samchain/econo-pairs-v1 huggingface dataset:
BIS Review 5/2004  5  while the peg was being defended, they were soon lowered to more sustainable levels. The expectations that had been built into forward exchange rates were proved correct. Chart 1: Exchange rates and monetary policy in Brazil, Jan 1998-Dec 1999 50  $  Per cent  0  45 40 35  0.5 Spot exchange rate (rhs)  Overnight interest rate (lhs)  30 25  1 1.5  20 15 10 5  Implied forward exchange rate (rhs)  0 Jan-98 May-98 Sep-98  2 2.5 3  Jan-99 May-99 Sep-99  Source: JP Morgan and Banco Central do Brasil  In the literature on target zones for exchange rates, it is assumed that raising interest rates is a successful method for supporting the exchange rate because of uncovered interest parity. But this ignores the possibility that raising interest rates to defend a fixed exchange-rate regime will simply call into question the durability of the regime itself and raise the probability that the peg or target zone will be abandoned. In such circumstances an increase in interest rates may lead to a fall in the exchange rate. A second example of the same phenomenon is the pressure on sterling during 1992 and its forced departure from the Exchange Rate Mechanism on 16 September of that year.

For instance, with this crisis, we witness a breakdown in the key assumptions that form the basis of our thinking about the efficiency and the self-correcting nature of markets which, for a long time, underpin the rationale for globalization, liberalization, and deregulation. These assumptions are now being challenged. Next, in this crisis, the most damage comes from the most regulated sector of the economy, notably the financial sector. What we saw is that, even with regulation in place, the sector surprisingly exhibited important failure in risk management discipline across a variety of institutions and players, including banks, institutional investors, credit-rating agencies, and regulators. On this, a better way to manage risk to support the process of international financial intermediation still needs to be worked out. And finally, the global economy has never before been put in a position that it might have to deal with the consequences of the  BIS Review 92/2009  1  massive policy response that have been put in place both on the fiscal and the monetary fronts. These 4 consequences are the known unknowns, and the approach we choose to address them will importantly influence the direction that global finance will take going forward. Given the focus of this conference is on the stake of emerging economies in the international financial system, let me share with you briefly how emerging economies in Asia so far have managed in the current crisis, and how we see the direction of global finance evolving.
Separately, in November 2014, the FSB announced an international agreement on the minimum amount of Total Loss Absorbing Capital (TLAC) to be held, covering all globally significant banks. The motivation and concept of TLAC are very similar to MREL. As the details of the TLAC proposals are finalised, the two should become consistent, with MREL being the mechanism by which European resolution authorities ensure that their Global Systemically Important Banks (GSIBs) all meet the TLAC standards7. More generally, as the PRA develops its detailed rules to implement regulatory reforms, resolvability is a key consideration at each stage. In many cases the precise formulation of a rule will reflect the effects it has on the ease of resolvability. A particular example of this is the rules on ring-fencing which we will now come on to. Structural reform Structural reform is the general term for the changes being pursued to implement ringfencing as originally proposed by the Independent Commission on Banking in (2011). What structural reform intends to achieve is basically to separate out and “ring-fence” into different legal entities, the activities of retail banking from the activities of investment banking. The distinction is set with some flexibility to reflect different business models: retail deposits and payments must be inside the ring fence, and any active trading units must be outside, whereas corporate lending, for example, could be in either. The rules will only apply to banks with core deposits over £ (broadly those from individuals and small businesses).

This latter solution could be implemented in part by restricting distributions such as dividend payments or staff bonuses, but it is also where the concept arises of having eligible debt that can be “bailed in”, whereby some debt instruments can become loss-absorbing capital under stress, to recapitalise the firm. For banks, building societies and investment firms the main capital reforms come under the umbrella of CRDIV which is the EU implementation of the internationally agreed capital requirements, as determined by the Basel Committee for Banking Supervision (BCBS). The Basel agreements are ultimately agreed and signed off by a meeting of central bank governors and heads of supervisory authorities. CRDIV is made up of the fourth Capital Requirements Directive (2013) which must be implemented through national law; and the Capital Requirements Regulation (2013), which is directly applicable to firms across the EU. Amongst other things, CRDIV enshrines enhanced requirements for the quality and quantity of capital and gives the basis for new liquidity and leverage requirements; new rules for counterparty risk; and new macroprudential standards including a countercyclical capital buffer and capital buffers for systemically important institutions. In general, it is fair to say that the implication of CRDIV is that banks will substantially strengthen capital standards relative to pre-crisis. That will mean that the cost of required capital to support banking activity could be higher than it was previously. However, this is not certain.
And by keeping inflation on track to meet the 2% target, the MPC will be making its contribution to future prosperity, both in the Trafford Centre and the country as a whole. BIS Review 4/2005  3

