samchain/econo-pairs-v1 huggingface dataset:
What the Riksbank can do, in a complex world, is to influence resource utilisation and economic activity so that inflationary tendencies are kept fairly well in check, at the same time as a host of other factors affect employment in parallel and interact with the monetary policy effects. In this work we try to avoid unnecessary fluctuations in output and employment, but we are not able to fine-tune the economy exactly. The fact that the Riksbank’s power to influence employment is both short-term and relatively limited is not inconsistent with our ability to keep inflation in check. The latter is normally achieved by affecting inflation expectations. As long as our monetary policy is credible, it is enough to make small interest rate adjustments to keep inflation close to target. In this way, the Riksbank sends out a signal that it is keeping a close eye on inflationary tendencies and everyone knows that stronger measures await if inflation expectations take off in either direction. So, there is no simple relationship between monetary policy and employment. Nevertheless, for the sake of argument, let’s go along with our critics and assume that such a relationship exists. In that case, estimates merely show that even if the repo rate had been a full percentage point too high for a whole year, the effect on today’s employment situation would at most have been a few thousand jobs, and not the tens of thousands claimed by the Riksbank’s critics.

In this view, it is worth mentioning the positive contribution of the new FDI inflows in tradable sector, which contributed to both higher and more diversified net export and higher employment. In addition, economic recovery was supported by the fiscal stimulus as well as the accommodative monetary policy stance. Since July last year, the main policy rate is at the historical lowest level of 3.25%. Moreover, during the crisis period, a combination of standard and non-standard measures have been undertaken by the central bank aimed to give additional support specifically to the credit growth and accordingly, to the economic growth, while still preserving the price and financial stability in the economy. The outlook for this year is also positive. We expect GDP growth of close to 4%, and therefore we see economy going up on the cycle. What one can learn from our experience is the fact that the implementation of sound structural reforms can definitely move the economy upward – even during the crisis – that is an important message for the macroeconomic policy afterwards. When discussing the recovery from the crisis, we need to point out some related issues that are dealing with the exit of non-standard policy measures and turning towards fiscal consolidation, currently being the topical issues between the policy makers worldwide. The tapering decision by the FED by the end of the last year somehow announced the need of this reversal that will eventually be recognized in other countries, too.
In spite of the fact that knowledge and understanding of the Riksbank’s policy have gradually increased, I believe that from time to time there is a need to explain the basis for the policy and some of the principles that guide it today. The purpose of today’s speech is just that. I will endeavour to answer seven of the questions that I have encountered most often in recent years at meetings and in editorials and commentaries and that seem to permeate the discussion of monetary policy continually. By way of conclusion I will comment on an eighth question. Question 1: Why is low inflation good? The experiences of previous decades in Sweden and a number of international examples show that high inflation is associated with economic costs. Moreover significant costs ensue when one is compelled to gear down from high to low inflation – something that sooner or later always happens. It has been shown that high inflation is often associated with sharp fluctuations in the relative prices of goods. Rapid and abrupt price changes create uncertainty about the future for all the actors in the economy. It simply becomes more difficult to make long-range decisions. Households and businesses are compelled in practice to take greater risks and both then demand higher interest and profits. This reasoning is supported by research, which indicates that the growth rate of the economy may be lower, because the increased uncertainty reduces investment activity. In addition the risk of making erroneous investments increases. (Diagram 1.

