samchain/econo-pairs-v1 huggingface dataset:
This yield can be interpreted as a risk premium priced into the futures contract to compensate the holder for bearing the commodity price risk. However, if the number of investors ready to bear this risk increases significantly, the risk premium could disappear or even turn negative. In fact, for some time now, the near-term structure of many commodity prices has experienced a change from backwardation to contango. It seems to me, there may well be a connection between this change from backwardation to contango and the growing trend to invest in commodity futures. Contrary to other commodities, gold has typically been in contango. The reason is that there is plenty of gold around and plenty of market participant - including central banks - willing to lend it. As a consequence, gold lease rates are usually lower than USD interest rates and gold futures prices higher than spot prices. The roll yield is thus negative, which is one of the reasons why investment in gold futures did not generate the same returns as investments in broad commodity future price indices. So what return should we expect from investing in gold? History shows that gold has been able to keep its value in real terms, but compared to bonds or equities, no real return has been realized (Graph 2).

In total, 1300 tons were sold. The decision to reduce our gold holdings by half was taken for two reasons that were highlighted by experts as early as 1997: First the SNB arguably had more gold than it needed. Switzerland's official gold holdings per capita were five times higher than those of the next G10 country. Second, the SNB had - on a mark-to-market basis - excess capital reserves that were no longer required for monetary purposes. As a result, the decision was taken to sell 1300 tons of gold. In May 2000, as soon as the legal framework had been amended to allow market sales, the SNB started it gold sales operations. We adopted a very transparent strategy and tried, within the constraints of the Washington Agreement, to maximize the proceeds of the gold sales in Swiss francs. The average selling price of USD 350/oz was 17 dollars higher than the average London fixing of the selling period. Of course, with today's prices around 600 USD/oz, you might think that we revisit our sales program with mixed feelings. As a matter of fact, price forecasts, which are inevitably subject to great uncertainty, did not feature prominently in the SNB’s decision to sell gold. The timing of the gold sales was largely influenced by factors that the SNB did not fully control. Once we were allowed to sell, we started our program within the window of opportunity that had been negotiated with other central banks under the first Washington agreement.
At the same time, we have to recognise that, when executing lending policy, a central bank functions much like a private financial intermediary. Of course, a central bank loan creates money, which is not the case for private loans. But the lending side of the operation is essentially the same. The granting of private credit is accompanied by restrictions imposed on the borrower which limit its ability to take risks that might endanger the value of the loan. Likewise, when a central bank provides credit against collateral, it must follow up with a frequent re-evaluation of the credit conditions so as to safeguard its funds and make sure its commitment is not abused. Also, by the very act of declaring an asset eligible for monetary policy operations, a central bank has to be aware that it might affect its price. This argues in favor of a graduated system of collateral valuation, in which haircuts reflect the underlying fair value along a continuous scale, possibly with less threshold discontinuity than at present. These are issues for further analysis. 2. In any case, while central banks will be called upon to support market functioning in liquidity crises when the integrity of the transmission mechanism is threatened, they cannot be asked to rescue insolvent issuers – whether private or public institutions. In line with this principle, the SMP is meant to repair the integrity of the transmission mechanism, not to finance public debt. Conclusions Let me briefly summarise the thrust of my message.