This decline in our balance sheet will actually occur without the Fed taking any specific actions. But it will occur slowly, and absent any action of the Fed’s part, the balance sheet will remain elevated for years. This expansion of the Federal Reserve’s balance sheet raises concerns for some observers and commentators. An important side effect of our asset purchases has, necessarily, been a dramatic swelling of so called excess reserves in the banking system. When the central bank  4  If the relationship is weaker, as some researchers suggest, even stronger growth would be required to reduce the unemployment rate to 5 per cent by year end 2013. For example, if the reduction in the unemployment rate resulting from real GDP growth of 1 per cent above potential is one-third of a per cent instead of one-half of a per cent, then real GDP growth of 6.25 per cent would be needed to reduce the unemployment rate to 5 per cent by year end 2013. BIS Review 62/2010  3  purchases assets, it credits the selling institution with reserves. Over time, banks could choose to lend out these reserves, which would turn the reserves into broader money – and a rapid expansion of the broader money supply would be inflationary. However, as Figure 10 suggests, the current problem is not a rapid expansion in lending and the money supply. In fact, quite the opposite; banks have been reluctant to lend.
Is enough being done on this score? From my vantage point, it is far easier to see areas in need of improvement on the structural side than to detect any clear momentum toward addressing them. In the U.S., greater clarity around policies in areas such as trade, tax reform, energy, environmental regulation, and the strategy for fiscal adjustment would help extend investment horizons, increasing the prospect that accommodative financial conditions will have their intended effect. In Japan, the new government is talking about structural reform, and policymakers have identified many areas where the business climate could be improved. In fact, I suspect that Japan’s success in durably boosting growth will hinge as much or more on progress on the structural front, as on developments in monetary or fiscal policy. Robust regulation and oversight can also improve the cost-benefit calculus. Here, let me say a few words about the ongoing global regulatory reform process. As you know, the scope and scale of the regulatory response to the crisis of 2008 has been quite ambitious – some would say too ambitious. Nonetheless, the scale should be understandable against the backdrop of the weaknesses revealed in the crisis, and the economic and financial fallout that resulted. 2  BIS central bankers’ speeches  And the reality is that a great deal has been accomplished, both in establishing goals, and in progress toward those goals. That is not to suggest that I am equally enamored with everything that has been done, or the way in which it has been done.

For monetary policy, however, they are akin to a series of persistent positive supply shocks that may force central banks into action should these shocks cause a more general and broad-based reappraisal by the public of the medium-term inflation outlook.21  Greening monetary policy implementation So, the implications for the conduct of monetary policy could be substantial. The question, then, is whether central banks themselves should be doing more to prevent climate change in the first place.22 Some argue we have an obligation to act, since the EU Treaty states that “without prejudice to its primary objective, the ECB shall support the general economic policies in the Union”, which include a high level of protection and improvement of the quality of the environment, and mandates environmental protection requirements to be integrated into the definition and implementation of the Union's policies and activities.23 Certainly, the protection of the environment is not the only transversal objective assigned to EU institutions and hence to the ECB. Under the Treaty one could equally ask, for example, why the ECB should not promote industries that promise the strongest employment growth, irrespective of their ecological footprint.24 But equally importantly, the ECB is subject to the Treaty requirement to “act in accordance with the principle of an open market economy with free competition”. In the end, the Treaty grants the ECB a high degree of independence and it enjoys broad discretion in implementing its policies.
These are questions I wish to discuss now, however more with the aim of provoking some interesting ideas rather than providing any ready-made answers. Are the markets more robust? Let me begin with the question of whether the markets have really become more robust, in the sense that they are now less sensitive to disturbances. There are some arguments in favour of this theory. One of these is directly linked to monetary policy and inflation. This is namely that an increasing number of countries have abandoned the ambition of maintaining a fixed exchange rate and chosen instead to focus their monetary policy directly on an inflation target. Openness and transparency have increased as a result of this, which in itself has probably improved the functioning of the markets. Inflation rates and inflation expectations have fallen and become more stable, which has led to significantly lower nominal rates. Uncertainty with regard to the future has thereby declined and the conditions for making the right investment and savings decisions have improved. All of this should have increased the stability of the markets. However, there are other arguments. Greater awareness of the need for maintaining central government finances under control has increased budgetary discipline and led to reductions in central government debts in most countries.