CPI and Growth) That Sweden in the 1970s and 1980s lost so much ground in terms of prosperity in relation to many other European countries is certainly due in part to the stabilisation policy then being conducted. Prices and wages were allowed to drive each other up, while budget policy was far too weak. Devaluation followed devaluation, with low investment and weak productivity growth as the result. BIS Review 14/1998  -2-  High inflation also leads to arbitrary changes in the distribution of income and wealth in society. Wages and profits normally rise at the same rate as inflation. The value of real estate and some financial investments rises even faster. At the same time nominal fixed interest rates and transfers lag behind. The high profits made by the owners of houses and co-operatives in the 1970s and 1980s occurred in practice at the expense of tenants and those with bank savings. Between 1971 and 1974, for example, house prices rose by 50 per cent and agricultural property by 80 per cent. In contrast those who had their savings in bonds or in the bank saw their assets shrink by about a third in real terms.
What prevented the ensuing international dollar shortage from triggering a widespread failure of internationally active non-US banks to deliver on their foreign currency payments were major LOLR operations in foreign currency, using countries’ reserves and, more importantly, US dollar swap lines granted to central banks around the globe on a large scale. Strictly speaking, a currency swap between two central banks is a symmetric agreement. In most cases, however, it is the central bank providing the reserve currency in excess demand at the time that is the party putting real money on the table. When the swap is used to lend to banks in the receiving country, that country’s central bank bears the counterparty risk. But from a liquidity standpoint, the foreign central banks were intermediaries of the Federal Reserve’s global liquidity operations. And so the LOLR function at the national level was replicated at the global level.5 Does this mean that we have a solution to the problem of mitigating the extra risks in crossborder banking compared to national banking? Unfortunately not. First of all, there are big question marks over central bank swaps as permanent and widespread tools of crisis prevention and management, as I will come back to later in my speech. Second, the failures  3  This case is described in Ingo Fender and Patrick McGuire, “European banks’ U.S. dollar funding pressures”. BIS Quarterly Review (June 2010): 57–64. 4  Guðmundsson and Thorgeirsson describe the case of the Icelandic banks and draw lessons for cross-border banking: Már Guðmundsson and Thorsteinn Thorgeirsson.

It may partly reflect very low levels of current policy rates and any spillovers from that.3 It may also reflect the term premia for inflation that are currently very compressed in some countries, for example, the US and in the Euro area. And it may also be a symptom of a more entrenched pessimism – an over-pessimism in my view – about long-term economic prospects, possibly due to fears of the de-integration of the global economy or concerns about future effectiveness of monetary policy. But, more fundamentally, the very low level of market interest rates reflects an underlying structural trend – the fall in long-run real interest rates since the early 1980s4 – that has been the subject of a great deal of research. The literature has identified a large number of candidate explanations – both real and financial – for a structural decline in the long-run real interest rate. These include: demographic trends and, in particular, increased longevity; lower trend productivity growth; the liberalization of financial intermediation and an increase in the risk borne by individuals and households.5  The long-run equilibrium real interest rates determined by these factors are, of course, unobservable. There is a range of estimates for how far they have fallen.
Sukhdave Singh: Financial governance and economic growth Keynote address by Dr Sukhdave Singh, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Malaysian Economic Convention “Financial Governance and Economic Growth”, Kuala Lumpur, 28 September 2015. *  *  *  It is indeed an honour to be speaking to such a distinguished audience. It is also a great pleasure for me to be here this morning and join my colleagues in the Economics fraternity at this 2015 Malaysian Economic Convention. To begin, let me share with you a story. Twenty years ago, on 28 January 1986, the NASA space shuttle Challenger was launched. Seventy-three seconds into its flight, spectators were horrified as the space shuttle broke apart in a fiery display and disintegrated over the Atlantic Ocean. Seven astronauts died. The catastrophe was traced to the failure of a single O-ring – a simple seal at a joint on one of the rocket boosters. The O-ring failed due to the unusually cold temperatures on the morning of the launch. Relative to the highly sophisticated technologies involved in building and launching the shuttle, the O-ring was considered established technology, one with a patent history of 90 years by the time the Challenger was launched. It was as ironic as it was instructive that such a complex machine, incorporating the most advanced aerospace technology of its time, failed and combusted due to a component as trivial and basic as an O-ring.

Six years later, Michael Kremer, an economist at Harvard University, formulated the O-ring theory of economic development 1. According to him, if strategic complementarity is sufficiently strong within a system, O-ring effects can create low-production traps. Financial Times columnist Tim Hartford relates Kremer’s theory to the concept of weak links 2. When systems have a strong element of interdependence, weak links begin to have a more multiplicative effect, rather than an additive effect, on the overall outcomes of the system. A musical band is only as good as its least experienced player. A dance troupe is only as synchronised as its worst dancer. Today’s economies and financial systems have undoubtedly become more intricately interlinked across agents, markets and nations. This progression brings benefits as it unlocks new synergies and uncovers diverse sources of growth. However, the increased interdependence also increases the potential for O-ring type effects. Any single component within this complex web of economic and financial relationships can become the weak link of the system, with highly detrimental effects on the system’s stability and on economic growth. The financial crisis of 2008–2009 in the advanced economies was a good illustration of an O-ring weak link, whereby a seemingly small segment of the US financial system – the subprime mortgage market – triggered an economic crisis that reverberated around the world and the effects of which are still being felt today.
However, these are not the only developments which have the potential to revolutionise our monetary order. Another agent of change is technological progress, which has fundamentally altered the way we pay for goods and services over the course of time, and will continue to do so in future. Moreover, in our direct democracy, sovereign voters make decisions which may alter the institutional foundations of the monetary order. Examples of this are the gold initiative, which we will be voting on in a week, and the plain money initiative, for which signatures are still being collected. Given this situation, you will understand that I cannot make any predictions about what our monetary order will look like in 60 years’ time. In my introduction I stated that sound money is a central pillar of our society. What makes money – or a currency – sound? Money is sound when it fulfils its functions as a means of payment and store of value as smoothly and reliably as possible in people’s everyday lives. A sound currency retains its value and everyone can be sure it will be generally accepted as a means of payment. In Switzerland, the state has played an important role in the development of the monetary order since the foundation of the modern federal state. In this process, the first invariable has been very obvious – it is that efforts to ensure sound money in the interests of the population as a whole have always been a state responsibility.

