samchain/econo-pairs-v1 huggingface dataset:
Policies for financial system stability in 2007 and beyond  The Central Bank has just issued the Financial Stability Report for 2006, which clearly indicates that the financial system in Sri Lanka is resilient and that there are no imminent threats that may endanger its stability. The report however contains information regarding certain possible risks and those will of course need to be attended to by the relevant authorities in due course. The resilience of the financial system is underlined by the robustness of the macro-economy, soundness of systemically important financial institutions, healthy developments in financial markets, sound supervision and oversight, and continuation of a safe payment and settlement system. At the same time, a series of measures will need to be implemented to further enhance the efficiency and strengthen the financial sector, which will contribute to financial system stability. These encompass regulatory and supervisory measures of major financial institutions; forward looking surveillance indicators and tools to predict emerging vulnerabilities; measures to improve efficiency of financial markets including access to finance; initiatives to enhance the safety of payment systems; and introduction of necessary changes to legal enactments governing the wider financial system. In general, the aim will be to promote an adequate level of competition in the banking industry, while ensuring that the banks are capable of adding value to the economy and expanding in order to serve presently underbanked areas of the country.

The IMF should not thus provide unlimited and unconditional financial support, its catalytic role remaining a core element of  BIS Review 49/2001  3  financial crisis resolution. As a consequence, IMF financial assistance should be ex ante limited in terms of quotas. Access above these regular limits should be exceptional and allowed only in cases of systemic risks. However, if short-term financing is the bulk of IMF lending role, the IMF should also promote macro-stability, including structural matters relevant for macro-economic policies. As a consequence, the IMF needs a medium and long term surveillance and medium and long term facilities for adjustments to take hold. -  2. As regards its role in crisis management, the IMF could concentrate on agreeing with the crisis country a program which ensures adjustment and financing over the short and medium-term: ·  This means, for example, that IMF conditionality should cover short and medium and long term issues. The Asian crisis has led to an extension of IMF conditionality to structural areas, mainly as regards financial systems restructuring issues. This extension was somewhat criticised but I do not share such views: including structural matters in the IMF conditionality is clearly in line with IMF missions as regards financial stability and should reinforce its efficiency. In that respect, the review of IMF conditionality under process should not mean, in my opinion, that it should necessarily be weakened, by focusing only on short term macroeconomic variables.
So rather than try and give a lecture on monetary theory, or pre-empt the results of ongoing thinking on this issue, I’ll seek to make only a few very broad, conceptual points, touching on the following questions: what is the key innovation in private-sector digital currencies such as bitcoin? what is a “central bank digital currency”? and what might be the economic implications of introducing one? I’ll be brief about the first, not least because there are good, more detailed descriptions elsewhere – including in two excellent articles by Bank economists, published some time ago in the Quarterly Bulletin. The main point here is that the important innovation in bitcoin isn’t the alternative unit of account – it seems very unlikely that, to any significant extent, we’ll ever be paying for things in bitcoins, rather than pounds, dollars or euros – but its settlement technology, the so-called “distributed ledger”. This allows transfers to be verifiably recorded without the need for a trusted third party. It is potentially valuable when there is no such institution and when verifying such information on a multilateral basis is costly. Acting as a trusted third party is precisely what a central bank does. It performs that role only for one particular asset, central bank money (i.e. reserve deposits held largely by commercial banks at the central bank). But the function goes right to the heart of what central banks do and how they came about.

