that the banks can withstand a great deal of pressure from a variety of sources. We do not expect that this will actually be put to the test in practice, but it is comforting to know that the banks are more than adequately capitalised in case of need. What can the banks do to limit the potential downside risk from SARS?
Moreover, to the extent that the support offered by asset purchases represents the offer of the central bank’s balance sheet as an alternative venue for intermediation when private markets have seized up, it is natural that the asset purchases could be accompanied by asset sales, either in parallel or at least in close proximity. It is by both buying and selling (or alternatively lending and borrowing) that the central bank intermediate financial transactions between private market participants. This is the essence of the central bank acting as a central counterparty or market maker of last resort. Bank of England  Page 11  Relationship with financial stability There is also a natural complementarity between providing central bank support to maintain market functioning and contributing to the maintenance of financial stability. Indeed, the two go hand‐in‐hand. The direction of support will depend upon the specific incidence of market failure causing market dysfunction, the structure of the financial system, and the broader flexibility of the economy. This is the essence of why such interventions will be ‘targeted’ on specific market segments. These factors will vary both over time and from one jurisdiction to another. The form of support offered by central banks will thus also vary. Yet central banks must also recognize the limitations of their policy. In the face of crisis, they may need to be innovative in their approach. But central banks should be very wary of assuming responsibility for goals that they do not have the instruments to pursue.

As is well known, the long lags of policy creates a need for central banks to “take the punch bowl away when the party gets going”. Given the longer duration of financial cycles, the need to act well before the risks become obvious may mean that central banks will have to “take the punch bowl away even before the party gets started”. But that is a political economy challenge that needs to be resolved and managed through careful redesign of central bank mandates. Heed must be paid also to institutional arrangements, especially for central banks where the financial supervision authority lies with another body as coordination will be harder. This will take time. But the risks to financial stability is immediate. In the interim, central banks may need to interpret their mandates more flexibly and avoid overly narrow and zealous interpretations of price stability. Inflation targets need to be implemented flexibly and over longer horizons. All the while explaining clearly and consistently the logic of policy. In doing so, it should be stressed that fundamentally, macroeconomic and financial stability are two sides of the same coin. Macroeconomic trajectories cannot be sustainable 9  if the financial sphere is out of equilibrium. And the avoidance of financial boom-bust cycles leads to better economic outcomes over the long run. The perceived trade-off between growth, inflation, and financial stability, therefore, is to a large extent an artifact of the short horizon focus of policy.
The second curve in the figure represents variations in the amount of credit or degree of indebtedness in the economy. There are slightly different terms for these cycles in academic literature – credit cycles, leverage cycles or financial cycles. 3 They can have slightly different meanings in different contents, but essentially refer to the same thing. For the sake of simplicity, I shall use the term credit cycles here. The credit cycle and the business cycle may occasionally coincide quite well, but can at times develop differently. In the figure, the two cycles are for illustrative purposes assumed to evolve rather differently. One occasion when the two cycles coincide, however, is when the credit cycle shows a rapid downturn, as at the end of the figure. Such a downturn is more likely when the preceding upturn has been unusually strong and characterised by exaggerated optimism and risk has been underestimated and under-priced. Credit boom that “goes wrong” – credit and business cycles coincide At some stage it becomes clear that the large amount of credit and the high level of indebtedness are based on overly optimistic calculations. Interest in selling the asset, usually housing, at the base of the credit expansion suddenly becomes greater than interest in buying it and a downward price spiral starts. The value of the collateral falls and the banks become cautious and reduce their lending. Households on the other hand see the value of their assets plummeting while the size of their loans remains unchanged.

