samchain/econo-pairs-v1 huggingface dataset:
What are the consequences of the introduction of the euro on the Swiss franc and on the effectiveness of Swiss monetary policy? And what are the effects of this new international monetary order on countries outside the dollar-euro block more generally? I will try to provide some insights on these questions today. First, I will present the change in monetary framework due to the introduction of the euro. Then I will enumerate the main fears that we originally had regarding the effects of that transformation, and our experience with the new environment over the past 5 years. Finally, I will share some lessons on the influence of the introduction of the euro for the international monetary system and for the autonomy of Swiss monetary policy. 1. A new international framework  January 1, 1999, constituted a true revolution for Europe. Many observers argue that the introduction of the euro represents the major postwar stage in European integration. They are right. The Maastricht Treaty, by removing national currencies and defining budgetary rules, lead to an important transfer of power from national capitals to European institutions. The French franc, the Italian lira, and the German mark were all symbols of national identity. The euro is now playing an integrating role in  BIS Review 32/2004  1  people’s minds. In this regard too, the new currency brings a revolutionary dimension. Is it not the case that national currencies were almost always and everywhere brought about by fundamental political changes?

Jessica Chew Cheng Lian: Launch of FSPB Professional Code for the Financial Services Industry Welcome address by Ms Jessica Chew Cheng Lian, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Launch of FSPB Professional Code for the Financial Services Industry, Kuala Lumpur, 24 May 2018. * * * I am delighted to be here to witness the launch of the Financial Services Professional Board (FSPB) Professional Code for the Financial Services Industry. Thank you for allowing me an opportunity to offer some brief remarks this morning on the importance of this initiative from Bank Negara Malaysia’s perspective. Let me begin by saying that the launch of the Code comes at a time when issues of culture and conduct in the financial industry have become an important focal point for financial regulators. After a hive of activity largely focused on strengthening prudential rules and standards, there is an acknowledgement that behaviour is ultimately regulated by something that runs deeper than rulebooks. It is not an easy thing to put your finger on. Regulators have talked about “the way things get done” in an institution, or “the human element in everyday decisions”. We like to think of it as how one behaves when no one is watching. On this score, the financial industry could do better. Despite much publicity and widespread efforts to tackle the issue, incidents of misconduct continue to cast a dark shadow over the financial services industry across the world.
If their bank becomes insolvent, customers’ claims to central bank money cannot be redeemed, or can be redeemed only up to the maximum amount covered by the deposit guarantee scheme. 5 It is mainly in times of crisis that the public becomes aware of this risk. Were this not the case, there would be no runs on banks such as have been experienced time and again in the past. Credit risk is, however, offset by a number of advantages. Unlike banknotes, sight deposits with banks provide access to services in connection with payment transactions. In normal times, they also generate interest income. How are deposits at commercial banks created? How do deposits at commercial banks, i.e. customer deposits in Swiss francs, come into existence? In our present-day financial system, the creation of deposits by banks is closely linked to the granting of loans. When a bank provides a loan, it credits the amount in question to the borrower in the form of a deposit to his or her account. This leads to an increase in credits on the assets side and in customer deposits on the liabilities side of the bank’s balance sheet. 5  In Switzerland, the national deposit guarantee scheme covers a maximum of CHF 100,000 per customer in the event of a bank failure. Page 4/12  As a rule, borrowers will immediately use their new deposit to acquire the goods or services for which they requested and received the loan.