Ajith Nivard Cabraal: Management Accountants – focusing on the repositioning of the profession Special address by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the Global Summit, organised by The Institute of Cost and Works Accountants of India on “Repositioning the Management Accountant”, New Delhi, 12 January 2008. *  *  *  The theme of the Conference suggests that the Management Accountants of today are de facto doing something different to the traditional role of the Management Accountant. The new de facto role seems to be more of that of a strategist and a performance management specialist, rather than a historical “information supplying” or even a “decision facilitating” role of an accountant. If one were to drill down, we may perhaps note that the education and training of those who have become strategists and performance management specialists may not have necessarily been intended that way. But yet, it happened. How did this happen? •  Perhaps the training, although intended to create management accountants, was appropriate to create a strategist. •  Perhaps the training, coupled with business developments and public expectations, shaped management accountants to become strategists or the deliverers of outputs rather than contributors of inputs only. •  Perhaps the ability of the management accountant, as a result of his core disciplines, enabled him to respond effectively to unfolding developments and then deliver new outputs, and such abilities were recognized by the business community in the course of time.
Evidently, though, the possibilities of further using these types of policies have become notably constrained, both at home and abroad. It should also be borne in mind that, once the economic and financial fragility beleaguering the world economy has been resolved, demand-side policies should adopt a more neutral stance. All these considerations on the diagnosis of the Spanish economy in the current international crisis and on the limited leeway available to demand-side policies mean, rather, that  6  BIS Review 79/2009  economic policy has a central role to play in implementing the reforms that help improve productivity and the behaviour of the factor and product markets. It is in this area that the authorities undoubtedly have effective room for manoeuvre, and also considerable responsibility. Let me begin with the labour market, which is where the most pressing problems are to be found. The scale of job destruction has once more highlighted the existence of distortions that emerge with force in recessions and compound contractionary trends. And there is a risk that, as in the past, the surge and change in level in unemployment may stick and that this will delay subsequent recovery. Labour market dysfunctions are also closely linked to the discouraging behaviour of the economy in respect of gains in economic efficiency and in productivity, hampering the possibility of attaining genuine improvements in competitiveness and of raising growth potential.

In fact, at times, when short-term rates have been pinned at the zero lower bound, the Federal Reserve has taken actions that eased financial conditions without changing shortterm interest rates. Such actions have included forward guidance that the FOMC was likely to keep short-term rates low for a long time and large-scale asset purchases that led to lower bond term premia. Now, as I said at the start, just because I don’t want to follow a rule mechanically does not mean that I favor the polar opposite – that is, a fully discretionary monetary policy in which market participants, households and businesses cannot anticipate how monetary policy is likely to evolve as economic and financial market conditions and the economic outlook change. If households and businesses do not have a good notion of how the Federal Reserve will respond to changing economic and financial market conditions, then this would loosen the linkage between short-term rates and financial conditions. This would also likely lead to greater uncertainty about the outlook and higher risk premia, and it would make it more difficult for policymakers to attain their objectives. Instead, what I favor is a careful elucidation of those factors that influence the economic outlook and how monetary policy is likely to respond to changes in the outlook. This includes fiscal policy, productivity growth, the international outlook and financial conditions, as well as how much employment and inflation deviate from the Fed’s objectives.
We tackled many difficult problems, although it was unpleasant, and resolved their underlying causes. This has definitely given us better resilience to what is happening now. At what stage is the global financial system now? The global financial system is currently in the middle of such a process. Deficiencies in the system that have lain in wait in many parts of the world have now come into focus in an  BIS Review 138/2008  7  acute situation. This includes supervision, regulatory frameworks and the possibility for insight with regard to somewhat fanciful constructions of financial instruments. And it is not only the regulations and supervision that need to be reviewed and harmonised between countries – the same applies to the frameworks for crisis management and financial stability. Otherwise one country’s crisis management can easily become another country’s problem. We can now see examples of initiatives taken towards better and more coordinated crisis management in the EU, for instance. Now we are facing the task of fixing what is broken so that it will stay fixed and function better in the future. This applies both to resolving the deadlock on certain markets and the distrust that has been created within the financial system, as well as putting the problems to rights in the long term. Some measures have already been taken and more are on the way. It is not a simple process and it will probably take some time before the measures take full effect.

