samchain/econo-pairs-v1 huggingface dataset:
Mojmír Hampl: To be or not to be in the eurozone? An answer from Prague Speaking points by Mr Mojmír Hampl, Vice Governor of the Czech National Bank, at St. Antony's College, University of Oxford, Oxford, 21 May 2018. * * * Ladies and gentlemen, Good afternoon. First let me thank Dr Charles Enoch for his kind invitation to speak here today. It is really an honour for me. I was thinking for quite some time about what approach to take today. Should it be a totally rigorous, perfectly balanced and as-full-of-data-as-possible description of the macro and monetary realities of our country? Or should it be more the personal testimony of a policy maker co-responsible for the monetary zone called the Czech Republic for almost 12 years now? On the advice of my adviser I decided that the second option might be more appropriate. We should listen at least sometimes to our good advisers after all. So, the Czech Republic is a mid-sized European country of 10.5 million inhabitants. It entered the EU in 2004 and has no opt-out from euro adoption, so legally we are obliged to join and to make every effort to be there as soon as possible. Yet there is basically no major political power in our country pushing for euro adoption at the moment.

Risk measurement It will come as no surprise to you that, as a supervisor, I will begin by talking about the second of these elements, namely risks. The process of transition will entail two types of risks to the financial system:  4/9    On the one hand, the physical risks caused by the direct effects of climate change, for example as a result of the gradual increase in temperature, or more frequent or more severe climate events such as storms, flooding or natural disasters.   On the other, the transition risks. These refer to the potential effect on specific bank borrowers of the regulatory measures aimed at sustainably transforming the  economy, technological changes, and changes in customer behaviour and preferences driven by greater environmental awareness. The two types of risk are related: the more ambitious the regulations combating climate change, the greater the transition risk and the lower the physical risk, and vice versa. Environmental risk is a risk in its own right, although its impact materialises through “traditional” banking risks.
On the foreign exchange market, the Swiss franc came under increased upward pressure for a brief period after the Brexit vote. This pressure abated again, not least due to the Swiss National Bank’s willingness to intervene on the market. While the pound sterling continued to lose value over the summer months, other key currencies, including the Swiss franc, moved sideways within a narrow range (cf. chart 3). Heightened uncertainty in the run-up to the US presidential election was once again reflected in growing demand for safe-haven currencies on the foreign exchange market, leading to slightly higher Swiss franc exchange rates. Following the US election, the US dollar appreciated on a broad basis. The strengthening of the currency occurred against the backdrop of the rise in US interest rates mentioned earlier. The dollar gained approximately 3% in trade-weighted terms after the election. The recent developments in the US also had an impact on other currency areas. Currencies in emerging economies in particular came under pressure and, as a group, weakened by around 4% against the US dollar. On a trade-weighted basis, the Swiss franc has changed little from its end-June level. Nevertheless, Swiss franc exchange rates moved in different directions. While appreciating more sharply against the yen than against the euro and pound sterling, the Swiss franc weakened against the US dollar and currencies of commodity-exporting countries. Overall, the Swiss franc is still significantly overvalued. The market environment remains challenging and fraught with global economic and political risks.

The SNB therefore continues to monitor events on the foreign exchange markets very closely. Impact of negative interest on the money and capital markets  Let me now turn to the impact of negative interest on sight deposits at the SNB on the Swiss franc money and capital markets. As you know, since the introduction of the negative interest rate in January 2015, key money market rates such as the three-month Libor have hovered, as intended, around –0.75% (cf. chart 4). The negative interest rate has ensured that the traditional interest rate differential with other currencies has been at least partially restored. On the secured money market – the repo market – interest rates have also stabilised at a lower level. This applies in particular to SARON, the reference rate for call money. Activity on the  Page 2/7  Berne, 15 December 2016 Andréa M. Maechler  News conference  repo market remains unaffected by negative interest and the very high level of sight deposits. Banks and insurance companies use the market for their short-term liquidity requirements and the efficient management of their collateral holdings. The introduction of the negative interest rate even resulted in an increase in the trading volume on the repo market (cf. chart 5). One reason for this is that repo trades can be conducted in order to use up exemption thresholds. Yields on Confederation money market debt register claims are below interbank levels (cf. chart 4). This is mainly attributable to relatively high investor demand for safe Swiss franc investments.
In such a scenario, the króna would depreciate sharply, at least over a considerably long period of time, undermining banking system liquidity and public sector finances and making domestic and foreign Treasury financing much more expensive and difficult. In this context, it is appropriate to emphasise that Iceland is facing a balance of payments problem and not a debt problem. Its gross debt currently amounts to 224% of GDP, and net debt is 52% of GDP, excluding the debt of the failed banks. The underlying debt position is much stronger, however. Estimates prepared by Bank staff a year ago suggest that once the old banks’ estates have been settled and the air has cleared, gross debt will total 230–240% of GDP, and net debt, based on the estimated financial statements of the old banks will be about 60–80%. If the effects of one company’s subordinated debt to its owners are excluded, net debt declines by another 40–50% of GDP. These estimates are subject to considerable uncertainty. The figures are currently being revised to take account of the most recent data, but there is a strong likelihood that Iceland’s underlying debt will be roughly the levels seen at the turn of the century when all is said and done. The problem is that too large a share of it is short-term debt and without a negotiation process. The capital controls are intended to  4  BIS central bankers’ speeches  provide the space and negotiating position needed to address this situation.

