samchain/econo-pairs-v1 huggingface dataset:
Events are still moving quickly, so I hope you will understand why I am not going to attempt a live commentary on events. I hope that the massive and far-reaching measures the US Government has now announced will restore greater calm and confidence in their banking system. Stabilisation of US markets and banks should have a beneficial knock-on effect on wider international markets too. But we will continue to monitor the situation closely, in consultation with our counterparts in the US and elsewhere, in order to judge whether any further measures are needed. Inflation outlook This morning I want to take a wider perspective and discuss how the credit crunch is affecting the wider UK economy and draw some medium-term lessons for economic policy. BIS Review 114/2008  1  And the first point to make is that the turmoil in financial markets has not been the only shock to our economy in the last 12 months. In any other week more attention would have been given to the fact that for the second successive quarter the Governor had to write an open letter to the Chancellor on behalf of the Monetary Policy Committee to explain why inflation was more than a percentage point away from the target of 2%. In fact inflation has risen from 2.1% in December to 4.7% in August and it seems set to peak above 5% soon. The immediate driver of that increase has been the international commodity cycle (Chart 1).

Looking forward, we continue to expect inflation rates in the euro area to be in line with price stability over the policy-relevant medium-term horizon, thereby supporting the purchasing power of incomes and savings. After today’s decision we consider risks to price stability over the medium-term to be broadly balanced. This takes into account the latest economic data releases and survey information, which add clear further evidence to the assessment that the euro area is experiencing a significant slowdown, largely related to the effects of the intensification and broadening of the financial turmoil. Both global demand and euro area demand are likely to be dampened for a protracted period. A cross-check of the outcome of the economic analysis with that of the monetary analysis confirms this view. Monetary expansion is moderating further, supporting the assessment that inflationary pressures and risks are diminishing. All in all, the level of uncertainty remains exceptionally high. The Governing Council will continue to keep inflation expectations firmly anchored in line with its medium-term objective of inflation rates below, but close to, 2%. This supports sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead. Regarding fiscal policies, the Governing Council welcomes the European Council’s reconfirmation of its full commitment to sustainable public finances. In this respect, the current economic situation calls for particular prudence with regard to the adoption of extensive fiscal stimulus measures, taking into account the particular fiscal situation in each country.
Given the parliamentary recess as of May next year in view of the upcoming elections to the European Parliament, it is of utmost importance to have a political agreement on the Single Resolution Mechanism in the ECOFIN by the end of this year. To make this happen, all need to move. The following are the main open issues that need to be solved: First, the legal base: Article 114 of the EU Treaty on the establishment and functioning of the internal market is a possible legal base from our point of view, but it could also be based on the flexibility clause of Article 352. Second, the scope: The Commission proposal foresees that all banks in countries participating in the SSM should be covered by the SRM as well. My personal view is that a compromise should be possible here. Why not start with the systemic SSM banks, ie the 130 for which the ECB will be the direct supervisor, and progress further over time? Third, the resolution authority: It must fulfil three criteria. It has to be in a position to take decisions quickly, if needed during a weekend. That said, it is obvious that the Council cannot be the resolution authority. The resolution authority must be established quickly. That means there is no time to wait for a treaty change to establish a new institution. The new authority must take a European perspective on financial stability. Let me be clear that I do not see the task of the resolution authority with the ECB.

While the technology has changed beyond all recognition, all of these systems are economically the equivalent of 18th century bank clerks with quill pens altering their banks’ ledgers to debit one account and credit another whilst addressing shortcomings. Some of the most high-profile of these have been so-called ‘stablecoins’. Unlike Bitcoin, these aim to ensure a stable value for the digital coin via some form of link to or backing by a stable financial asset such as Government bonds. They use technology platforms, such as blockchain, across which transactions in these new digital coins can be exchanged. Stablecoin developers have claimed a number of benefits that such schemes could bring, including very large reductions in the costs of payments, especially cross border (due in part to the much shorter chains of payment actions and smaller number of actors), greater financial inclusion through easier and cheaper access to payment services for the ‘unbanked’, and better functionality. These proposals have, to be fair, shone a light on some of the failures and costs of the current domestic systems, for all the improvements we have seen. And this is particularly true for cross border payments: retail cross-border payment systems are relatively slow, expensive and unreliable and many do not have access to them. Facebook’s Libra proposal is one high-profile example of a stablecoin proposal that claim such benefits.
Anyway, the TechLab was started only three months ago and we are also exploring initiatives with other technologies such as APIs. Let us talk a little bit more about the technology that brings us together, blockchain. This technology has several use cases for a central bank: (i) Central bank digital currencies; (ii) Financial Market Infrastructures such as largevalue payment systems and trade repositories, or more generally RegTech or SupTech implementations; (iii) Issuance and lifecycle of financial instruments; and (iv) opportunities of optimization of back office processes, such as settlement of operations and reconciliation. Notwithstanding the potential this technology has, there are some yellow flags that need to be addressed: a. DLT technology is still on an early stage and there might be unidentified drawbacks. Smart contracts that can build on top of this technology make it significantly more powerful, but there is little experience on how this works in practice. b. Borderless technologies raise concerns in regulatory compliance across regions. Coordination and information sharing may be especially relevant. c. Proof of Work (PoW) consensus protocol is slow and needs intensive use of energy. Other consensus protocols have limited use at this point: Proof of Stake or Proof of Authority. Page 3 of 11  Central Bank of Chile September 2019  d. Regulatory gaps may arise: identifying theses gaps is a central point in the exploration of the technology. Therefore, we need to understand this technology in order to embrace its benefits and mitigate the risks that some use cases may involve.