The risk associated with what used to be considered risk-free assets is something new in financial markets. What type of risk will be incorporated in the market returns on sovereign debt? For people of my generation, Sargent and Wallace provided the traditional answer: in a game of chicken between an irresponsible and institutionally strong fiscal authority on the one hand and a committed but unrealistic central bank on the other, the former is bound to win. Inflation will be the outcome. Knowing this, investors will demand high returns on government debt to offset higher expected inflation. So the game ends before it has even started. In the new world, the Sargent and Wallace story has lost some of its descriptive and predictive power. The fiscal authority is confronting a strong player with institutional backing. And certainly in Europe’s Monetary Union, the central bank is as strong and institutionally established as the fiscal authority. If the fiscal side does not adjust, inflation risk mutates into liquidity risk. In the most severe cases, if the fiscal adjustment is delayed, liquidity risk turns into solvency risk As you know, markets have learned to become more discriminating with regard to fiscal solvency than they have been for decades. Countries with comparatively  6  See: T. Adrian and H.S. Shin (2008), “Liquidity and Leverage,” FRB New York Staff Report no. 328. 7  See: G.B. Gorton and A. Metrick (2009), “Haircuts,” NBER Working Paper No. 15273. 8  See: V.V.
Rather we see our evidence as suggesting that the way we as society finance those degrees – with an increasing reliance on debt held by the students – has costs to both borrowers and lenders that are only now becoming clear. Given the social benefits of an educated population, we see a strong case for some public role in financing college. Nonetheless, there are many private benefits, including higher lifetime earnings to be had by the successful college graduate. Therefore it is likely that the best system of finance also includes a tuition payment by the student. Because many prospective students are credit and liquidity constrained, and because of the limited enforceability of debt, we outlined the case for a government-supported student loan program to support the payment of tuition. However, we see a case for stronger underwriting standards that would assess the likely quality and outcome of the education match between a prospective student and the educational institution, which would better deliver resources to high potential educational matches, and avoid encouraging poor ones. We’ve learned a lot over the past several years about how student loans are affecting individual borrowers, the taxpayers and the aggregate economy. We’ve by no means answered all the relevant questions, and with over a trillion dollars in outstanding debt and the future of our workforce at stake, I consider these issues to be of first-order importance to the nation.

Since the supply of Exchange Fund debt, even at about $ billion, is limited, and there is a lack of other Government debt, the range of collateral against which lender of last resort support would be provided must necessarily be wider than in some other economies. There are three basic instruments that the HKMA would use to provide support: purchase of the institution’s placements with other banks; repos of eligible Hong Kong dollar securities; and a credit facility against the security of the institution’s residential mortgage portfolio. The details are set out in the policy statement and its annexes, and I do not intend to go into them here, but I do wish to highlight three points. First, given that the purpose of liquidity support is to provide a temporary breathing space to allow the institution to sort its problems out, any support provided through repos or through a credit facility would be provided for an initial term of no more than 30 days, although there would be a provision for it to be rolled over for a further 30 days. Secondly, the interest rate charged on lender of last resort support would be pitched at a level sufficient to maintain incentives for good management but not at a level so high as to defeat the purpose of the facility, which is to prevent illiquidity from precipitating insolvency.
The use of cards has increased rapidly Card payments have increased rapidly in Sweden in recent years. In ten years the value of card payments has almost quadrupled and the number of payments by card has increased sevenfold. Six years ago, in 2002, for the first time ever more card payments were made in payment terminals than ATM cash withdrawals. In the most recent statistics available, from 2006, card payments in payment terminals were three times more common than ATM cash withdrawals. If one calculates in terms of the number of transactions, cards are now the most used account-based payment instrument. Like cash, card payments are mainly used for payments that are made at the actual time of the transaction. According to a 2006 Temo survey, 45 per cent of those questioned used cards as legal tender in at least four of five purchases. 3 (3) The value of an average card payment has almost halved in the past ten years, from around SEK 730 to around SEK 380. We are then using cards to a greater degree to pay smaller amounts. In this way cards increasingly appear to act as a substitute to cash. This is particularly so in the case of younger people, which is indicated in a study recently published by the Riksbank. 4  1  The Economist, 17-23 February 2007. 2  The stock of banknotes and coins totalled SEK 114 billion on 31 December 2007. Sveriges Riksbank.

At a coffee shop chain in Stockholm one can buy a plastic card for SEK 20 and then charge it with cash in any of the chain’s shops. If one uses the card one receives a discount when buying coffee and sandwiches. There is also a discount on buns and other items. It is evidently rational management at the sales outlets and, moreover, is appreciated by the consumers. We Stockholmers can also take pleasure in the congestion charges, where the fee is automatically drawn from our bank accounts when our cars are automatically registered when passing the control points. There are many technical innovations, even with respect to account-based payments. And how about the future…? An important task for us who work at the Riksbank is to assess how the Swedish economy will develop in the future. The art of making accurate forecasts fills us with respect. I shall therefore refrain from all categoric statements about what will happen with payments. Developments are steered by technology and I am no engineer. However, allow me to make a few reflections and guesses. •  I believe the “cashless society” is as far away as the “paperless society” was when one once began to speak of it. There will always be a need for banknotes and coins, although cash transactions continue to decline as a share of GDP. Cash is an efficient form of legal tender for certain purposes and will continue to be so.
The book has been the first one to include a full set of statistical and historical data showing key indicators in the economic and monetary areas for the countries in South-East Europe, starting from the establishment of central banks in the 19th century to the end of World War II. The book has proven ever since its value and utility. Last year in Vienna, there was a proposal regarding further research work based on the information contained within the balance sheets of the central banks. Looking closer at the structure and the evolution of these balance sheets over time provides experts with useful insight as to how monetary policies have changed and have been implemented, how the main 1/2  BIS central bankers' speeches  operations have evolved, what profit the central banks have made and to what extent central banks have been able to secure and preserve their independence. I trust that the South-East European Monetary History Network could further capitalise on both the researchers’ experience of compiling the statistical and historical data series and the cooperation among central banks. The National Bank of Romania has always shown interest in monetary and banking history. In that respect, we are currently re-organising/redesigning the NBR Museum – which you are going to visit after lunch – aiming to bring to the visitors’ attention both pieces of history and the role of the central bank in shaping the economy, thus shaping history.

