samchain/econo-pairs-v1 huggingface dataset:
The Treasury financed deficit operations by taking overdraft loans from the Central Bank - the equivalent of money printing - or by taking foreign loans, converting the proceeds to krónur in the Central Bank, and using them to finance development and deficit operations – another equivalent of money printing, which fuels inflation. 2/8  BIS - Central bankers' speeches  3) And then came the game of leapfrog: labour unions responded to price hikes by demanding nominal pay rises, followed by even more nominal pay rises in response to even higher inflation - and so the game continued, while repeated currency devaluations safeguarded exporters' earnings. Since then, improvements have been made on all these fronts. Not only is the Central Bank independent, it has also been granted more authority and more tools since it merged with the Financial Supervisory Authority in 2020. This enables the Bank to act more decisively and effectively than before. The Government's overdraft account was closed by agreement between the Central Bank and Minister of Finance Friðrik Sophusson in 1993, and the Bank's authority to finance the Treasury was revoked with the passage of a new Central Bank Act in 2001. Furthermore, Iceland's fiscal health has improved vastly in recent years with the regular preparation of fiscal plans. It should be noted here that COVID-related expenditures and revenue losses put public sector finances under heavy strain that has been difficult to unwind.

The value stored in money does not disappear when inflation is high; it is transferred from savers to  1/8  BIS - Central bankers' speeches  debtors. So a 20% negative real rate meant that a fifth of Icelanders' savings shifted from depositors to debtors each year, eating quickly into principal. The 1970s saw one of the biggest transfers of wealth in the history of Iceland - from depositors and pension funds to borrowers and debtors, and from the older generation to the younger. This runaway inflation laid the foundations for the 1968 generation's asset formation while eroding elderly Icelanders' assets, even pushing them into poverty, while simultaneously subsidising the operations of many large companies in the country. It was precisely in 1979[, during the tenure of Prime Minister Ólafur Jóhannesson,] that broad-based price indexation of savings and loans was adopted in Iceland with what came to be known as Ólafur's Law, passed by Parliament five months before the publication of the above-cited Reykjavík Letter. In some respects, indexation was a gesture of defeat - it was perhaps more an adaptation to circumstances, in that it enabled the economy to function during an episode of high inflation. It was based on the same fundamental premise as my lambs and my deposits to the co op: the value of money was pegged to actual value. Inflation certainly had yet to rise still further, though. On an annualised basis, it hit an all-time record of 130% in February through May 1983.
In this respect, accounting regulators and banking supervisors have made statements regarding the application of IFRS 9, suggesting that the flexibility allowed within the international accounting standards should be used to avoid the mechanical application of factors and hypotheses to estimate expected losses, as this would be clearly procyclical and inappropriate in the situation arising from COVID-19. Supervisory response Allow me to end my address by referring to the actions taken by the SSM since the outbreak of the health crisis. I sincerely believe that our response has been highly transparent, as well as rapid and unified across the euro area. This would have been unthinkable before the SSM was created. Since March this year, the SSM has published almost a dozen press releases and created a detailed FAQs section on its website, where speeches and interviews with the Chair and various members of the Supervisory Board can also be found. In addition, frequent bilateral meetings have been held with banks and there has been considerable interaction with the press and other interest groups in various fora. As for the response itself, no sooner had the health crisis broken out than we took a number of measures to alleviate the operational burden arising from supervisory activities, to enable banks to focus on the continuity of their main business. At the same time, we wanted to avoid, or at least minimise, the undesired procyclical effects that might arise from application of the capital framework.