To quote Federal Reserve Chairman Ben Bernanke “…the very substantial shift in the current accounts of developing and emerging-market nations … transformed these countries from net borrowers on international capital markets to large net lenders.”2 Indeed, it is interesting to observe that, in the late 1990’s, in the aftermath of the Asian crisis, several Asian central banks started accumulating significant foreign exchange reserves in efforts to stabilize their capital flows and their exchange rates, or to be in position to do so, should that prove necessary in the future. Meanwhile, some conjectured that mature economies with ageing populations would experience a peak in their savings rates. The “savings glut” hypothesis is contested, however. A first point of contention is that the impact of demographic change on savings and investments may be limited, compared to that of other factors.3 Indeed, the savings rates of industrialised countries did not appear to increase in this period (slide 5). In some cases, they even decreased. A second discrepancy, asserted by John B. Taylor and others, resides in the observation that the US savings gap, and the surge in savings in the rest of the world effectively cancelled one another out.4 Finally, despite the significant increase in savings rates in China and other emerging countries, there was no clear upward trend in global national savings.
Figure 9: Markets expect Bank Rate to remain low for some time UK nominal OIS forward rate curve  The MPC gave new guidance in August, which we repeated in our September minutes, that we did “not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably”. That guidance was a significant step and is likely to become more significant as time goes on. It provides a commitment not to tighten policy until we’re confident that it is appropriate to do so and that we have seen clear evidence that we are well on the way to recovery. It reinforces current market expectations that Bank Rate  Sources: Bloomberg Finance L.P and Bank calculations  More recently the Bank’s Covid Corporate Finance Facility, acting as agent for HM Treasury, has purchased commercial paper amounting to around £ This is not a monetary policy scheme but the MPC takes its size into account when taking its monetary policy decisions. 12 Andrew Bailey addressed these questions, as well as coining the “big and fast” terminology, in his recent speech at Jackson Hole, available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2020/the-central-bank-balance-sheet-as-a-policy-tool-pastpresent-and-future-speech-by-andrew-bailey.pdf. The FPC has noted the importance of taking remedial action to ensure the resilience of the financial system, as well as of re-examining central bank facilities, including in the Summary and Record of its most recent meeting, available at https://www.bankofengland.co.uk/-/media/boe/files/financial-policy-summary-and-record/2020/october-2020.pdf.

It is worth referring here to Regulation No 2560/2001 of the European Commission, which established the principle of equal charges for cross-border payments and comparable domestic payments within the EU, which in turn has created an imbalance between bank fees and costs of cross-border payments. This imbalance can only be overcome if the handling of cross-border payments is reorganised to become as efficient and inexpensive as the handling of national payments, which is the primary goal of SEPA. An aspect which deserves particular attention in the discussion on SEPA is the harmonisation of the law within the payment area. The proposed Payment Services Directive (PSD) establishes the necessary legal framework for SEPA payments and will also apply to existing national payment products. The aim of the Directive is to harmonise the market access requirements for non-bank payment service providers. This will create a level playing field with enhanced competition in national markets. The Directive will provide clarity and certainty with regard to the core rights and obligations of users and providers of payment services. It will also provide the necessary legal framework for SEPA, as it will harmonise existing, and differing, national legal requirements.
Zdeněk Tůma: Forecasting and its role as an information source in the decision-making of the central bank Speech by Mr Zdeněk Tůma, Governor of the Czech National Bank, at the Forecasting Dinner 2005, Czech National Bank, Prague, 18 February 2005. *  *  *  Ladies and gentlemen, Last year when I was speaking on the occasion of the Forecasting Dinner, I discussed several points connected with the forecasting processes at central banks and at the CNB in particular. Tonight I shall talk about some aspects of uncertainty in forecasting and in particular about the role market forecasts can play as an information source in the decision-making of the central bank. The essential question I have in mind is to what extent should the central bank follow market forecasters’ expectations about the future development of the economy. In other words, should the central bank, in order to achieve its target, follow the market’s expectations or can it surprise the market from time to time? To your common knowledge, the CNB nowadays operates under the inflation targeting regime, which is a monetary policy regime that considers the forecasting process to be the heart of monetary policy decision-making. Although the forecasting process pays main attention to the future development of prices, this does not necessarily mean that central bankers are obsessed with inflation. In fact, inflation targeting requires us to look for and use a broad range of information, including market expectations.