In a number of ways I feel that the world’s foreign exchange and money markets may have reached something of a watershed in the past year or so. We have witnessed a reduction in the number of significant world currencies as a result of the arrival of the euro. We have also seen accelerating consolidation among the ranks of major players. These two factors have tended to reduce the volume of interbank business. Meanwhile the traditional market infrastructure is being supplemented and challenged by the emergence of new electronic trading platforms. And, while there has already been for many years a strong momentum for product innovation, the pressure to sustain profits may most recently have intensified that search. At the same time the regulators are as anxious as ever to ensure that risks are properly understood (both by themselves and by the bankers) and appropriately managed. I am sure that the MPC will play a useful role in helping the industry meet this challenge, by providing training for new practitioners and continuing its work on product development. The recent study on the feasibility and desirability of introducing overnight index swaps in Hong Kong is one good example of this work. 7. I should perhaps stop here to avoid encroaching further on the valuable time set aside for our guest speaker today. Donald Mathieson of the IMF is no stranger to Hong Kong. Many of you will be familiar with the authoritative reports and analysis of financial markets that he and his colleagues produce.
These movements have been very beneficial for the economy and, when starting our asset purchases a year ago, I would have been more than willing to have settled for such an outcome. However, it is difficult to identify the incremental role of QE in driving these improvements. These other asset prices may respond less quickly to asset purchase announcements and so are less easily isolated using event studies. Moreover, these movements coincided with a global rally in financial markets, which further complicates the task of isolating UK-specific effects. However, it is important to see this global rally in the context of the similar policy strategies adopted by a number of the world’s most important central banks: official interest rates were cut to very low levels and central banks’ balance sheets in many parts of the world were greatly expanded. The fact that UK capital markets moved in line with global markets during this period does not suggest that domestic policy had little impact. Indeed, I have little doubt that our asset purchases contributed substantially to these movements, via the channels I have discussed. Through a portfolio rebalancing effect, as both retail and institutional investors switched out of gilts into alternative assets, such as corporate bonds and equities. Through improvements to market liquidity, aided by our purchases of commercial paper and corporate bonds. And through their impact on expectations, as asset purchases demonstrated our commitment to act, boosted confidence in the economic environment and so reduced the likelihood of further large falls in asset prices.