On Sunday, September 14, we learned that Barclays could not proffer the needed guarantee without a shareholder vote. This vote would take days, if not weeks or months, and there was no way to predict if the shareholders would even vote for the transaction to proceed. I explored with counsel whether the U.K. government, or one of its instrumentalities like the FSA, might waive this U.K. requirement, such that the guarantee could be delivered and the rescue effected. I learned that the U.K. authorities were not amenable to a waiver. Thus, Barclays ceased to be available as the willing buyer that we needed to rescue Lehman, and there was no other interest from any firm of sufficient size and capability that could acquire Lehman, a company with consolidated assets of about $ billion. 5  Timothy F. Geithner, Secretary of the Treasury, Statement before the United States House of Representatives Committee on Financial Services, April 20, 2010. 4  BIS Review 112/2010  Many have asked why, when the Barclays guarantee problem presented itself, the Federal Reserve did not step forward and guarantee the trading obligations of Lehman pending its merger with Barclays. They observe that we lent approximately $ billion to Maiden Lane LLC to facilitate the merger of J.P. Morgan Chase and Bear Stearns, and they look at our commitment to lend up to $ billion to AIG.
Digitalisation driving development The rapid decline in the use of cash in Sweden is part of a broad digitalisation trend that affects society as a whole. Technological advances have given us, for instance, new more efficient payment solutions such as real-time payments with the Swish mobile application, which is used for transactions that used to be mostly cash-based. Similarly, mobile phones can function as card terminals, which gives small business owners increased opportunity to accept cards. Swedish banks also have a tradition of cooperating with one another when innovative payment solutions are introduced on the market. In this way, they can make better use of network effects and more quickly attain a critical mass of users. Moreover, Sweden has a highly-educated population that is willing to adopt innovations in the IT field. Technological advances that lead to more efficient payments, cooperation between producers of services who make it possible to fully utilise the network effects, changed consumption patterns and a technology-friendly population are a powerful combination when it comes to creating changes in payment habits! In an international perspective, Sweden and the other Nordic countries are way ahead in this change process. However, the trend is global – an increasing number of people want to use digital solutions to pay and fewer want to use paper-based payments, including banknotes and coins. In particular, the younger generations are quick to adopt digital technology. It is probably therefore only a question of time before more countries find themselves in the same situation as we have in Sweden today.

The task of the central banks was to provide the general public with money in the form of banknotes and coins that did not entail any credit risk and that inspired confidence – what was known as central bank money. This task included price stability, that is, that the central banks guaranteed the long-term value of the money. To begin with, the central banks had this task parallel to commercial banks, which issued their own banknotes. Then money from different issuers could have different values, depending on how much money had been issued, and exchange rates could arise between different types of money. Eventually, the central banks were also given the responsibility for creating a uniform standard. In Sweden, this took place in 1904, when the Riksbank was given a monopoly on issuing banknotes and commercial banks stopped issuing them. In time, the banks were able to develop payment channels that enabled the general public to use their account balances as money. In the beginning this involved cheques and gradually card payments were developed. In Sweden, there were also state initiatives to make payments more effective. In the 1920s, the Postgirot system was created, which enable efficient transfers of money to and from accounts in the system. Just over 20 years later, the banks emulated this and created their own joint system, Bankgirot. All of these systems are examples of account-based means of payment.
Likewise, cheques declined at a faster pace of 9.8% or 10 million cheques for the first half of 2014 compared to 2% or 2 million cheques for the same period last year. While the data suggests some improvements, more need to be done. A particular area that requires huge efforts is the distortions in the debit card usage in Malaysia. Despite a seemingly high debit card penetration of about 19.2 million “active” debit cards in contrast with 5.5 million “active” credit cards, the per capita debit card transaction is only 1.7 compared to 11.3 for credit card in 2013, indicating a ratio of 1 debit card transaction to about 6 credit card transactions. Acquirers charge merchants the same merchant discount rate (MDR) for the acceptance of debit and credit cards despite their differing cost structure, which makes debit cards just as expensive as credit cards. It is difficult to comprehend the charges imposed on debit cards, which have ready cash in them, is similar to the charges on credit cards. There has also been a slowdown in the growth rate of POS terminals in Malaysia since 2012, which indicates a potential saturation of POS terminals at those merchants who can afford the MDR. This is further compounded by increases in interchange fees which are likely to cause the MDR to be raised to even higher levels on a system-wide basis, thus hindering the wider expansion of the POS network and depriving society from the convenience of using costeffective payment cards.

