samchain/econo-pairs-v1 huggingface dataset:
3  All speeches are available online at www.bankofengland.co.uk/speeches  3  At the request of the German presidency, the Financial Stability Board (FSB) is considering the most important financial stability issues associated with new financial technologies and, drawing on a stocktake of national approaches, it is assessing the extent to which these risks are addressed by existing regulatory 2  frameworks. The FSB will report its findings to the G20 summit in July to promote the G20’s broader objectives for financial inclusion and strong, sustainable and balanced growth. In that spirit, this evening I would like to highlight some of the potential financial stability issues raised by the FinTech revolution. 2. The Financial Services Value Chain But first I should make a confession: I was a banker once. To earn money for university tuition, I worked as a teller in my native Canada. To be more precise I was a Customer Service Representative. My core responsibility was simple: stand at a wicket and accept customer deposits, mainly from small businesses, and pay out withdrawals, mainly to their employees. Over time, I got to know the regulars ranging from the baker who would come in every afternoon to deposit a bundle of bank notes smelling of bread (literally dough) to the executives of a failing construction company who would cash weekly their pay cheques with alacrity and trepidation. I learned that there were two types of client: those who engaged with me and those who didn’t.

Similarly, although algorithmic traders have become a more important source of market liquidity in many important financial markets, they tend to be more active during periods of low volatility giving an illusion of plentiful liquidity that may subsequently be withdrawn during periods of market disruption when it is needed most. FinTech innovations, such as distributed ledgers, are being trialled for use within, or as a substitute to, existing wholesale payment, clearing and settlement infrastructure, will need to meet the highest standards of resilience, reliability, privacy and scalability. 11  All speeches are available online at www.bankofengland.co.uk/speeches  11  For all financial firms, the advent of FinTech materially changes operational and cyber risks. Regulators need to be alert to new single point of failure risks such as if banks come to rely on common hosts of online banking or providers of cloud computing services. In recent years, the cyber threat to the system has grown as financial institutions have become more reliant on interconnected IT systems. As the FinTech future envisages the sharing of data across a wider set of parties, coupled with greater speed and automaticity in executing transactions, the challenges around protecting data and the integrity of the system are likely to increase. One sign of this is a growing preoccupation in the insurance industry with how best to underwrite such risks.
The central bank does not manage real wages, the labour supply, employment or the level of unemployment in the long run. But, if price-stability is firmly anchored, the central bank can help to reduce short-term economic fluctuations. While central bank independence promotes price stability, researchers do not find a discernible connection between central bank independence and real economic variables such as GDP growth or unemployment (see Alesina, A. and L.H. Summers (1993), “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence”, Journal of Money, Credit and Banking, Vol. 25, No. 2., pp. 151–162). 27  The principle whereby the new state would have its own monetary system, separate from Sweden, was written into the November Constitution in the same year. Here the word “bank” is also used for the first time. In keeping with the emerging liberal thinking of the time, keeping the value of money secure was considered essential, a prerequisite for the liberty of the citizenry. 28  This journey time is for transport with a military escort. A post rider was able to make the journey considerably faster. Only after confidence in the new institution had been established – several generations later – was the Bank moved to Kristiania. Incidentally, the desire to compensate for the loss of the Bank was one of the reasons that Trondhjem was chosen as the location for another institution, the Norwegian Institute of Technology.