The main behavioural assumption underlying this monetary injection was that it would gain traction via a portfolio rebalancing channel. Most UK government bonds are held by non-bank financial sector companies (OFCs), such as pension funds and insurance companies. 3 As long as these investors do not regard money as a perfect substitute for gilts, they will attempt to reduce the additional money holdings associated with gilt purchases by switching into other assets. This process of portfolio rebalancing will continue until the yields on gilts and on alternative assets, such as corporate bonds and equities, have fallen sufficiently to compensate investors for holding the higher level of money balances. The degree of stimulus associated with the monetary  2  Del Negro, Eggertsson, Ferrero and Kiyotaki (2009) extend this framework to analyse monetary policy at zero bound. 3  At the end of 2008, prior to the commencement of the asset purchase programme, almost 60% of outstanding gilts were held by OFCs (of which 40% were held by insurance companies and pension funds), and 35% were held by overseas investors. UK banks and building societies held only 4% of gilts. BIS Review 29/2010  3  injection will be greater the lower the substitutability between money and gilts, and the higher the substitutability between gilts and other assets. Trying to estimate the likely size of these effects is very difficult, not least because a policy of this form and scale has never been implemented in the UK.
By no means all this foreign currencydenominated credit has been provided to domestic businesses and households that have foreign currency income or other hedges against exchange risk. This poses a particular risk for borrowers and lenders alike. Foreign debt of deposit money banks at the end of January 2004 had risen year-on-year by almost 300 b.kr., or two-thirds. There are probably a number of explanations for this strong demand for foreign borrowing. Firstly, it is connected with changes in Icelandic business structures and ownership. Following the privatisation of state banks, investors have been actively involved in dissolving the old links in business ownership and forging new ones. Foreign funding, mediated by the banks, has played a key role in these events. Secondly, conditions in international finance markets have been  BIS Review 18/2004  3  favourable for such reshuffling. Foreign short-term interest rates are close to a historical low and foreign long-term interest rates are still very low, although they have risen above the nadir they reached around the middle of last year. Thirdly, Iceland enjoys economic stability and growth prospects are favourable for the next few years. In December last year the Central Bank sent a letter to chief executives of the commercial banks and largest savings bank expressing concern about the rapid increase in lending and high levels of foreign short-term financing. As is generally the case people responded in different ways, and some pointed the finger elsewhere.

The Central Bank does not consider that there are grounds for raising the policy rate yet, but all things being equal the inflation forecast calls for a higher policy rate in the coming months, even though the inflation outlook is favourable until some time next year. Because monetary policy needs to be forward-looking, this could well mean that the Central Bank will raise its interest rate even though inflation is still below the target. Largescale investments over the next few years mean that monetary decisions need to take into account a longer horizon than usual. Considerations of financial stability call for the same approach. Ladies and Gentlemen: Inflation forecasts play a key role in the Central Bank’s monetary policy decisions. Looking into the future is always difficult, but I think that the Central Bank can feel satisfied with how accurate its inflation forecasts have turned out to be. I would like to conclude by thanking the Office of the Prime Minister and other government authorities for their pleasant cooperation. I also thank the financial institutions for their good collaboration. Last but not least, I would like to thank the employees of the Central Bank for their fine work, without which the Bank could not have achieved such impressive results. 6  BIS Review 18/2004
Even though inflation outcomes have been slightly lower than expected, we still expect CPIF inflation a year or so ahead to be around 2 per cent. Cost pressures in the economy are rising, while the major variation in energy prices, which we believe to be of a temporary nature, means that inflation will vary somewhat in the near term (see Figure 3). 3 [13]  Figure 3. Criteria met for slow rate increases – inflation prospects still favourable 3  3  Contribution of energy prices to CPIF CPIF  2  2  1  1  0  0  -1  11  13  15  17  19  21  -1  Note. The CPIF in terms of annual percentage change and the contribution from energy prices in percentage points. The contribution of energy prices in the forecast is calculated as the annual percentage change in energy prices multiplied by their current weight in the CPIF. Sources: Statistics Sweden and the Riksbank  After the increase in December – what will happen with the interest rate going forward? Moving on from the interest rate decision in December. As I mentioned by way of introduction, we have now starting a slow journey towards higher interest rates. I would now like to say a little about what this journey might look like.

For the financial channel, it will be mainly through a spike in risk aversion and drying up of bank credit, quite similar to 2008. Already, we have seen some retraction in the Eurozone banks’ trade finance activities in Asia, but the local and global banks have stepped in to fill the void. Financial market stresses will be felt most keenly in capital flows, currency markets, and interbank funding. There could be larger and more volatile capital flows. We must be prepared for both excessive inflows as well as outflows. This could in turn have either upward pressures or downward pressures on the Singapore Dollar. Interbank funding could tighten further. We are keeping a close watch on market liquidity conditions, especially in the availability of US Dollar funding. Finally, the impact on safety and soundness of financial institutions. Financial institutions operating in Singapore have limited direct exposure to peripheral Europe. But if the crisis spreads to core Europe, the contagion could be larger. MAS is closely monitoring banks’ lending exposures and funding profiles. Given our close links to global financial networks, we will not be unaffected. But our financial system is sound and we should be able to weather the storm. Our local banks – at the core of the financial system – have strong capital and liquidity positions. They have very good asset quality, with non-performing loans ratio at just 1.3%. We have been carrying out periodic industry-wide stress tests.