It is therefore necessary for the payment system and credit markets to function so we can carry out our monetary policy tasks efficiently. Financial stability is thus a necessary condition for efficient monetary policy. As I have said on an earlier occasion, our task of safeguarding financial stability is in some ways like taking care of an electricity network. Most people give it very little thought until there is a power failure. But since last autumn one can say that there have been severe disruptions in the network and numerous measures have been required to keep the electricity flowing. Although there are some indications that the crisis is not as acute now as it was last autumn, many markets would probably not be functioning if the authorities in various countries were not regularly taking measures to promote financial stability. The effects of the crisis are also still affecting the situation for monetary policy and access to credit in the economy. Although the spread between Swedish mortgage rates and risk-free securities such as government bonds has declined since the most intensive phase of the crisis, households are for instance still facing slightly higher interest rates than normal if they want to fix their mortgage rates at longer periods. The financial crisis may also result in declining access to credit. Many companies in the Riksbank’s company survey state, for instance, that they are finding it difficult to borrow at longer maturities. The financial crisis has also contributed to a fall in equity and house prices.
The government’s five largest stakes in Norwegian companies can be roughly estimated at NOK 300 billion. In general, concentrated ownership requires a more strategic ownership approach and gives rise to higher risk than diversified ownership. 10  BIS Review14?/2001  Risk associated with state ownership NOK bn 300  The five largest state enterprises Petroleum Fund's bonds Petroleum Fund's equities  200  100  National Insurance Fund's private bonds  National Insurance Fund's equities  0 0  10  20  Return risk  This is illustrated further in the chart. The composition of government assets is broken down into equities and bonds in the Petroleum Fund and the National Insurance Fund and government ownership interests in the five largest companies. The horizontal axis provides a normal measure of risk, in other words the standard deviation of the return. The risk is estimated on the basis of the historical performance of the companies’ share prices. For unlisted companies, we have used share price performance for comparable international companies. Higher risk means that the assets are more exposed to fluctuations in return. As a whole, the return on the Petroleum Fund and the return on private bond holdings in the National Insurance Fund feature a moderate risk profile. The risk is higher for both the National Insurance Fund’s equities and the state’s ownership interests in the five largest companies. For a given expected return, the owner should aim at reducing risk because future income will then be more secure.

The government’s motive for saving resembles the motives underlying saving in pension funds and life insurance companies. Among the government’s saving vehicles, investments in the National Insurance Fund and the Government Petroleum Fund are best adapted to this motive for saving. For both funds, there is a clear division of responsibility between the manager and the government, with the Ministry of Finance as owner. In the case of the Petroleum Fund, Norges Bank’s mandate is to achieve the highest possible financial return in keeping with the strategy and risk limits established by the government. The Fund’s investments are distributed among many countries and spread among a large number of equities and bonds. At end-2000, the Fund had invested NOK 153 billion in about 1800 companies in 21 countries, while NOK 234 billion had been invested in bonds in 18 countries. All ownership interests are now less than 1 per cent of the companies’ total value. A turnaround in one country or a region, which in isolation may be pronounced, will not have a major effect on the total value of the Fund. The value of the Fund’s equity portfolio will therefore shadow developments in prices on international stock exchanges. There is a substantial element of risk diversification, although we are not immune to the risk associated with the uncertainty in global developments. Along the same lines, the return on bond investments will reflect international interest rate developments. The Government Petroleum Fund is built up through transfers of petroleum revenues that are not used domestically.
Indeed, the notable reduction in business activity further to the restrictions associated with the state of alert prompted a much sharper decline in non-financial corporations’ operating revenue than that in the payments they must meet. The latest Central Balance Sheet Data Office figures give an idea of the severity of this shock to firms’ liquidity. There was a strongly adverse impact on these agents’ profits already in Q1, despite the fact that the sharp contractions in activity and operating revenue associated with the declaration of the state of alert only affected the last two weeks of this quarter. The reduction in the return on assets for the overall sample of firms was so significant that it pushed ROA below the cost of borrowing, a development not seen since 2014. The information on bank lending shows firms resorting to this source of financing to cover a large portion of these liquidity requirements. Specifically, the outstanding balance of bank financing granted to Spanish non-financial corporations rose to 8.7% in May after having shrunk by 1.1% year-on-year in February. And the preliminary data for June would suggest that this trajectory has been holding in the most recent period. Yet for financial institutions to have been able to meet such a notable increase in firms’ applications for credit, the contribution of the support measures launched at both the European and national levels has been decisive.