Conversely, others see the distributed ledger as an opportunity for the central bank to expand its role, via a “central bank digital currency” available  15  If maturity transformation is a necessary feature of a market economy, you’d probably expect to find the private sector creating an alternative supply of liquid assets of its own, to help replace lost deposits. This would mitigate the impact on lending but it would also undermine any prudential benefits of a part-nationalised deposit-taking system (e.g. Goodhart and Jensen (2015)). 16  Other than cash, the easiest way for individuals to shift exposure away from commercial banks and towards the safer public-sector balance sheet is to put money into National Savings and Investment certificates (NS&I). Flows into NS&I picked up markedly during the crisis (NS&I (2009)). 17  The difference between loans and deposits – the so-called “funding gap” – has shrunk dramatically in recent years. Overall, the significant regulatory reforms since the crisis – in particular ring-fencing, the insistence on more equity and other loss-absorbing forms of funding and, on the assets side, higher holdings of liquid instruments – will have lowered materially the degree of maturity transformation within the banking system (see, for example, Lowe (2015)). BIS central bankers’ speeches  7  to a much wider group of counterparties. If it were a close substitute for bank deposits, a CBDC would represent a shift towards a “narrower” banking system.
The project of Borika AD for immediate payments in BGN, based on the requirements of the SEPA scheme for immediate credit transfers, is in an advanced stage of development. As an operator of the real-time gross settlement payment system (RINGS), the BNB assists in the implementation of the project. The company’s ambition is in 2021 for payment service providers in Bulgaria to start providing their customers with immediate credit transfers in BGN. In order to develop innovative, affordable, secure and convenient payment solutions both in the online environment and in physical stores, it is important to provide an interoperable infrastructure that allows the smooth execution of cross-border immediate payments within the EU, as well as the achievement of additional standardization to ensure compatibility between final payment solutions offered to payment service users (eg common standard for QR codes, provision of access to NFC chips in mobile phones, etc.). These, as well as other aspects related to technological changes in the field of payments, including the risks arising from unregulated services, especially technical ones, which are ancillary to the provision of regulated payment services, I wish interesting and fruitful work to the participants in the videoconference. 1 Opinion of the European Banking Authority on obstacles under Article 32 (3) of the RTS on SCA and CSC  2/2  BIS central bankers' speeches

On the other hand, the monetary tightening, i.e., the transition towards an environment of higher interest rates could certainly expose some vulnerabilities of the financial systems, and again test their resilience, as the pandemics did. The pace of the financial tightening matters in particular, as history shows that the effects are better manageable if tightening is gradual, well guided. The last year financial market turmoil in the UK and recent developments in the USA and EU clearly underline the need for vigilance. This nexus opens the debate on the so-called "financial dominance", the possible tradeoff between rising costs to curb inflation and effects for financial stability. Against this background, one of the key questions is how well are financial systems prepared to rise to the challenge of rising interest rates. The answer to great extent boils down to the health of the balance sheet of households, companies and banks, i.e., their capacity to absorb shocks. What is very important is that banking systems in the region weathered the pandemics shock well and in many countries, including in NM, emerged with even stronger capacity, which can be observed by higher capital and liquidity buffers and better quality of credit portfolio. Although according to the recent EIB Surveys banks expected deterioration of credit quality, NPL ratios have remained low (below 4%).
The policy rule shall not be applied mechanically under all circumstances. This is particularly important given that the economic reality appears to be taking on increasing complexity and becoming more difficult to define. The Inflation Report published in mid-March contained the assessment that economic growth in Sweden and abroad would remain high over the coming years. Our forecast for Sweden was a growth rate of around 3 per cent a year, which is higher than we consider to be sustainable in the long term. The new information received since then has been mixed. The oil price has been unexpectedly high, although recently it has fallen slightly. Moreover, industrial activity appears to have weakened slightly, both in Sweden and abroad. We therefore came to the conclusion in April that growth in Sweden would be somewhat weaker than was anticipated in the March Inflation Report. Since then, we have seen statistics showing that growth in Germany was slightly stronger than expected during Q1, and that the downturn noted in the United States in March appears to have been temporary. We had anticipated lower growth in Sweden’s net exports, but exports of goods appear to be increasing even less than was forecast. However, good growth in real incomes and low interest rates will contribute to favourable growth in household consumption. The labour market remains relatively weak, and our forecast is based on employment strengthening during 2005.