[23] For instance, workers may accept some loss in real income as demand softens, costs can no longer be passed on easily to consumers and risks to job security increase. In some euro area countries, wage negotiations focus on core inflation rather than headline inflation. This can be seen as a recognition that the terms of trade loss has to be borne – at least to some extent – rather than retrieved. Also, in this setting, households may choose to reduce consumption – instead of smoothing it and mitigating the hit to spending – because a permanently lower potential output would also permanently reduce their future income and wealth. Recent research using endogenous growth models shows that, if supply shocks cause “scarring”, the prospect of lower potential output reduces investment and productivity growth. By compressing households’ future income and their current spending, it can cause demand to drop by as much as – or even more than – supply. [24] All told, these effects imply that, even in the face of lasting consequences of supply shocks on potential output, the implications for the output gap, inflation dynamics and optimal policy calibration can only be  derived over time. And this reinforces the case that, for as long as inflation expectations remain anchored, monetary policy should adjust but not overreact. [25] ECB staff projections published in September 2022, which foresee inflation close to 2% at the end of their horizon, are consistent with a withdrawal of monetary policy accommodation.
A further risk compensated by the risk premium derives from the expected volatility of an asset price during its lifespan. As monetary policy affects asset prices, it can also impact the expected volatility of asset prices and, in turn, again affect the risk premium. The link between the monetary policy instrument and any one financial market price is subtle and variable. Central banks would face an exceedingly difficult task if they had to rely on a single price to transmit monetary policy impulses to the real economy. The fact that monetary policy works simultaneously through several financial market prices reinforces the precision and the impact of monetary policy. So far, I have tried to outline how monetary policy impulses are transmitted to financial markets. The monetary policy instrument itself, typically a short-term interest rate, has only a limited impact on the real economy. Monetary policy works through its aggregate impact on financial markets. Monetary policy impacts financial markets mainly through expectations. Indeed, Michael Woodford (2004, p.16) argues that "for not only do expectations about policy matter, but, at least under current conditions, very little else matters". Expectations influence financial markets in two ways: first, directly via the yield curve, i.e. through expectations about the future evolution of the monetary policy instrument, and second, indirectly, via the expected effect of monetary policy on the real economy, which then feeds back to financial market prices. In practice, it is difficult to distinguish between direct and indirect effects.

Similarly, those extending loans will find it more difficult to assess the real value of collateral security and the borrower’s wealth. This situation must be corrected sooner or later, and when bubbles burst the risk of debt crises and financial instability is high. We have seen examples of this in Norway and in other countries. If we allow imbalances to develop in the domestic economy, this may trigger major capital movements with wide fluctuations in the exchange rate and long-term rates. Distributional effects of monetary policy The distributional effects of changes in nominal interest rates figured prominently in discussions concerning interest rate policy in the 1970s. There is probably a basis for saying that the consideration of distributional effects was an important reason behind the low interest rate policy. However, as developments were to prove, this was not the right approach. The low interest rate policy contributed to increased disparity. People are affected in different ways by a change in interest rates. Households with considerable debt will, ceteris paribus, be adversely affected by an increase in interest rates because they must use a higher proportion of their income to service the debt. However, the increase in interest expenditure in  BIS Review 92/2000  8  relation to household income is about the same for all income groups. This is because households with high income generally have a higher level of debt.
Bottlenecks may arise in some sectors of the economy, and the sharp rise in property prices and borrowing may persist for a longer period. This could be a source of instability in demand, output and inflation in the somewhat longer run. This implies, in isolation, a higher interest rate. At the same time, the current rate of inflation is low, and there are prospects of low inflation for a period ahead. The objective of bringing inflation back to the target of 2½ per cent and anchoring inflation expectations imply a continued expansionary monetary policy. The monetary policy assessments presented by Norges Bank in March indicated that the interest rate will rise after a period and at a gradual pace. Economic developments since then have been broadly in line with expectations. International key rates are rising, albeit slowly and from a low level. Although a gradual rise in the interest rate seems to provide a good balance between the different objectives, the Executive Board concluded that it is too early to increase the interest rate at this monetary policy meeting. The Executive Board decided yesterday, 20 April, to leave the interest rate unchanged at 1.75 per cent. The Executive Board weighed the objective of bringing inflation back to target and stable inflation expectations against the risk that output growth may eventually be too high. BIS Review 27/2005  7