In other words, the situation around six or seven years ago was such that we were more or less prepared to believe we had found the final solution as to how monetary policy should be conducted, and that financial crises no longer offered a severe threat. An illustration The international financial and debt crisis made it painfully clear that things were not that simple. There are several lessons that can be learned from the crisis. But if one were to choose the most important, for me there is no doubt that it is that a substantial increase in indebtedness in society can entail major problems, particularly if it is linked to price increases on an important asset market, in particular the housing market. This danger was definitely underestimated prior to the crisis. The underlying problems can be illustrated using a stylised figure (see Figure 1). The red line represents the usual cyclical fluctuations in the economy – the business cycle. Figure 1 Business and credit cycles  Business cycle Credit cycle  2  2  This so-called Jackson Hole Consensus is described by, for instance, Issing (2009). BIS central bankers’ speeches  Let us, for the sake of simplicity, assume that inflation follows the business cycle, so that the curve can also represent developments in inflation. Of course, the business cycle and inflation do not normally coincide so well in reality, but this has no significance for the points I will make here.
On the other hand, the uncertainty stemming from the war in Ukraine as well as the coronavirus lockdowns in China are curbing the development of the global economy. That said, unemployment has continued to decline in many countries. In the advanced economies, it is now back around the low levels seen prior to the pandemic. Since March, there has been a further considerable and broad-based increase in inflation in many countries. The war in Ukraine has been a significant factor here, too, in that the prices of many commodities have risen as a result. In addition, persisting supply bottlenecks have led to further price increases for various goods. In our baseline scenario for the global economy, we assume that energy prices will remain high for the time being, but that there will not be an acute energy shortage in the major economic areas. The positive development of the economy should thus continue overall. Owing to the increased prices for energy and food, coupled with the supply bottlenecks, inflation is likely to remain high for some time. However, the importance of these factors should diminish over the medium term. With monetary policy also becoming increasingly tighter in many countries, inflation is likely to gradually return to more moderate levels. Our scenario for the global economy is subject to significant risks. For example, inflation could rise further and thus weigh even more heavily on real incomes and consumer demand.

The Governing Council welcomes the ongoing work and urges further specific and decisive steps to complete the banking union and the capital markets union. We are now at your disposal for questions. 3/3  BIS central bankers' speeches
In the panic that gripped global financial markets after the collapse of Lehman Brothers, these banks were faced with a wholesale run on their foreign currency liabilities and were therefore heading towards a default on those liabilities in the absence of LOLR assistance in foreign currency. However, given the size of the banks, it was impossible for the Icelandic authorities to provide such assistance on their own. There was actually a plan to nationalise one of the banks in late September 2008. Fortunately it failed, as nationalising the bank would have turned a private bank’s foreign currency refinancing problem into a sovereign problem, with the serious risk that the sovereign might have defaulted on such foreign currency payments, thus initiating a full-scale sovereign debt crisis. Figure 2 gives a sense of the potential scale involved in the case of the three banks, by comparing the foreign currency liabilities of the banks and the Central Bank’s FX liquidity at the time. Figure 2  2  BIS central bankers’ speeches  Based on published financial accounts and the analysis of the supervisor, the Icelandic authorities assumed that the banks were solvent. On that premise, the authorities tried to build defences against potential foreign currency liquidity problems at the banks by negotiating swap lines and tapping foreign capital markets, in both cases with limited success. Now, however, we know that there were hidden vulnerabilities in the banks’ capital positions. However, given the lack of international cooperation, the Icelandic authorities were forced to consider radical solutions.

This effort has been sufficient to create a primary surplus and, along with growth in the economy from H2/2010 onwards, to put debt on a downward trajectory as a share of GDP, which is predicted to be 85% gross and below 60% net in 2015. But this has not come without significant pain, and again, would not have been possible if private bank liabilities had been guaranteed more than was needed to keep the domestic payment system and basic banking services up and running. Let me conclude by summarising some of the potential lessons from this tale: 1. Iceland did not allow its entire banking system to collapse, it did not nationalise its banking system, and it did not default on sovereign debt. So, in spite of what one sometimes hears, the Icelandic case does not teach any lesson on the pros and cons of such measures. 4  BIS central bankers’ speeches  2. Iceland avoided sovereign default through a good initial fiscal position, the ringfencing of the sovereign as much as possible from collapsing cross-border banks, and a medium-term fiscal consolidation programme. The lesson is to practise fiscal prudence and avoid the socialisation of private sector losses. 3. Iceland protected its domestic payment system and deposits. The lesson might be bail-in, separability in resolution between the public utility element of banking from the rest, and deposit preference. 4. The EU system for cross-border banking is deeply flawed.
The implied productivity performance of the UK economy has, in fact, remained poor – according to the official statistics, output simply doesn’t appear to be growing fast enough to support the employment growth recorded as well as generate the rapidly rising real incomes one would like to see. Something has to give. I hope that it will be that output grows faster – either through upwards revisions to recent growth rates or faster growth in future. If, on the other hand, the UK economy uses up all its spare capacity, without having had a substantial rise in real national income, then we should all be disappointed. The weakness in productivity growth has been well documented, but a convincing explanation remains elusive. There are many plausible explanations of factors which could have contributed to the weakness, but each explains only a small part of the whole puzzle. I don’t have time to get into that debate today, but we do offer a variety of candidate explanations in recent Inflation Reports. One better feature of the current situation is that price pressures seem to be subsiding, not growing. Despite good rates of employment growth, there is no sign of nominal wages overreacting to general tightness in the labour market. Other price pressures also appear to be easing somewhat.