While the number of POS terminals in Malaysia at about 9 per thousand inhabitants is still relatively low compared to about 22 to 33 per thousand inhabitants in other advanced countries,4 the POS network is anticipated to grow with the introduction of the Payment Card Reform framework. Key focus areas to drive financial inclusion via e-payments While there are success stories globally where e-payments have helped advance financial inclusion, such success stories must be the norm rather than an exception. In this respect, the public and private sector collaboration goes to the heart of any successful policy and developmental agenda. We also need to take a longer term view rather than focusing on short term and narrow self-interests. In this regard, I wish to highlight four (4) areas that could drive financial inclusion to the next level, via the use of e-payments. These areas are: 1. Correcting price distortions and promoting competition;  2. Development and sharing of infrastructure investments;  3. Strengthening transaction security; and  4. Consumer protection and education. 1. Correcting price distortions and promoting competition  We need to address price distortions and promote competitive practices. A market driven environment would ensure that the correct price signals are provided to promote the usage of the more cost-effective payment instruments whilst injecting competition. The idea is for market players to lower cost and widen the access channels to make financial services more affordable and accessible to the general public.
Certainly there are a number of questions and challenges regarding future developments in the banking system and the regulatory framework for it, as has emerged in the recent White Paper on a Future Vision for the Financial System, but further discussion of that topic must await another opportunity. Early this month, Parliament passed legislation lifting restrictions on the remaining stock of offshore krónur, which amounted by that time to 84 b.kr., or just under 3% of GDP. This represented the final step in lifting capital controls on non-residents’ króna-denominated assets. The assets fell into two categories: so-called offshore krónur, on the one hand, and króna-denominated assets held by the failed banks’ estates, on the other. These assets combined amounted to 65% of GDP at the peak. We reduced that percentage to the current level through various measures taken in 2010-2017 — without disturbing the balance of payments or financial stability, without tapping the Bank’s reserves to an inordinate degree, and without significant legal repercussions. This success has been noticed, including internationally. Alongside the final liberalisation of offshore krónur, the special reserve requirement on capital inflows into the bond market and high-yielding deposits was lowered to 0%. This synchronised effort has delivered positive results. The 5  exchange rate of the króna has not been under pressure due to offshore króna outflows, and the Central Bank has not yet needed to use significant reserve assets in order to fulfil its pledge not to allow those outflows to weaken the currency.

At the same time, the regulatory framework for the banks’ operations was improved significantly. Now we have a banking system that primarily serves domestic households and businesses and, in terms of total assets relative to GDP, is about 15% of its precrisis size. As can be seen in their high capital adequacy ratios and sound liquidity position, the banks are quite resilient. Their capital ratios have fallen in recent years as a result of dividend payments, and it can be said that there was scope for such a reduction. But now their capital ratios are much closer to the Financial Supervisory Authority’s capital requirements, and under current conditions of elevated economic uncertainty, it would be imprudent to lower them much more with dividend payments. In this context, it is important to bear in mind that the current capital requirements also include buffers that can be used without the banks being deemed to have failed. These capital buffers are a sort of cushion, and if they are tapped, resilienceenhancing measures such as restrictions on payments of dividends and bonuses will be adopted. Furthermore, the countercyclical capital buffer can be lowered very quickly if conditions warrant it, although it has been decided to increase it to 2% in the coming term. On the whole, the 2008 IMF programme objective of rebuilding the banking system on firmer foundations was met successfully.