The mandate of the euro area’s central banks is clear on this subject and there is no reason to think that some other stray thoughts would let us deviate from our key goal. It should be stressed that the Governing Council of the European Central Bank is monitoring the economic situation very carefully and will not commit to future decisions in a form that would render the Council a prisoner of their own words. Public discussions include two extraneous arguments, based on which it has been claimed that the hands of the euro area’s central banks are tied and therefore they cannot fulfil their primary goal properly. Firstly, it has been presumed that banks’ situation in Europe is so weak that we cannot abandon the extraordinary monetary policy measures that made money supply easier for banks during the crisis. Secondly, it is claimed that until the fiscal situation of some euro area countries is not firmly under control and the new financial control mechanisms have not been implemented, central banks do not dare to focus on the threat of inflation. I do not wish to underestimate either argument. The situation in global money markets, including Europe, is not entirely risk-free yet and the leaders of Europe’s public financing are struggling to ensure that the amended fiscal framework would help avoid crises in the future. However, upon fulfilling their main goal, the euro area’s central banks are not limited by these concerns to the extent that they could or should ignore the price stability goal.
I will mainly therefore in my talk today direct my remarks mostly at the problems of good governance, competitiveness, transparency, righteousness and public policy in the private sector, in the government and in the financial system. I shall also mention specific situations which, though in the long term would not be significant, in the short term could upset the pace of the recovery and unsettle the good macroeconomic situations that we find ourselves in as I have just mentioned. Let me first pick a simple governance and transparency topic, our homepage. In the financial sphere, we have been trying to improve governance and transparency by improving the information available so that the decision-makers, be they financial institutions, foreign investors or locals may have easy access to accurate information and in so doing will become better decision-makers, whilst the transparency and availability of information on particular topics will force better behaviour by peer group behaviour or public pressure as the case may be. We have been improving the homepage tremendously in the last couple of years and the extent of information available, as quite a lot of people say, is good. But we still find, I still think, very much wrong with it. Firstly it is not very user-friendly. The format is amateurish and there are no “search” and “help aid” for users.

People compete according to known and clear rules and do not have to talk to civil servants just in order to do business. Those rules were written 70 years ago in the change of the absolute to constitutional monarchy and tended, therefore, to be protective of the public and the consumer and to protect them against sharp practices or practices that might be deemed sharp of the business people. Those rules have had to be changed over time, one by one, but they have not all been changed such for instance that a business company can not buy its own capital back to enhance its returns because it might be deemed financial engineering for its own sake, which the ignorant public might not understand. One day soon there might come a time when the country would be fully competitive and it would be good for the general public, but at the moment the sentiment that the public must be protected is still quite noticeable. And now the TPI decision seems to be no exception. In terms of legal framework, TPI has been put into rehabilitation process and that should satisfy investors for both foreigners and Thais who wish the due process of the law to be administered.
This bolstered the confidence of counterparties in one another and restored market and funding liquidity. Of course, this type of lending is only feasible to an institution that is deemed to be solvent with sufficient collateral available to pledge to the lender-of-last-resort so that it can safely secure its loan. In practice, all of these methods are in place to address funding liquidity risk. Capital requirements have been increased; there is much better reporting about how firms will do under significant stress tests; liquidity requirements – such as the liquidity coverage ratio – provide a buffer that allows management more time to respond to problems; and, if necessary, the central bank can act as the lender-of-last-resort to support market confidence and funding liquidity. So, should more be done to support funding liquidity? In my view, an important issue is to identify and address gaps in the lender-of-last-resort function. In the U.S., some significant gaps remain. For example, the Federal Reserve has a very limited ability to provide funding to a securities firm, even on a fully collateralized basis. The Discount Window is only available to depository institutions, and Section 23A of the Federal Reserve Act severely constrains the ability of a depository institution to pass Discount Window funding along to its securities affiliate.

Similarly, dealers apparently are unwilling to provide the funding and the balance sheet capacity necessary for their leveraged clients to arbitrage away this dislocation. The degree to which this shift in the yield spread between Treasury and interest rate swap yields is due to the differential capital requirements imposed on cash versus derivative instruments warrants more investigation. Just as market and funding liquidity are interlinked, so are funding liquidity and capital requirements. All else equal, stronger capital requirements reduce firms’ vulnerability to runs. This suggests that funding liquidity risk can be addressed in many different ways. First, capital requirements can be bolstered to reduce the risk that a firm will become insolvent in particularly bad states of the world. Second, improved reporting and transparency can reduce the degree of uncertainty about whether a firm is solvent, thus reducing the risk that  6  Brunnermeier and Pedersen (2009) “Market Liquidity and Funding Liquidity” Review of Financial Studies 22(6) pp. 2201–2238 provide a theory that features strong correlation between market and funding liquidity during crises. 7  Hu, Pan, Wang (2013) “Noise as Information for Illiquidity” Journal of Finance 68(6), pp.2341–2382 provide further evidence on the relationship between yield curve fitting errors and alternative funding liquidity metrics. 4  BIS central bankers’ speeches  investors might wrongly perceive that a firm is insolvent, when, in fact, it still has adequate capital.
Therein lies our biggest challenge. Prices for services have been rising at a fast rate as the economy has recovered from the recession. In particular, rents for new leases have climbed rapidly. And labor shortages are everywhere, leading to higher labor costs. Indeed, inflation pressures have become broad-based across a wide range of goods and services. Good News and Bad News What does the future hold? I will start with some good news. First, prices of many commodities, such as lumber, are in retreat. Absent further supply disruptions, I expect slowing global growth, in part reflecting tighter monetary policy here and abroad, will continue to reduce demand for these products. This should put downward pressure on commodity prices and help ease inflationary pressures, especially for goods and services that are heavily reliant on commodity inputs. Second, we have seen significant improvement in global supply chains, and I expect this to continue. At the New York Fed, economists have developed the Global Supply Chain Pressure Index, which measures the extent of global supply-chain disruptions by summarizing a variety of data, including reported delivery lags and the costs of transporting goods. The Index soared to unprecedented levels late last year but has  2/5  BIS - Central bankers' speeches  now reversed about two thirds of its rise. Although significant supply-chain problems are still affecting some industries, such as autos, improvements in supply should help ease supply-demand imbalances and result in lower prices for affected products. 3 Unfortunately, that's it for the good news on inflation.