Otherwise the central bank will be unable to keep its promise. Throughout history, central banks have tried various mechanisms for tying themselves to the mast. Being accountable for their promises in the form reporting and follow-up is one mechanism that ensures that the bank is tied to the mast. Relinquishing the opportunity to break a promise makes that promise more credible. These are matters I touched on in my speech “On the topic of keeping promises” in 2008. Keeping a promise is difficult, because reneging on a promise will often be the tempting or rational choice in the short-term. The legal scholar and economist Michael Woodford has pointed out that in order to keep your word it is not enough to make a promise today and keep your word tomorrow. When making interest rate forecasts, we must also take into consideration the promises made yesterday. Only then can we fully use expectations to stabilise the economy optimally. This is referred to as monetary policy from a timeless perspective (Michael Woodford, 2003: Interest and Prices, Princeton University Press). Today there is general consensus that price stability is [not only] the best contribution that monetary policy can make to economic stability over time, [but perhaps also the only promise the central bank can actually deliver]. In the long term, a stable value of money is the only promise that the central bank has the means to deliver. This promise was previously kept by regulating the supply of money issued. Today, the interest rate is the instrument.
Considering now financial development, another kind of imbalance shows up. The global rise in savings, especially in the emerging world, has not been matched by an equivalent increase in the supply of safe and liquid financial assets. This “asset shortage” is one fundamental reason why bubbles have erupted in many countries with increasing frequency, either in real estate or financial markets or both. It also had a strong impact on the direction of capital flows. Only the US economy has the ability to generate liquid and safe assets in significant quantities. US capital markets act naturally as a magnet for world savings, especially for foreign exchange reserves. In addition, financial engineering allowed US institutions to manufacture complex products which looked apparently safe, but proved very fragile. Admittedly, internal imbalances and huge deficiencies in supervision and regulation  BIS Review 170/2010  1  played a role in the run up to the crisis. But the process has been largely driven by capital inflows in the US looking for an improbable combination of liquidity, safety and high returns. Combining all these evolutions gives a good picture of the structural forces behind the crisis. Worldwide shifts in income distribution generated excess saving, which were compensated by wealth effects borne out of increases in asset prices. Since those transformations were asymmetrically distributed around the world, they were accompanied by growing imbalances and capital flows. Obviously, purely domestic factors, especially in the US played a major role in amplifying the underlying imbalances.

Foreseeably, a phase of gradual growth will begin over the course of the coming year, based on a continuing positive contribution of external demand and on a progressive pass-through of the improvement in the world economy to business investment and employment. On average, however, 2010 might still see a moderate decline in activity, the result above all of the carry-over effects of the negative rates in 2009. The growth path in 2010 might also be affected by the VAT rise announced for next July, since this measure might bring forward  BIS Review 151/2009  3  some spending decisions to the second quarter, raising demand and activity in this period but reducing them in the second half of the year. This slow path of recovery in activity broadly matches the government's macroeconomic forecasts on which the State Budget for 2010 is based. The setting I have described highlights the significant challenges the Spanish economy faces. For the recovery to materialise and firm, the Spanish economy must first check and then absorb unemployment, restore health to business and household finances, rebuild confidence in the economy's productive capacity and reduce the large budget deficit. To achieve these goals, I reiterate that it is vital to adopt an ambitious agenda of reforms. The economic policies pursued since the start of the crisis have focused on countering in the short run a very adverse economic and financial situation, and there is broad consensus that the efforts made have contributed positively to this end.
Andrew G Haldane: The Commercial Property Forum twenty years on Remarks by Mr Andrew G Haldane, Executive Director, Financial Stability, Bank of England, at the Bank of England, London, 18 December 2013. *  *  *  I would like to thank Oliver Burrows, Iain de Weymarn, David Gregory, David Learmonth, Varun Paul, Rhys Phillips, Laura Piscitelli, Martin Taylor and Jack Worlidge for their help and comments. Tonight marks an important birthday. We are here to celebrate the 20th anniversary of the Bank’s Commercial Property Forum. I am delighted to welcome members, past and present, back to the Bank. The Forum met for the first time on 28th July 1993. It was hosted by my predecessor Pen Kent. Its aim, to use Pen’s words at the time, was “to bring all sides of industry together” – developers, investors, lenders, occupiers, surveyors, auctioneers, researchers and regulators – to discuss developments in the commercial property sector. Since then, the Forum has met around 80 times. It has done so under three external chairmen – Clive Lewis, Chris Bartram and Ian Marcus – and I am particularly grateful to them for their efforts over the past 20 years. The Forum has drawn on around 300 experts from across various sectors. By my reckoning, they have drunk over 1500 cups of tea or coffee and eaten over 2000 biscuits. I cannot think of a Bank committee whose caffeine and calorific intake could surpass the Forum’s.