MAS has gotten very good feedback on the growing electronic FX trading system in Singapore. Singapore has attracted key liquidity providers and platforms to base their pricing and matching engines here. We already have about seven banks and non-banks who have moved these activities to Singapore. Now, we have got another two global banks joining us.2 So even during this period, we are seeing positive, encouraging developments on the FX front. Upskilling Industry Workforce Talent development and upskilling the industry workforce is another key area that MAS has been focusing on during this period, so that finance professionals are able to function effectively and have a competitive advantage in the future. During this period of slower growth, MAS has been working with financial institutions to retain their talent, use the opportunity to upskill their human capital, and explore ways to build longerterm capabilities in digital functionalities, so that the industry can emerge stronger from the crisis. Last month, in April, MAS announced a $ million package, basically to support smaller financial institutions and FinTech firms, through the downturn. As part of this package, we launched a training allowance grant, which allows financial institutions, especially the smaller ones and FinTechs, to make use of the downtime to train and deepen the capabilities of their employees. We also set up a new digital acceleration grant. The larger financial institutions are able to invest heavily in digital platforms and digital capabilities. The smaller ones do not have the capacity to do that.
If you look more closely at the dollar bill, you will find a further inscription which states “This note is legal tender for all debt, public and private”. This imposes an obligation to accept the note in the settlement of contracts and highlights the fact that money derives its value - whether imposed by a legal tender requirement or not - from the willingness of other economic agents to accept it to settle transactions. Each agent will only accept money, if he can be confident that it will in turn be accepted BIS Review 96/2000  2  by other agents in future transactions. Thus money is a social achievement as has long been recognised by economists for example by Menger. Money is a question of trust, its use requires trust and it reflects trust. This is especially true in the case of fiat money, i.e. the use of printed paper - which has no intrinsic worth - as a medium of exchange and as a store of value. Yet even commodity money requires trust and a well-founded expectation that it will be accepted for a wide range of transactions. Milton Friedman, in his book Money Mischief (1992), reports the well-known story of the monetary system of a small island in Micronesia which at the end of the 19th century used stone wheels as a medium of exchange and as a store of wealth.

One is hard pressed to find examples in history, where sovereign nation states voluntarily chose to cede or share sovereignty in the monetary field. It is therefore clear that European Economic and Monetary Union has been and will continue to be part of the wider economic and political project that the process of European integration process has represented from the very start. Monetary union is certainly not only about money. It is an important element in the very successful quest for lasting peace, stability and prosperity in Europe. This quest involves the building of trust and the sharing of sovereignty among European partners and the building of common institutions, in cases where this is desirable for the benefit of all. Europe is more than a collection of nation states, but it also stops far short of becoming a single federal entity. I do not believe that a stable monetary regime necessarily must have its root at the level of the nation state. Going back in history the international gold standard coincided with an era of stability. It was a system that was fundamentally based on rules and which transcended the nation state. Nevertheless, as a currency that is new and not linked in the traditional way to the nation state the euro does face particular challenges in winning the trust and the hearts of the people. Money is clearly regarded as more than simply a medium of exchange or a unit of account.
After the privatization process of the former Savings Bank was over and a 100% of its stock was transferred to the Raiffeisen International Bank Holding AG in August, the capital ownership structure during that period underwent significant changes, having the share of “domestic government capital” estimated at 6% from 32.1% at end of 2003, and the “domestic capital” at 12.75 from 35.15% it was in the same period of the previous year. 2  BIS Review 115/2006  Figure1: Banking system capital ownership structure in years 1  Recently, the improved climate for the development of business and the economy, the Savings Bank’s privatization from the Raiffeisen Bank, the macroeconomic stability, and the low inflation, have all led to rapid development of the banking system. Hence, we can highlight that: •  1  During 2005 and onwards, considerable developments have occurred. The system was more oriented towards the lending activity. The latter one constituted 26% of the portfolio, from 16% in the same previous year period. In 2005, the outstanding credit of the banking system increased by ALL 57.6 billion 2 or 82%, from ALL 19.3 billion or 38% in the previous year. In the meantime, the significant growth rate of the outstanding credit compared to end of 2004 has been reflected even in the changed credit structure by terms.