Crucially, they are ex officio members of the Alternative Reference Rates Committee (ARRC), the private sector group convened to guide the transition away from LIBOR. And of course the Secured Overnight Financing Rate (SOFR), the ARRC’s selected replacement for U.S. dollar LIBOR, reflects transactions that finance U.S. Treasury securities. Before I go any further, I need to give the standard Fed disclaimer that the views I express today are mine alone and do not necessarily reflect those of the Federal Open Market Committee or others in the Federal Reserve System. Market Conditions I’ll start with recent developments in money markets. Conditions in funding markets became highly volatile early last week, with secured lending rates moving higher on Monday and rising sharply on Tuesday. We had expected a number of factors—including quarterly corporate tax payments and the settlement of Treasury auctions—to put upward pressure on funding rates. However, the size of the reaction in repo rates, the spillover to unsecured markets such as federal funds, and the emergence of strains in market functioning were outside of recent experience. For example, in April and June of this year, sizable payment flows led to relatively muted movements in secured lending rates and small movements in unsecured rates. As had been done ahead of prior dates with anticipated significant funding pressures, on Friday, September 13, the Markets team at the New York Fed, and others in the Federal Reserve System put in place a plan for increased monitoring of money markets.
The increase in the balance sheet was dependent on the demand of primary liquidity by the banks, facilitated however, by the provision of liquidity through a regime of fixed rate full allotment of banks’ demand, introduced in September 2008. The impact on overall monetary conditions was, as before the crisis, dependent on the behaviour of the banks to passthrough the higher monetary base into credit and broad money, which did not happen. What did happen was a justified fulfilment of the role of lender of last resort but not a new type of monetary policy instrument in the sense of aiming at a new transmission channel. The adoption of a fixed-rate full allotment regime of liquidity provision, which has been in place since and was recently extended until December 2016 (at the very least) was indeed an extraordinary unconventional measure. It supported the banking sector and avoided a more detrimental credit crunch. However, the size of our monetary base declined significantly during 2013 when banks decided to start the repayment of their previous high borrowings. On the other hand, as per the following table, total outright purchases of assets by the ECB under two different programmes was not behind the increase of the balance sheet as they represent a relatively small proportion of total assets compared with other central banks.

As mentioned, the transmission channels at play in the recent QE experiences are indeed different from the traditional quantitative view. Chart 2  The ECB monetary policy in the European crisis. As the financial crisis led to the Great Recession and then evolved into the European sovereign debt crisis, the ECB started providing liquidity in fixed-rate full allotment mode, progressively and considerably extended the maturity of its loans to commercial banks, widened the set of eligible collateral, made medium-scale purchases of financial assets and announced the Outright Monetary Transactions programme. As a result of these extraordinary measures, at the end of 2012 calm started returning in financial markets, leading to lower financial spreads and a reduction in volatility. The initial  2  Quoted by Michael Woodford in his 2012 Jackson Hole paper “Methods of policy accommodation at the interest rate lower bound”. 4  BIS central bankers’ speeches  signs of economic recovery started appearing. Preliminary formal analyses indicate that nonstandard measures were instrumental in supporting financial intermediation and economic activity in the euro area.3 Despite these recent, encouraging developments on the financial side, real economy recovery has been weak and inflation outcomes have been surprisingly low. The new challenge we face in the euro area today is to avert the risk of a prolonged period of excessively low inflation. Euro area annual HICP inflation was 0.5% in May 2014, after averaging 0.7% in the first four months of the year.