Although households will manage well on average, I believe there is still reason to question whether individual households are not borrowing more than is reasonable in the long term and thereby increasing their sensitivity to unforeseen events. At the Riksbank we have expressed concern, in various contexts, that households have excessive confidence that interest rates will remain low for a long period of time. The average period for fixing interest rates has fallen to 12 months, despite the fact that long-term interest rates have been at lower rates than ever. It is easy to be seduced by a low  4  BIS Review 37/2005  monthly cost and forget that even minor increases in interest rates will lead to a proportionately large increase in loan costs. If, for instance, the interest rate rises from 3 to 4 per cent, it means that the monthly cost will increase by one third. There is reason for the Riksbank to closely monitor developments in household borrowing. However, this is a question of concern over developments in individual households and over the effects on house prices rather than a question of stability within the banks and the financial system. What will be the future direction for monetary policy, given the current situation? The inflation target, the simple policy rule and the clarification of the principles behind monetary policy together provide a clear intellectual framework, which has guided our actions in recent years. In my opinion, this intellectual framework provides a sufficient degree of flexibility for monetary policy.
Boehm, C.E., Flaaen, A. and Pandalai-Nayar, N. (2019), “Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tōhoku Earthquake”, The Review of Economics and Statistics, Vol. 101, No 1, MIT Press, March, pp. 60-75. 5. Lagarde, C. (2022), “A new global map: European resilience in a changing world”, keynote speech at the Peterson Institute for International Economics, Washington, D.C., 22 April. 6. Hamilton, J.D. (2011), “Historical Oil Shocks”, NBER Working Paper Series, No 16790, National Bureau of Economic Research, February. 7. Bachmann, R. et al. (2022), “How it can be done”, ECONtribute Policy Brief, No 34. 8. Kuik, F., Morris, R. and Sun, Y. (2022), “The impact of climate change on activity and prices – insights from a survey of leading firms”, Economic Bulletin, Issue 4, ECB. 9. McKinsey (2021), “How COVID-19 is reshaping supply chains”, 23 November. 10. During US recessions from the 1950s to the 1980s, inventory investment accounted for 1.4 percentage points of the average 2% peak-to-trough decline in real GDP. See Piger, J.M. (2005), “Is the Business Cycle Still an Inventory Cycle?”, Economic Synopses, No 2, Federal Reserve Bank of St. Louis. 11. Lagarde, C. (2022), “Monetary policy normalisation in the euro area”, The ECB Blog, 23 May. 12. The Governing Council has (i) decided to flexibly reinvest maturing securities under the pandemic emergency purchase programme, and (ii) launched a new transmission protection instrument. 13. These are the median figures across recessions. 14.

