samchain/econo-pairs-v1 huggingface dataset:
The development of renminbi business in Hong Kong, and more generally the role of Hong Kong in serving the need of China in international finance depend on the pace of financial liberalisation on the Mainland. It is therefore very much out of our hands, involving policies that allow for greater cross border mobility of capital, financial instruments and financial intermediaries. Yet our survival as an international financial centre depends on our being prepared for these policies of financial liberalisation. We should also be proactive in offering advice in policy making and be ready to provide assistance and technical support in policy implementation. One very practical way of doing this is to continue to use our financial system as a platform for cautious experiment in the gradual liberalisation of the renmminbi – a process that is of benefit to our system and to the nation as a whole. The Basic Law specifies that Hong Kong's status as an international financial centre will be maintained. There are many policies and programmes in train to achieve this. But surely the key for the future is in developing Hong Kong as the offshore renminbi market. There should be no doubt that the renminbi will become an international currency one day. For Hong Kong to be unprepared for this, for us to fail to see the opportunities or build the infrastructure to make the best of it, would be to risk marginalisation.

It will also give the board the opportunity to convey its views directly to us, for example on whether we are imposing too much of a regulatory burden. As a result of the consultation exercise, we have received a number of supportive comments. It is difficult, after all, to argue against the principle that banks should be encouraged to raise their governance standards. However, a number of concerns have also been voiced. I will not go into these in detail, but some of the questions that have been raised are as follows: Is the HKMA interfering too much in the way in which banks choose to manage themselves? Is too much burden being placed upon the board, and upon non-executive directors in particular, in terms of establishing policies and controls? Should there be a distinction between listed and non-listed banks? Is it right to place more onerous requirements on banks compared with other companies, for example as regards the required number of independent directors? And is it going to be possible to find sufficient independent directors of the right quality? I have answered some of these questions already in this speech. We do believe that banks are different from other companies because they are looking after other people’s money. From this point of view, it does not matter whether the bank is listed or non-listed. We also believe that banks are exposed to special risks compared with other companies, and that the board needs to ensure that policies are in place to manage these risks.
The stock market slump has persisted for almost three years now. In the past few weeks, though, all major stock markets have at least witnessed some upward corrections. 2  BIS Review 73/2002  The long-term expectation that higher yields can be achieved only by taking higher risks has not proven true over a relatively long period of time. Unlike shares, low-risk bonds have generated attractive yields during this phase. This experience together with the fact that numerous, notably institutional investors have lost part of their risk capability might, in many instances, result in equity weightings remaining low in the foreseeable future. This change of behaviour will limit the stock markets' growth potential for the time being. At present, the price/earnings ratios of the major stock markets are close to the average of the past 15 years. This indicator suggests that, despite the price losses suffered, shares are not yet particularly low-priced. However, compared with the very low yield level of bonds, which are the most important investment alternative, shares do seem quite inexpensive. Does the stock market slump have any adverse effects on economic development? This seems certain for several reasons. For the corporate sector, it has become more expensive to raise capital, which undermines investment activity. Although direct shareholding is less common in Switzerland than, for example, in the United States, the asset losses incurred discourage private consumption. In many cases, the deteriorated financial position of pension funds necessitates an increase in contributions and/or a decrease in existing premium reductions.

During several of the initial years of the inflation-targeting regime, the Riksbank used an MCI in its monetary policy analysis.3 Its intention during this period was to demonstrate very clearly that, in a small, open economy, the exchange rate influences inflation and resource utilisation. Today, the Riksbank no longer uses any such index as a summarising measure. One reason for the abandonment of MCI was that it could be interpreted in an excessively mechanistic way: when the exchange rate weakened, MCI tended to be used in a simplified manner as an argument for a higher interest rate, and vice-versa. Considering the wide fluctuations that can take place in the exchange rate over short periods, an MCI in which a large weight is placed on the exchange rate means that very large changes to the interest rate may be demanded to compensate for exchange rate fluctuations.4 The exchange rate pass-through on import and consumer prices is uncertain The price of imported consumer goods is partially determined by the exchange rate. If the krona is weakened, importers must generally pay more in Swedish kronor for goods bought overseas. Importers must choose how to handle this. Should they increase their prices to compensate for the increased purchase prices or should they reduce their margins? The answer to this question depends on a number of factors. In the short term, importers may avoid price changes, as far as this is possible.
After 20 years of stagnating prosperity and major imbalances, it was time for a change of policy. A contributory factor was the changing view of the potential of monetary stabilization policy since the late 1960s, as a result of which almost all industrial countries adopted a price stability objective during the 1980s. To continue to pursue an independent monetary stabilization policy was hardly an option for Sweden, especially not if it was thinking of joining the EU. An important task for the Riksbank was to gain acceptance for the change of policy and create understanding for our work and our independent status. This has not been all that easy. I think there are several explanations for this. One is quite obvious. The changeover to low inflation was accompanied by a sharp downturn in the Swedish economy. Production declined for a period of about two years and there was a dramatic increase in unemployment. The blame for this was laid at the door of the policy shift. That was of course unfair, although I must admit that the decline was aggravated by some policy mistakes. The basic problem was that the economic policy that was pursued in the second half of the 1980s resulted in imbalances, in particular, bubbles in the financial and property markets and an overvalued exchange rate. It was necessary to correct these imbalances, and this process would have been costly in any circumstances.