For retail use, the motivations in emerging economies are mainly to reduce cash in circulation, or promote electronic payments, foster financial inclusion, and reduce informality and tax evasion. On the other hand, the motivations for wholesale use are mainly efficiency and security. We could also mention cross-border payments as a motivation for either of the two categories as well. In terms of the benefits, I can mention the following: a. Some research indicates that DLT may enhance market efficiency. DLT registers based on real user identities can improve competition, price transparency and liquidity. b. Crisis management around the Zero Lower Bound. In a world of low real interest rates, the impact of unconventional monetary policies, such as QE, nominal GDP targeting and forward guidance, appears to be limited (Blanchard, Dell’Ariccia and Mauro, 2013, Gagnon and Sack, 2018). Fixing negative nominal interest rates in a flexible way could improve the Central Banks’ toolkit (Rogoff, 2019). However, there Page 6 of 11  Central Bank of Chile September 2019  are some drawbacks. The general public could interpret negative interest rates as a new tax and probably legislators would restrict it (Rogoff, 2019). Also, price and wage rigidity can persist, due to habitconsumption, market power, organizational inertia, information frictions. Continuing with the benefits: c. In a world with a widely used CBDC, commercial banks could be smaller/less systemic. CBDCs can give central banks more intervention tools and reduce the risk of runs (Kumhof and Noone, 2018).
Even if it were physically possible, in a world of limited resources, it just isn’t practical. So it is essential that we all focus our inherently limited efforts and resources on those risks that are assessed to be the greatest. And this has to be done at the level of the jurisdiction, different sectors within the financial industry, individual institutions and customers. Fundamental to getting that right is a thorough understanding of the risks that we face. Many of you will be aware that Hong Kong will shortly publish its first ML/TF risk assessment, and the HKMA will be holding briefings for the banking and SVF sectors in the coming weeks to communicate the risks identified in that assessment process in order to help institutions reflect such in their own risk assessments. The Hong Kong ML/TF risk assessment is the first comprehensive, jurisdiction-wide exercise with input from Government, law enforcement agencies, the financial regulators and other sectors and will inform both institutional and customer risk assessments. 22. And that brings me to something that is very important when we consider the risk-based approach: risks are never static. Developments in business, the economy and technology, and – most of all – the fraudsters and terrorists trying to move and hide money, mean that new risks are emerging, and old ones are changing, all the time.