2.4 Given these challenges in Risk Management, financial institutions are expected to move towards Integrated Risk Management (IRM) which, in simple terms, is a continuous proactive and systematic process aimed at understanding, managing and communicating risks from an organization-wide perspective. It is about making strategic decisions that contribute to the achievement of an organization’s overall corporate objectives. In other words, IRM requires an on-going assessment of potential risks at every level and every segment and then aggregating the results at the corporate level to facilitate priority setting and improved decision-making. IRM should be embedded in the organization’s corporate strategy and it should shape the organization’s risk mitigation culture and highlight the importance of effective coordination among interdependent risks. 2.5 Many of you may have been following the rogue trading scandal that cost 4.9 billion Euros for Societe Generale – SocGen, the French Bank in recent months. The credibility of the bank suffered a fresh blow this week following the interim report handed over by the Finance Minister, Christine Lagarde to the Prime Minister. In summary, the findings of this report said “Very clearly, certain mechanisms of internal controls of SocGen did not function and those that functioned were not always followed by appropriate modifications”. Further, the report highlighted 8 elements of internal controls that were clearly inadequate and they may have been the decisive factors behind the crisis.
Headwinds in the aftermath of the financial crisis are still in evidence, particularly the diminished availability and tougher terms for residential mortgage credit. How fast the normalization process will proceed depends mainly on two factors: how the economy evolves and how financial market conditions respond to movements in the federal funds rate. If financial market conditions do not tighten much in response to higher short-term interest rates, we might have to move more quickly. After all, the point of raising short-term interest rates is to exert some restraint on financial market conditions. In contrast, if financial conditions tighten unduly, then this will likely cause us to go much more slowly or even to pause for a while. At the end of the day, we will move short-term interest rates to generate the set of financial market conditions that we deem is most consistent with our employment and inflation objectives. How high will short-term rates ultimately need to go? I think this issue is very difficult to judge for a number of reasons. First, it depends on how financial market conditions evolve in response to our monetary policy adjustments. Second, it depends on other factors, such as real potential GDP growth, which, in turn, depends on the growth rates of the labor force and of productivity. My current thinking is that the long-run nominal federal funds rate consistent with 2 percent inflation is somewhat lower than in the past. My point estimate is 3½ percent, but I wouldn’t bet the farm on this.

Although the appreciation of the dollar is likely to cause some further softness in import prices, the continued decline in resource slack as the economy expands should push in the opposite direction. In addition, longer-term household inflation expectations have been well maintained through this period of very low inflation, as indicated by our Survey of Consumer Expectations. The combination of stable expectations and declining slack should push inflation slowly back towards the FOMC’s objective. Monetary policy As the FOMC has consistently communicated, the timing of lift-off will depend on how the economic outlook evolves. As I have discussed, the labor market has improved substantially and I expect to see inflation begin to firm later this year. If this labor market improvement continues and the FOMC is reasonably confident that inflation will move back to our 2 percent objective over the medium-term, then it would be appropriate to begin to normalize interest rates. At the March meeting, the FOMC removed language from the statement that indicated that we would be patient in beginning the process of normalizing monetary policy. But, as Chair Yellen remarked in her most recent press conference, removal of “patient” from the statement does not indicate that we will be “impatient” to begin to normalize monetary policy. Rather, the timing of normalization will be data dependent and remains uncertain because the future evolution of the economy cannot be fully anticipated. Whenever the data support a decision to lift off, I think it is important to recognize what this would signify.
The reserves policy adopted by the Bank Council bears the hallmark of common sense, aiming for a gradual rise in the level of monetary reserves so that the relationship of reserves to GDP does not deteriorate over time. This approach is consistent with the fact that, at present, we only have a moderate level of reserves. Those who believe that the SNB has surplus monetary reserves overlook the fact that Switzerland's central bank constitutes a form of insurance with respect to the monetary stability of the country. Like all kinds of insurance, the National Bank – faced as it is with expanding markets and increasing risks – must be able to rely on its reserves growing in tandem with the economy. If they did not do so, its ability to operate on the markets would be weakened. In this respect, it is the country's long-term interests that must not be lost sight of. The debate on the Cosa initiative (under which SNB profits would be used for the AHV/AVS, the Swiss old age and survivors' insurance scheme) is another example of a political move that could lead to a weakening in our monetary credibility. This initiative would hinder us in fulfilling our mandate, and last year I had the opportunity of explaining to you in detail why this is so. Allow me to briefly reiterate these reasons.