Thomas Jordan: Comments on Swiss monetary policy Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the 108th Ordinary General Meeting of Shareholders of the Swiss National Bank, Berne, 29 April 2016. *  *  *  Mr President of the Bank Council Dear Shareholders Dear Guests Our last ordinary general meeting was dominated by the discontinuation of the minimum exchange rate. The past year has been a difficult one, with the Swiss economy once again demonstrating great flexibility and adaptability. It was also a year during which there has been broad discussion in the public arena of the monetary policy of the Swiss National Bank. It is essential that the judgements we make and the measures we take are fully understood, if our monetary policy is to be effective and trust is to be maintained in the SNB. In my comments today I would therefore like to outline once again our current monetary policy and our views on key issues. I shall divide my speech into two parts. First, I will talk about economic developments and briefly recap our reasons for discontinuing the minimum exchange rate. Then I will take a look at the current economic situation. In this context, I will discuss our mandate of ensuring price stability. I will conclude this part by looking ahead to the challenges that face us in the future.
However it would be clearly a less pronounced one than in the pure cyclical case. 2  BIS central bankers’ speeches  3. Possible explanations for increasing credit-to-GDP ratios  3.1. Supply side considerations: Financial liberalization, the likely explanation for the 1970s and 1980s  A first important reason for an increase in credit volumes can be found in an improved availability of credit. It is well recognized that quantity rationing is prevalent in credit markets.6 Technical innovation and regulatory changes have an impact on the extent of credit rationing and thus very directly on the volume of allocated credit. The financial liberalization of the 1970s and the 1980s and technical innovation in financial services that resulted are therefore natural and plausible explanations for the spectacular credit development observed internationally in the later part of the last century. Here, a permanent adjustment to a new plateau seems to be a viable explanation. This does not mean that such an adjustment process is innocuous from the perspective of financial stability, nor does it imply that the adjustment process cannot overshoot. Indeed, a higher credit-to-GDP ratio means a higher degree of leverage which, in all cases, is likely to increase the fragility of the financial system. 3.2. Demand side developments  Second, structural changes in the demand for credit are also a conceivable driver of an increasing credit-to-GDP ratio. For example, an economy-wide perception of improved growth opportunities justifies a broad increase in borrowing to finance investment projects.