While explicit coordination looks neither feasible nor desirable, there is more that central banks in general, and the Fed in particular, could do to be better global stewards. As an example, recent events demonstrate the importance of effective Fed communication. It is clear in retrospect that our attempts in the spring of 2013 to provide guidance about the potential timing and pace of tapering confused market participants. In particular, markets seemed to conflate tapering with monetary policy tightening and raised their expected paths for policy rates. Lately, we seem to have done better: markets now seem to understand that policy rates will likely remain exceptionally low for a considerable period of time even now that the asset purchase program has been completed. As you know, we’ve taken a number of steps in recent years to increase transparency and improve our communications. This includes regular press conferences following Federal Open Market Committee (FOMC) meetings by the Fed chair; the publishing of growth and inflation forecasts of FOMC participants; and a concerted attempt to lay out the guideposts that the FOMC will look at to assess progress toward our mandate. We are, though, still learning how to more effectively communicate, especially given our new and expanded set of policy instruments. A second area in which we can and must do better is safeguarding financial stability. Simply put, we failed to act both early enough and decisively enough to stem the credit excesses that spawned the financial crisis and the Great Recession.
There is a natural limit to what can be learnt from past time-series relationships. A standard portfolio model of OFC’s money demand, in which money holdings are jointly modelled with movements in asset prices and relative rates of return, would suggest that asset purchases on the scale seen might increase asset prices by the order of 20–30%. 4 At first blush, this impact may seem surprisingly large. But it is important to remember that the scale of the asset purchases made over the past year is truly substantial, amounting to some 14% of nominal GDP. But there are obviously huge uncertainty bands surrounding this type of estimate and I would not be surprised if it was revised, perhaps significantly, as we learn more about the impact of our current policy. These higher asset prices should help to stimulate increases in consumption and investment via wealth and cost-of-capital channels. But the transmission of the monetary stimulus through to higher nominal spending may occur only gradually. This suggests that a significant impact from our asset purchases is still to come through. An important issue when thinking about the likely channels of monetary transmission is the state of the banking system. In normal times, a key channel through which asset purchases might be expected to operate is by increasing banks’ stocks of liquid assets, which may encourage them to extend new loans. But we are not in normal times. Banks are pulling back on their lending as they seek to strengthen their balance sheets and reduce their leverage.

Ladies and Gentlemen,  BIS Review 13/2005  1  On this occasion of the official launch of RHB Islamic Bank Berhad, it is with pleasure that I congratulate the RHB Group. With this structure, the management team of RHB Islamic Bank will now have the potential to maximise the full advantage of the universal Islamic banking licence issued, which allows a wide range of business to be undertaken ranging from retail and corporate banking to investment banking and fund management. Such Islamic subsidiaries are expected to exploit new growth areas such as wealth management and profit and risk sharing ventures, which are newly emerging as rewarding banking activities. In this connection, it is vital that, at the onset, the business strategies are aligned with the right people by developing a pool of the required skills and talent, and putting in place the proper risk management systems and good corporate governance practices. I welcome the initiative to establish the Islamic subsidiary by the RHB Group and look forward to the contributions of RHB Islamic Bank to the growth of the Islamic banking industry. This advance forward is the first step that brings us to the third strategic phase of the institutional development of Islamic banking and finance in the country. I wish RHB Islamic Bank every success in this endeavour. I trust that the Islamic financial community would look forward to benefit from this new development. Ladies and Gentlemen, Dengan lafaz Bismillahirrahmanirrahim, saya dengan sukacitanya merasmikan pelancaran RHB Islamic Bank. Sekian, terima kasih.
However, in order to give us an idea about what could happen to household indebtedness beyond the forecast horizon three years ahead, we have made a rough estimate of developments over the coming 10 years, which uses our forecast for the coming three years as a starting point. We assess that the rate of increase of indebtedness will slow somewhat when the repo rate gradually begins to be raised (according to our forecast for the first six months of 2017) and slowly rises to a normal level. 17 In the Financial Stability Report from the spring, we published an extensive analysis of Swedish household indebtedness. One conclusion drawn from this was that international studies and experiences from the Swedish 1990s crisis indicate that if indebtedness approaches 180–210 per cent, measured as a proportion of disposable income, risks in the Swedish economy are heightened. This is due to households’ interest expenditure – at a high rate of interest than today’s – becoming so high that it could lead to a major fall in demand and ultimately a crisis. 18 It is clear that we are approaching a critical level with leaps and bounds (see Figure 11).

As loans in the stock are typically amortised very slowly – by a few per cent each year – the development of the debt stock will principally be determined by the previous debt stock in the short term. Limiting the amount of new loans therefore has a relatively slow impact on the debt stock. A reduction in tax relief on mortgage interest can affect all borrowers – and could have potentially major effects on indebtedness To influence the development of household debt we should also consider fiscal policy measures, which in this context means changes to various housing-related taxes. One example is changes to tax relief on mortgage interest. The advantage of this kind of measures is that it has the potential to influence the entire debt stock. The incentive to take out new loans decreases, and the costs linked to existing loans are also affected. In terms of the simple debt equation above, the amortisation rate could therefore rise on existing loans (the incentive to amortise increases if future borrowing costs rise) while new borrowing would be subdued. The debt-to-income limit is an effective complement to the loan-to-value limit There are many indications that the distribution of debt is also significant in terms of risks. As I mentioned earlier, several international studies show that highly-indebted households reduce their consumption more than households with lower debts when there is a fall in housing prices, for example.