As a result of slowing growth, I anticipate the unemployment rate will rise from its current level of 3.7 percent to around 4-1/2 percent by the end of 2023. And with regard to inflation, I expect the combination of cooling global demand and steady improvements in supply to result in falling rates of inflation for goods that rely heavily on commodities, as well as for those that have been most affected by supplychain bottlenecks. These factors should contribute to inflation declining to about 3 percent next year. Bringing down underlying inflation-the inner layer of the inflation onion-will take longer, but with monetary policy helping to restore balance between demand and supply, I see inflation moving close to our 2 percent goal in the next few years. Conclusion Tighter monetary policy has begun to cool demand and reduce inflationary pressures, but our job is not yet done. It will take time, but I am fully confident we will return to a sustained period of price stability. 1 Board of Governors of the Federal Reserve System, Federal Open Market Committee  reaffirms its ""Statement on Longer-Run Goals and Monetary Policy Strategy, January 25, 2022. 2Ruchi Avtar, Rajashri Chakrabarti, and Maxim Pinkovskiy, "Was the 2021-22 Rise in  Inflation Equitable?" Federal Reserve Bank of New York Liberty Street Economics, June 20, 2022. 3 Federal Reserve Bank of New York, Global Supply Chain Pressure Index. 4 Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC  Statement, September 21, 2022.
Where no market price is available or those that are available are judged to be unreliable – for example because they are out of date – the Bank calculates a model price to value a security, based on a standard bond pricing model of discounted expected future cash flows. The Bank uses its judgment to assess the validity of that model price, including by comparing it to similar traded securities where available, and drawing on any relevant market intelligence it has gathered from market participants. Haircuts The Bank’s haircuts are designed to reduce the likelihood that the Bank would incur a loss if forced to realise and liquidate collateral in the wake of a counterparty default. So the haircuts not only have to protect against the risk of counterparty default (credit risk), but also take account of the likely value of that collateral in stressed liquidity conditions (market risk). As a result, the Bank adopts a graded approach, with “base” haircuts varying by the type of collateral offered reflecting the different associated risk characteristics. It includes the likely correlation of risk e.g. that the value of a counterparty’s collateral will fall as the counterparty itself becomes stressed. Over and above those base haircuts, and where appropriate, the Bank imposes idiosyncratic haircut add-ons, based on both the type of collateral and the counterparty. In some cases, that reflects stress tests applied to the underlying assets.

Hence, the offered exchange rate is generally unattractive, and visitors will almost always be better off converting their money at a bank or using their credit cards. Historically, parallel currencies have only prevailed in those countries that no longer had a sound currency of their own. As long as the SNB continues to pursue a policy that aims at maintaining price stability, the Swiss franc will remain a widely accepted and trustworthy currency. There is no reason to expect it to disappear. By contrast, the declining significance of the Swiss franc as a denomination of foreign bonds in recent years is not primarily due to the creation of the single currency. This trend had already been observable long before 1999. It can be seen as a return to a situation in which the importance of the Swiss franc is more in check with Switzerland's economic size, as compared with its former extremely over-proportional weighting as an investment currency. Certainly, the launch of the euro has not enhanced the attractiveness of Swiss franc bonds, mainly because the market liquidity of euro bonds has grown significantly since 1999. On the other hand, the Swiss franc has gained in stature simply because it is a member of the dwindling family of international currencies. For this reason, we expect it to maintain a role as an instrument of portfolio diversification. 3.2.