Releasing the liquidity standard in times of stress could communicate authorities’ views on banks’ forward-looking liquidity resilience and  Page 11  appropriate usage of liquidity buffers, supporting financial stability and market confidence. But while the principle may be similar, in practice there may be bespoke challenges to releasing liquidity standards via the LCR. As I discussed earlier, it is an incomplete, static metric, which can mean different things for banks’ liquidity in different scenarios. But it is the existing regulatory standard. So in considering how to release liquidity standards, we would need to be mindful of the challenges posed by the nature of the LCR metric, and that in some stresses releasing the LCR may not be the right policy. These challenges motivate broader consideration of whether and how we might improve the LCR metric itself to make it less cyclical and volatile. For example, we could explore a less cyclical approach to calibrating the potential liquidity outflows from margin calls stemming from an increase in market volatility during a time of stress. There may also be other options for improving usability that worth exploring, but there are unlikely to be any silver bullets – we will need to be mindful of the potential issues and inherent trade-offs that different options entail.
The same applies to the return on GPFG capital. The three paths illustrate the uncertainty we are facing, but they also illustrate another important point. Spending the return will ultimately lead to a flattening of the GPFG, which will then decline as a percentage of GDP. It has always been clear that this will happen at some point in the  8  BIS central bankers’ speeches  future. What is new is that this may be the case here and now. At today’s oil price, the GPFG may have reached the peak. In that case, petroleum revenue spending as a percentage of GDP must be reduced to avoid using more than the return on the GPFG. Even if the oil price and the rate of return follow a path that allows the GPFG to grow for a period ahead, petroleum revenue spending should be restrained. By keeping spending well below the upper bound, the need for fiscal retrenchment further ahead can be reduced. The fiscal rule has functioned as a long-term guideline for fiscal policy for nearly 15 years. It has served its purpose. The time has now come to show restraint. A sensible risk adjustment is now to refrain from increasing petroleum revenue spending further from today’s level. The era of rising petroleum revenue spending may be behind us. Conclusion The more than forty-year-old white paper on the role of the petroleum industry in Norwegian society was far-sighted and proved to be on the mark.

Thomas Jordan: Current monetary policy and its significance for the real economy Summary of a speech by Mr Thomas Jordan, Vice-Chairman of the Governing Board of the Swiss National Bank, at the General Meeting of the Aargauische Industrie- und Handelskammer, Wettingen, 20 May 2010. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  In the current situation, the challenges for the SNB’s monetary policy remain formidable. On the one hand, against the backdrop of the economic recovery we have witnessed since mid2009, there is a danger of inflationary tendencies and the renewed formation of a bubble. This is because the current monetary policy is too expansionary in the long term. On the other hand, downside risks are still present or are again reappearing, and should not be underestimated. They relate, in particular, to the further development of the debt crisis in Europe. A deterioration of this situation entails the danger for Switzerland of renewed deflation and recession as well as the risk of another destabilisation of the global financial system. Between these opposing risks the SNB must walk a fine line, moving in terrain that is constantly and rapidly changing, depending on which risk gains the upper hand. With a monetary policy strategy aimed at maintaining price stability, the SNB is well equipped to face these challenges. What are the short and medium-term consequences for the real economy of addressing these challenges?