In this regard, we recently announced the Education and Industry Forum on Financial Services Culture to support these efforts. The Forum, which kicked off in April, brings together business schools and industry representatives. Participants will research and design case studies for business school students. This will mean that students planning to enter the industry will have the tools to handle the ethical challenges that can arise in real-life work situations. 2/3  BIS central bankers' speeches  “Convene” means bringing together stakeholders to share best practices. And that’s where our Supervisors Roundtable comes in. The Roundtable brings together supervisors from around the world to share their jurisdictions’ approach and what they’ve learned from it. Participants have developed a shared set of tools for supervisors that can be leveraged in cultural assessments. Finally, let me turn to this principle of “catalyze,” and how we can use our position in the heart of the Financial District, to create change. As well as talking the talk—we’re walking the walk. This year, for the first time, this Bank is taking the Banking Standards Board (BSB) Assessment. The BSB Assessment measures the extent to which nine characteristics are demonstrated by an organization, and it includes things like honesty, accountability, and respect. The assessment started in the UK, and the Irish Banking Culture Board now takes a similar approach. I would love to see firms in the United States adopt an industrywide survey that can measure culture and benchmark banks against their peers.
In the longer term, however, demand-management macroeconomic policy – be it fiscal or monetary – cannot be used to address structural problems successfully. As such, the Bank of Thailand is also geared towards financial sector development in order to facilitate the country’s long-term structural reforms. Financial sector development is the third element of our policy navigation. The Financial Sector Master Plan Phase III will aim for a “competitive, inclusive, connected, and sustainable” financial sector. Our vision is to have a competitive Thai financial sector which can support more diverse needs at a fair and undistorted price, promote regional trades and investments, while maintaining safety and soundness of the economy and the financial system. Today I hope to share with you some of the highlights and key milestones. BIS central bankers’ speeches  5  Five years from now, I foresee that the Thai financial landscape will look different from today, with more digital banking and electronic payment transactions, and increased competition from nonbanks and foreign players. The landscape will also contain innovative fintech companies who provide alternative solutions to both service providers and users such as data analytics, crowd funding, and product or price comparison services. Ultimately, competition will increase financial access, and lower transaction costs to the economy as a whole. The Bank of Thailand will focus on the development of infrastructures and standards, while ensuring that rules and regulations are clear and supportive of innovation and efficiency.

In fact, the share of exports to CLMV in our total exports is now on par with the share of our exports to the major trading partners such as the US, Europe, and Japan. Thailand’s exports to the US are also poised to become firmer as the US economy continues to see improvement in its recovery. Our exports of vehicle parts, electronic-appliance parts and electronics to the US have expanded in the past few months, and are likely to continue their growth momentum in 2016 in line with the US economic recovery. Nevertheless, some structural limitations still weigh on long-term growth. The recovery of the export sector will continue to be impeded by a shift in the global trade structure. Some of our products such as apparels and garments have seen a continuing decline in competitiveness, while some others are falling out of technological trend. Simply put, the Thai economy is like a car whose engine is in need of an overhaul. We need structural adjustments in growth drivers to enhance our competitiveness and sustainable economic growth. The private sector needs to invest in new production technology, and improve product quality in response to changes in global demand and consumer preferences. As Mohamed A. El-Erian, then CEO of PIMCO, once said “structural challenges require structural responses”.1 In this context, we welcome many new initiatives by the government to stimulate public and private investment and upgrade Thailand’s value chain.
In summary, we decided that it was necessary to: •  require banks to maintain substantially higher levels of capital, with the minimum common equity requirement increasing from 2% to 7% of risk weighted assets;  •  require banks to hold higher quality forms of capital, with common equity at the core of the requirements, and standards to ensure other types of capital instruments are truly loss-absorbing. It is worthwhile emphasising that these reforms also go a long way to simplifying banks’ capital structures, as well as making them more transparent and comparable;  BIS central bankers’ speeches  1  •  introduce an additional capital buffer (the capital conservation buffer) designed to enforce corrective action when a bank’s capital ratio deteriorates.

In December last year, the People’s Bank of China and the Bank of Thailand concluded the bilateral local currency swap arrangements during the visit of Vice President Xi Jinping to Thailand. The Agreement provides for the exchange of respective local currency upto 70 billion yuan or 320 billion baht, to facilitate bilateral trade and investment. I believe this is a crucial role that the public sector can provide to give assurance to the private sector on the availability of their access to the yuan and the baht for their trade and investment needs. In addition, the Bank of Thailand received approval from the People’s Bank of China and China Securities Regulatory Commission to participate in the interbank bond market and securities market here in China. Our investment would allow our asset allocation and diversification to better reflect the increasingly important role of the yuan in international monetary system. Last but not least, I hope that the inauguration of our Beijing representative office will be more than just another success story. I truly hope that the spirit and friendship behind this long-standing relations and successes, nurtured earnestly over centuries, will continue to serve as solid foundations that will lead to even greater and closer future cooperation between our two nations. Let me end by thanking everyone for being an important part of this success. And, with Your Royal Highness’ permission, may I propose a toast to future success and cooperation as well as to your Royal Highness’s good health and prosperity. Thank you.