The Central Bank forecasts the forthcoming inflation performance; this forecast is then compared to the targeted inflation rate; and the difference between the forecast and target determines the proper adjustment of the monetary political instrument. But, unfortunately or perhaps, fortunately, this relatively new monetary regime is not the rescue solution of a central banker’s affliction. I am confident that the honourable participants who are speaking during the three days of the seminar, shall enlighten in more details, based on the experiences of the central banks they represent, the complex issues and challenges they had to encounter, while adopting this regime. The agenda of this three-day seminar seems promising, and the interweaving of theory and practice is outstanding. It begins with the theoretical considerations on inflations targeting, proceeds with the three main pillars of monetary policy communication: independence, transparency and accountability. Not by accident, the new approach required by the inflation targeting regime has been defined as the “forecast path”. The distinguished economists from the Centre of Central Banking Studies shall introduce us to the econometric techniques, which come to help during the inflation forecast process. To conclude, the Czech National Bank, shall bring the experience of an economy in transition adopting this regime. And last but not least, on behalf of the Bank of Albania, I would like to thank the Centre of Central Banking Studies (Bank of England) for the opportunity granted to the institution I govern, to cooperate  1/2  and to consent the holding of this regional seminar in our country.
Free trade also has its losers. People working in industries that are structurally weak face the risk of losing their jobs if opening up the market means domestic providers are pushed out by more efficient competitors from abroad. The same applies to companies operating in such sectors and their owners, as they can also suffer heavy losses in this scenario. Anyone who sees free trade as a threat to their livelihood is naturally going to reject it, irrespective of the fact that they stand to gain as a consumer and their country as a whole will benefit. While there is now scarcely any debate as to whether free trade leads to greater prosperity overall, the criticism is instead increasingly centred on inequality in the distribution of these prosperity gains. In phases of rapidly advancing globalisation, the distributional effects are particularly pronounced and apparent. For instance, China’s integration in world trade and its subsequent elevation to the leading trading nation is likely to have markedly accelerated the pace of structural change in some countries, negatively impacting on specific industries and sections of the population. 3 However, the rise of certain companies and sectors, and the decline or even disappearance of others, cannot be put down to international trade alone. The impact of technological progress in driving structural change is at least as strong. 4 Free trade thus often finds itself cast in the role of scapegoat for what is in any case a perpetual process.

Exchange rates are typically hard to forecast, and all the more so in the scenario of a global trade war. For the Swiss franc, which is traditionally seen as a safe haven, the risk assessment of investors would be particularly important. Would our currency be sought as a safe haven in the event of a trade war? Or would it even come under downward pressure given that Switzerland, as a small open economy, would face particularly strong exposure to a severe contraction in world trade? Chart 5 shows that the marked increase in uncertainty relating to trade policy has so far not had any lasting influence on the Page 5/9  value of the Swiss franc. However, it could be a different picture if there were to be a trade war. The lessons learned from the Great Depression show that a trade war may be followed by a currency war. If many countries deliberately weaken their currency to support their own export sector, the consequences for the global economy are severe. Being aware of this, central banks have in recent years consistently refrained from engaging in competitive devaluations. However, it is difficult to predict how they would behave in the event of a fullyfledged trade war. I have mentioned only a few of the factors that are relevant for a central bank’s immediate monetary policy response to an upsurge in protectionism. They all demonstrate that an upsurge in protectionism first and foremost fuels uncertainty.
But given that some of the beneficiaries of house price falls do not yet have independent incomes, and others have a longer period ahead to consume their additional wealth, on balance I would expect the net effect on consumption to be negative. More widely I would expect some impact from the end of a wide perception that in housing you can have your cake and eat it – that the return on your house as an investment will in time substantially offset the cost of housing as a service. All these feedback channels are at work and economics is better at identifying their nature than in forecasting their scale. There is no alternative there to reviewing all the indicators I have mentioned month by month and then making an informed judgment. Some policy lessons for the medium term We identified the mispricing of risk, particularly in credit markets in our Financial Stability Reports over the last two years. But the reckoning has been more severe and destabilising than anyone anticipated. Risk premia had become compressed and leverage throughout the financial markets had risen too high. The pendulum has now swung back with a vengeance. As the FSR noted earlier this year, risk premia now appear to have overshot in some markets and that is contributing to the slowdown in the real economy. Could policymakers have taken earlier action to correct those imbalances? Of course we took the decisions we did on the basis of the available data at the time.

Of course falls in house prices tend to coincide with a slowdown in the wider economy because they are affected by the same factors – notably falls in real income and employment. But they can also feed back into activity. First they slow housing investment and transaction flow which hits builders and related services like estate agents and conveyancers. The purchases of white goods and furniture tend to go hand in hand with transactions in the housing market. So the slowdown in the number of people moving home is likely to impact on spending on those goods. Falling house prices limit how much households and small businesses can borrow today and that pulls down consumption and investment. Also by reducing their expectations of what they will be able to borrow tomorrow either to compensate for a reduction in income or a need to spend, some households and firms may increase their precautionary savings. Finally, falling house prices redistribute wealth. Those who already own houses and expect to trade down in future and realise a capital gain, are worse off. On the other side, those hoping to trade up or who are not yet on the housing ladder are better off (although the tighter constraints on lending may mean they have to save a bigger deposit to enter the market). The former will tend to reduce their consumption; the latter will tend to do the  4  BIS Review 114/2008  opposite. In a perfect market these two effects might balance out.
We also know that banking crises can threaten macroeconomic stability through their potential effects on confidence, savings, financial flows, monetary control and the budgetary impact of bank rescue packages. In sum, achieving an inclusive, efficient, sound and stable financial system is an important and complex task, and it has many dimensions. To me, Basel II represents a tremendous effort of more than six years to analyze and promote some of the main elements of a sound banking system: those related to risk management and capital. My talk will address two main issues. First, I will share some reflections on how I believe Basel II will contribute to the stability of the financial system. Secondly, I will offer some thoughts on steps countries can take in preparation for adopting Basel II. Basel II and financial stability Banking is fundamentally about trust. Banks are charged with a special public trust to safeguard customers’ wealth. We have all seen what happens when customers lose trust in the ability of individual banks or the banking system as a whole to protect their savings. This puts a special onus on banking supervisors to ensure that banks operate soundly. No bank can maintain public trust for long if it lacks sufficient capital, so supervisors impose capital requirements to safeguard the banking system. Since capital is the last line of defence against bank insolvency, regulatory capital requirements are one of the fundamental elements of banking supervision.