Yet even that was insufficient to save the world economy from the “Great Recession”. And the recovery from recession has been both slower and lower than almost anyone expected. Neglect of the credit cycle has shown itself to be anything but benign. The lesson from all of this is very clear. As policymakers we must do a much better job of taking prompt corrective action to lean against financial swings which, if allowed to persist, would otherwise put at risk the financial system and wider economy. We need to build defences to protect against the collateral damage from financial flood. We need to be popping, not mopping. Fortunately, that is exactly what is now happening. Regulators globally are pursuing a wholly new approach. It goes by the name of macro-prudential policy. And here in the UK, it is the responsibility of the Bank’s new Financial Policy Committee (FPC). Among the FPC’s tasks is to lean against pro-cyclicality in the financial system. That means smoothing out the stomach-churning highs and lows in the credit and asset price cycle, which have characterised the past. As evidence of this approach, consider the FPC’s recent actions in the UK residential property market. This market has defrosted at pace over the past twelve months. The financial stability risks from this re-heating may not be immediate, but nor are they hypothetical. Take the position of UK households. Despite some post-crisis deleveraging households’ debt burden, relative to income, remains high at around 140% – almost three times its level in 1980.
The NGFS will facilitate the upskilling of central bankers and supervisors, especially from emerging and developing economies, in climate-related and environmental risks. We will develop a training and capacity building strategy for central banks and supervisors, mapping training needs to supply. We will develop a training curriculum, to help central bankers and supervisors build up their capabilities in a progressive manner, from foundational knowledge to more advanced and specific skillsets. As a final remark, let me stress: climate change is a shared crisis, and the efforts to fight it must be a shared responsibility. Inclusivity is the key to our success. And inclusivity is at the heart of what the NGFS does. We have a diverse membership, across geographies, across stages of economic development, and across a variety of climate related risks and transition challenges. The NGFS will continue to ensure that our work on greening the financial system is inclusive – uncompromising in our ambition to support a Paris-aligned pathway to net zero while meeting the economic and social development needs of our members. In short, a just transition to a sustainable planet. Inclusivity is also a feature of the NGFS when it comes to partnering the financial industry, academia, and standard-setting bodies in charting policies and strategies on how the financial sector can support decisive climate action. We will cast our net wide and tap on the ideas of a range of stakeholders. Given the magnitude and complexity of the challenge before us, nothing less will do.

Third, the impact of climate change on MONETARY POLICY. The NGFS will seek to gain an understanding of how climate change and mitigation actions should be considered in the conduct of monetary policy. From a central bank perspective, climate change is the ultimate supply-side shock. The effects of climate change and mitigation actions are likely to be of a scope and intensity that will affect the economy across both cyclical and structural dimensions. This is a complex endeavour, given the considerable uncertainty surrounding these effects. The NGFS will seek to provide central banks with the requisite tools to make sense of the implications of climate change for monetary policy. We will focus on macroeconomic modelling of critical transition issues, to help central banks better analyse their impact on the economy. We will explore climate-related adjustments that central banks could implement to ensure the smooth conduct and efficacy of monetary policy operations. We will explore how monetary policy operations could potentially support the transition to a net-zero economy. Fourth, NET ZERO FOR CENTRAL BANKS. The NGFS will provide guidance on how central banks can make the transition to a net zero environment. It is important that we central banks who are part of the Network for Greening the Financial System “lead by example” and make an effort to green ourselves. This would include adopting some of the good sustainability practices central banks and supervisors have been espousing to financial institutions.
Household savings are now to a large extent invested abroad through life insurance companies and funds. Changes in capital flows have a greater impact on exchange rate movements than payments for exports and imports. Capital flows can easily be influenced by events in other  2 3  See Mussa (2000) and Stiglitz (2000) for two opposite views on this question. See Bernhardsen and Røisland (2000). BIS Review 92/2000  6  countries and by changes in expectations concerning developments in the Norwegian business sector, Norwegian prices, costs and interest rates. In the long term, a country’s exchange rate tends to move in line with developments in domestic price and cost inflation compared with other countries. This is the hypothesis of purchasing power parity between countries. If the level of prices in one country rises at a faster pace than in other countries, that country’s currency will tend to depreciate to the same extent over time. Empirical evidence has been found for these effects for a number of countries even though the effects are relatively weak in the short term. However, substantial medium-term convergence in purchasing power parity has been found between Norway and its trading partners.4 I have described a foreign exchange market with a market-determined krone exchange rate. Normally, we cannot influence price formation in this market through direct interventions. In other words, we have a floating currency not only formally but also in reality.