It shows a sharp decline following the collapse in investment during the global financial crisis, and a subsequent recovery, which flattened off as a result of the weak investment in the period prior to Covid (Chart 7). The Covid shock has been profound, and has required an increase in public and business debt to smooth the impact. This is a necessary and sensible response. It means that the economic impact of Covid will be spread over time – how long we don’t know because it is too early to predict. But that cost has to be managed, and it will be easier to do that with a higher trend rate of growth, boosted by stronger investment. Let me add that this investment is also needed to support the transition required by climate change and the necessity of enabling a more digital economy. These are challenges and opportunities. The message is simple: stronger growth in potential supply supported by stronger investment and productivity growth will make the Covid recovery easier. Monetary policy has a role to play here, in ensuring there is sufficient growth in demand to match any increase in potential supply growth. The MPC’s actions during the pandemic may also have helped reduce 7  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  7  the extent of scarring. The Bank’s Financial Policy Committee is also taking steps to ensure there is appropriate supply of finance for productive investment.
Much more importantly, and after a lot of detailed work across the Bank, the FPC has identified some big differences with the subprime boom. Post-crisis reforms mean there’s less opacity in the associated securities – investors know much more about what they’re buying in a CLO than was apparent, ahead of the crisis, in most Mortgage Backed Securities. The rates of securitisation are in any case much lower (30% versus 80%). Most critically, the banks – and particularly UK banks – have significantly less exposure. Subprime mortgages were often held in special purpose vehicles that were not formally on banks’ balance sheets but heavily financed by them. They still owned the risk. During the crisis UK-owned banks lost huge sums of money – far more than on comparable domestic lending – from their exposure to US mortgages,  12 A large proportion of leveraged loans have been used for M&A and leveraged buyouts, which effectively replaces equity with debt for the corporate sector as a whole. 16  All speeches are available online at www.bankofengland.co.uk/speeches  16  some of it directly, much of it via these constructed securities.13 Their exposure to CLOs is materially lower. Chart 18, reproduced from the most recent Financial Stability Report, shows that UK banks own only a small fraction – around 1% - of the overall stock. All this is important and reassuring. It means that the mechanisms that so amplified the impact of US mortgage defaults are much diminished, particularly for the UK.

But the rate of interest required to stabilise the economy was extremely high at that time, much higher than it is today. So despite the higher stock, interest payments on mortgages are well below the pre-crisis average. Looking ahead, from these very low levels, the neutral rate of interest is more likely to rise than fall over the future. But it would have to rise a long way – and certainly by a lot more than is currently priced into government bond markets – even for household interest payments to return to that average. The fact that mortgage debt is higher than it was a generation ago doesn’t make it “unsustainable”. Third, the fact that growth rates are better indicators than levels may be telling us something more fundamental, not just that there are structural differences in affordability. In particular, it could be that the things that drive speculative, riskier lending tend to develop faster than the fundamentals that determine more sustainable levels of debt. Those fundamentals can vary (the decline in the neutral rate of interest is an example), the sustainable level of debt along with them. But perhaps they usually do so only gradually. If so, very rapid growth of debt would often be a sign of something else – of looser credit supply and a rise in the proportion of lending that’s riskier, less sustainable and more prone to default.
The Federal Reserve has shifted to a ‘wait-and-see’ stance and markets are expecting cuts in interest rates. This has significantly loosened financial conditions, and bond yields have fallen across the board. US GDP growth for this year, projected at 2.5%, is still the strongest among the G3 economies. China has eased fiscal and monetary policy significantly since late 2018. The Chinese government has stepped up support for infrastructure investment. Efforts are underway to enhance credit flows to small firms and private enterprises. But the effects of the stimulus will be somewhat restrained. The high level of indebtedness is likely to constrain the scale of stimulus measures. Policy stimulus is unlikely to be able to prevent China’s GDP growth falling below last year’s 6.6% but may be able to avoid a slippage below 6.0%. Private consumption remains resilient in the major economies as well as in Asia, underpinned by healthy labour markets. Unemployment in both the advanced economies and in Asia is at low levels, and wage growth is picking up gradually. 3 / 11  BIS central bankers' speeches  With strong labour markets, household consumption is providing an important support to global growth. In ASEAN, domestic demand has so far proven resilient to the slowdown in trade. The services sector has continued to be resilient globally. The global services PMI averaged 53.1 in the first four months of this year, similar to that for the whole of last year. However, it fell to 51.6 in May.