This is why the Basel Committee has devoted so much effort to developing the so-called Basel II capital framework, which was released in June 2004. The new capital framework is built on three mutually reinforcing pillars. The first pillar aligns minimum capital requirements more closely with banks’ actual underlying risks. The menu-based approach means that qualifying banks may also rely partly on their own measures of those risks, which will help to create economic incentives to improve those measures. In concept the first pillar is similar to the existing “Basel I” capital framework in that it provides a measure of capital relative to risk. What is new are the second and third pillars. The second pillar – supervisory review – allows supervisors to evaluate a bank’s assessment of its own risks and determine whether that assessment seems reasonable. It is not enough for a bank or its supervisors to rely on the calculation of minimum capital under the first pillar. Supervisors should provide an extra set of eyes to verify that the bank understands its risk profile and is sufficiently capitalised against its risks. BIS Review 45/2006  1  The third pillar – market discipline – ensures that the market provides yet another set of eyes. The third pillar is intended to strengthen incentives for prudent risk management. Greater transparency in banks’ financial reporting should allow marketplace participants to better reward well-managed banks and penalise poorly-managed ones.
(a)  Chart 2: Increase in UK unemployment was considerably smaller than those in Ireland and Spain. (a)  Sources: Eurostat and Bank calculations (a) Percentage of the 15-74 population in the US and euro area. Percentage of the 16-74 labour force in the UK. (b) Data are based on a changing composition of the euro area, which currently includes 18 countries. Sources: Eurostat and Bank calculations. (a) Percentage of the 15-74 population in Ireland. Percentage of the 16-74 labour force in Spain and the UK. Chart 3: Nominal compensation growth in the UK outstrips that in Spain and Ireland…(a)  Chart 4: … but real compensation fell more markedly in the UK, supporting employment. (a)  Sources: Eurostat and Bank calculations. (a) Compensation of employees (expressed in national currencies) divided by number of employees. Sources: Eurostat and Bank calculations. (a) Wages and salaries (expressed in national currencies) deflated by CPI and divided by number of employees. (b) Whole economy average weekly earnings (total pay) deflated by CPI. BIS central bankers’ speeches  11  Chart 5: More of the rise in employment since the crisis has been part-time than full-time employment, although full-time employment has recovered strongly in the past year. Chart 6: Employment in services has recovered faster than in other sectors. (a)  Sources: Labour Force Survey and Bank calculations. (a) Total number of people working full time, based on LFS respondents' self-classification. (b) Total number of people working part-time, based on LFS respondents' self-classification. Sources: Workforce jobs and Bank calculations.

On an average day, over $ billion in Treasury securities changes hands, about seven times the value of stocks traded daily on the New York Stock Exchange. All of this trading activity serves the very important function of price discovery. More than any other securities market in the United States, the Treasury market responds forcefully to new information about macroeconomic fundamentals. The days when the most intense trading activity takes place are also the days when major reports are released on such indicators of U.S. economic performance as the employment report, the consumer price index or the producer price index. These releases allow market participants to digest important new information and to review their expectations about where the economy is going. The interest rates on Treasury securities of varying maturities are the market’s most important signals about the U.S. economy’s prospects for growth and risks of inflation. In the rest of the fixed-income market, trading in corporate bonds, mortgage-backed securities and sovereign debt also serves the price discovery process. This trading activity acts to differentiate, for example, a triple-A risk against a triple-B risk, the prepayment risk of mortgages against the prepayment risk of credit card receivables, and OECD country risk against emerging market risk.