At the same time, changes in the interest rate and exchange rate may influence developments in the real economy in the short run. This means that fiscal and monetary policy have a combined effect on the overall level of activity in the economy. With large and to some extent varying budget revenues, the basis for determining central government expenditure and taxes from one year to the next may easily be impaired. If budget expenditure fluctuates to a large extent in step with oil prices, the result will be abrupt shifts and instability in the Norwegian economy. Changes in oil prices may then quickly influence wage and price expectations, the exchange rate and long-term rates. In that case it will be very demanding to achieve nominal stability. Short-term interest rates will have to be changed frequently and sharply, and long-term rates will reflect a high risk premium for the Norwegian krone. It is therefore important that the annual budgets are anchored in a long-term strategy that takes sufficiently into account that oil revenues can fluctuate from one year to the next. It is advantageous if fiscal policy can also be used to counter fluctuations in demand and production. The political assessment has also been that a countercyclical fiscal policy provides the best basis for sound developments in the distribution of income and wealth. If fiscal policy is used to smooth fluctuations in demand and production, it will also contribute to stability in the krone exchange rate and in the competitive conditions for the business sector.
In addition to the extensive financial worries of this type, there have been relatively abrupt shifts in interest rates, exchange rates and share prices. In some instances the financial turbulence has stemmed from inconsistent economic policies, as well as from notable shortcomings in the supervision of banks and other institutions. It has not infrequently coincided with and even been the direct cause of far-reaching macroeconomic adjustments in the economies concerned. In Sweden, for instance, GDP fell for three consecutive years, from 1991 to 1993, by a total of 6% and unemployment shot up. Other countries have experienced similar and even greater setbacks. Large loans have been provided by the International Monetary Fund to assist various countries. In the light of all this, it is hardly remarkable that in recent years matters to do with the global financial system and how it works have been discussed more intensively throughout the world. So my subject today is indeed topical. But let me say at once that I will be considering just a couple of the aspects the title of my talk encompasses. Time is obviously a consideration here but a more important reason is that we do not yet know enough about many of the complex matters in this field. I shall begin with the crisis in Sweden in the early-1990s because it illustrates some underlying problems that crises in other countries have had in common.

In addition, integration in the stock markets is progressing, although they have to overcome barriers of the same kind as those I have just mentioned. In addition to the closer links between stock market firms, a notable increase in transactions on the new European indexes has been observed. Moreover, the “new markets”, with growth figures benefiting greatly from the establishment of the large European market, have expanded considerably. The broadening of the capital markets and their greater integration are contributing to a more efficient allocation of savings. First, this development is also leading to lower transaction costs and increasing the liquidity of the traded instruments (which in turn contributes, ceteris paribus, to reducing the absolute level of interest rates). Second, it is multiplying investment opportunities and increasing the range on offer. At the same time, it is fuelling competition between issuers, investors, and even, to some extent, regulatory systems (as shown, for example, by the adoption in several countries, including France, of a legal framework for real estate bonds, modelled on the German Pfandbriefe). Meanwhile, the deeper market calls for restructuring and rationalisation of the finance industry, the effect of which would be to strengthen the management of savings in Europe.
Sadly, as Keynes recorded, Aston Villa lost 3-1 and finished that season as runners-up to Blackburn. It is unclear whether Keynes ever again visited a football ground, and there must be a real possibility that, for him, Villa Park was the sum total of his football experience. In later years some of Keynes’s disciples forgot not only his connection with Villa Park but also his view that price stability was a necessary condition for a successful economy. Tomorrow is the 80th anniversary of the death of Lenin, and it was to Lenin that Keynes attributed the remark: “The best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens”. After doing their best to test this proposition, successive British governments have committed themselves to stable and low inflation. And for the past decade, inflation has ceased to be a dominant consideration in the economic decisions of families and businesses. That has been achieved by aiming at a symmetrical inflation target. Crucial to the success of such a policy is the ability to anchor inflation expectations on the target. For this to be the case, the target must be clear and well understood. From May 1997 the target was 2½% for RPIX inflation. But in December the Chancellor gave the Monetary Policy Committee a new target for inflation.

Of greater significance than the average difference between the two measures in the long run is the observation that the gap between them varies over time, often quite widely, in line with changes in the temperature of the economy in general and house prices in particular. At present the difference between the two measures is unusually large. It peaked at 1.7 percentage points in June, since when it has narrowed to 1.3 percentage points, but remains well above the 0.5% change in the inflation target. So the change in target gives the impression that inflation has moved from above to below target. Does this mean that monetary policy in the coming months will need to be looser under the new target than it was with the old target? The answer is no. The large difference between the two measures of inflation at present can mostly be explained by house price inflation. It is unlikely that house prices will continue to rise at their recent pace for much longer. We have already seen some slowing since the peak in 2002, and the Monetary Policy Committee judges that a reasonable central view is that house price inflation is likely to subside over the next two years or so. The gap between RPIX and CPI inflation is, therefore, likely to narrow to around half a percentage point over that period. So the change in the target is unlikely to have any material impact on the decisions of the Monetary Policy Committee in the near future.