In a number of countries in Asia, the global financial crisis has also sharpened the focus on risks in financial institutions which are more systemically important. This includes having the regulatory reach that extends to institutions outside the formally regulated system. The implementation of global financial reforms has however, also substantially increased the regulatory complexity associated with the proliferation of binding “one-size-fits-all” prescriptions. While these rules mainly aim to address the fundamental weaknesses of the global financial system exposed during the crisis, it is important not to lose sight of other critical elements of sound regulation and supervision. The crisis has underscored the need for judgment to have a greater role in regulation and supervision. The implementation of global reforms is also proceeding at a time of tighter global financial conditions and weaker global growth. While the work of the Basel Committee, now more than two years old, suggests that its effects on economic growth will be modest, the highly dynamic global financial conditions needs to be taken into account in the implementation of the new standards. BIS central bankers’ speeches  3  In addition, in a more interconnected world, building Asia’s resilience to future shocks has also included significant progress in the arrangements to respond to potential threats of a crisis on a regional scale. These arrangements are currently being strengthened in Asia, through regional platforms for cooperation and more developed home-host supervisory arrangements that reflect the wider regional footprint of financial institutions in Asia.
Factors which might influence banks simultaneously are in focus, for instance the emergence and bursting of financial bubbles, excessive debt leverage in a certain economic sector or structural changes leading to reduced revenues or increased risks. The purpose is to identify conceivable risks and present an analysis that will influence the behaviour of market participants. A first and very relevant question is whether a stability report really would help to prevent a crisis. Will the financial sector read and listen to what the central bank has to say? Will this kind of moral suasion be sufficient? Could we have written a report in the late 1980s that would have made the banks see what they did not see? We do not know. But at least as long as managements have a memory of the last crisis, they are likely to listen. And if the crisis develops slowly, there are certainly things to be done. I shall return to this question when I talk about crisis management. Let me now turn to the main elements of a stability report as I see them. First, we look at the banks’ borrowers, because as long as they are healthy the banks usually are as well. Borrowers are analysed in terms of the corporate and household sectors in general, with particular reference to levels of debt and the future ability to pay. The real-estate sector is considered separately because lending to this sector is in most countries a major part of banks’ total lending.

The prices of commercial properties and private housing are also analysed not least because they reflect the value of the major part of the collateral that is pledged for loans from banks and mortgage institutions. Insofar as your banks conduct activities in foreign countries, stability surveillance also needs to encompass developments in these countries to ensure that negative developments will not destabilise your banks. Second, the major banking groups are analysed in various respects. Profitability trends illustrate the ability of the banks to build up reserves for future unexpected losses. Moreover, there is always the strategic risk that a bank with weak profitability will be tempted to try out new, bold but risky lines of business in order to generate a higher return on equity. Our analysis of the banks’ credit portfolios provides an indication of how loan losses are likely to develop in the coming year or two. Another aspect of the analysis relates to banks’ liabilities. Traditional banking involves accepting deposits and using the funds for making loans. People’s growing propensity to save in other instruments than bank accounts has forced the banks to finance a major part of the growth in credit by borrowing, mostly short-term funds, in the capital market. The structure of bank funding provides an indication of the risks in bank liquidity. Monitoring this is perhaps the most difficult part since the liquidity situation is liable to change very rapidly. 3.
In this context it is not the present exchange rate that is decisive, but how we see it developing in a slightly longer-term perspective. There is no reason to depart from the basic assessment we made earlier; there are still strong reasons in favour of a stronger krona. It is not merely that Swedish macro data in general has developed well over a number of years compared with, for instance, the euro area; most forecasts indicate that this development will continue. Sweden is also one of the countries that has had the highest trade surplus as a percentage of GDP over a number of years, which is one indication among many that the value of the krona has been relatively low. However, even if we should not – as I see it – change our basic assessment that the krona will strengthen, its value at present is rather different. There is therefore reason to take into consideration a risk scenario for inflation linked to a weaker exchange rate. Just as the Riksbank emphasised during 2003 and 2004 that the strong krona was one reason behind the low inflation rate, there is reason to point out that the weakening of the krona this year, particularly if it persists, could result in higher inflation,” said Mr Heikensten. ”All in all, I do not at present see any reason to change my view of inflation now to any great extent, compared with the October assessment.

Against that background, our assessment was that UND1X inflation would rise from the current low levels and be close to the target a couple of years ahead,” observed Mr Heikensten. ”Experiences show that the situation in the financial markets is often slightly uneasy during phases when interest rates are adjusting upwards. This has also been the case over the past year. There appears to have been unusually clear focus on differences in short-term rates between different  1/2  countries, which has had repercussions for the krona. Let me therefore underline that it is not at all strange that Swedish short-term rates have been lower than those in many other countries. For various different reasons, some of which I have mentioned earlier, inflation has been much lower in Sweden than in other countries. Compared with the United States and the euro area, the difference is between 0.5 and 1 percentage point on average for the past three years, depending on which inflation measure is used. In 2004, the difference was as much as 2 percentage points. When one looks ahead, which is important in this context, according to Consensus Forecast, forecasters are expecting higher inflation in the euro area and the United States than in Sweden,” continued Mr Heikensten. ”It is clear that the krona has developed more weakly since the spring than the Riksbank expected. As you know, we do not have a target for the exchange rate. However, it is an important factor when we assess future inflation.