These same precautions have permitted macroeconomic policies – both fiscal and monetary – to be clearly countercyclical, helping to cushion the effects of the world crisis on our economy. 1  2  Central Bank of Chile (2009). BIS Review 35/2009  The transmission of MPR reductions to lending interest rates One important element in the diagnosis of how this countercyclical effort is actually working is the evaluation we perform on a permanent basis to the way our decisions are affecting the borrowing conditions facing households and firms. This issue is not new, and was the subject of analysis several years back when the Central Bank’s monetary policy was on a sustained expansionary path. 2 The evidence we gathered then can be summed up in that the Central Bank’s monetary policy decisions are reflected in the banks’ financial cost very quickly, but in the overall cost of credit only after a few months. This response pattern was similar to that in other economies. Lately, we have reviewed that information, 3 and we have found that, even in moments of great uncertainty as we experienced in recent months, reductions to the MPR are translating into reduced borrowing costs for both businesses and consumers. One good example is the trend of the interest rate on commercial loans at 30 to 89 days, which can be linked to the funding of working capital. This rate was very high in October last year, but this year so far it has fallen substantially.
As such, the total amount of European safe assets, defined as government bonds with a high credit rating (AA or higher) or privately-issued AAA products, is around $ trillion, half of its peak in 2009.2 By comparison, privately-held safe debt in the United States totals more than $ trillion. Thus, the scarcity of safe assets is particularly acute in the case of eurodenominated safe assets, which limits the diversification options of investors in the euro area's common currency, in particular, those of international reserve managers with a mandate to invest safely. The latter has two important consequences for the euro area. First, it precludes a more prominent international role for the euro, as investors need to take into account multiple sovereign risks and insolvency frameworks. Second, the demand for safe assets is entirely concentrated in a group of sovereigns. As a consequence, we face a form of “exorbitant divergence” in the euro area, as only some government bonds enjoy a high convenience yield stemming from their status as safe assets.3 A common safe asset would provide a single benchmark for every country in the euro area, allowing banks and companies to diversify their portfolios without triggering capital flights in the event of a crisis, and mitigating the “exorbitant divergence”. The introduction of a safe asset would also help to alleviate an unwarranted national bank - national sovereign nexus.

Let me expand on these aspects. The normal operation of markets and financial intermediaries requires the availability of a broad spectrum of assets with sufficient liquidity and bounded counterparty risk, including so-called “safe assets”. This is even more the case in turbulent times, as investors tend to react to increases in uncertainty by turning to assets with a lower level of perceived risk. As Holmstrom and Tirole1 put it, a safe asset is an instrument that allows wealth to be transferred from one point in time to another without any nominal loss. If you allow me the metaphor, the supply of a broad enough set of assets is the infrastructure in an electricity grid. A large enough infrastructure is needed to ensure the grid’s smooth functioning, in  1  Holmstrom, B. and J. Tirole, “Private and Public Supply of Liquidity”, Journal of Political Economy, Vol. 106, No 1 (February 1998), pp. 1-40 (40 pages). 4/8  particular, to allow it to withstand episodes of high demand. If not, the system is prone to disruptions and even blackouts. There is a wide consensus regarding the existence of a secular shortage of safe assets at global level. To put it simply, there is not much highly-rated paper available once holdings in monetary policy portfolios are discounted. This phenomenon has become more acute since the outbreak of the European sovereign debt crisis, given that some eurodenominated sovereigns have seen their ratings downgraded, in part due to the persistence of an incomplete EMU.
In the data, there does appear to be a degree of “smoothness” in the way official interest rates behave. Rather than jumping from one level to another, factoring in all the news at once, the policy rate usually seems to respond to it over time. Two explanations have often been suggested. One is uncertainty about the impact of changes in official interest rates. If there’s a degree of imprecision in estimates of policy multipliers there’s a case for moving a little more gingerly than otherwise. Another, offered by the economist Michael Woodford, is that smoothing the spot interest rate gives the central bank better control of medium-term interest rates, which may matter more in the transmission of policy. In this case I think a third factor may be at play, namely the need to learn about the extent of these “second-round effects”. We have inevitably had to learn about them and, therefore, to respond to signs of more persistent domestic inflation as and when they emerge. Bank of England  Page 15  The response to demand shocks This is less the case when it comes to plain-vanilla shifts in aggregate demand. These are more common and the appropriate response is well understood: an inflation-targeting monetary authority has to lean against them. Indeed, one additional reason for caution, in the face of these big rises in import prices and their impact on domestic inflation, has been the likelihood that they will also weigh significantly on domestic demand.

The exchange rate impact is calculated using a path for sterling ERI that is half way between its starting level at close on 17 October and a path implied by interest rate differentials. Both marginals are calculated relative to the August 2022 MPR forecast. The yield curve news is calculated using the path for Bank Rate implied by forward market interest rates at close on 17 October relative to the August 2022 MPR forecast. Source: Bank of England, ONS, Bloomberg Finance L.P. and Bank calculations. One should always take the OPPs with a healthy dose of salt. They are based on a particular characterisation of the MPC’s objectives. (We ask a simple policymaking “bot” to stabilise inflation and output, placing four times more weight on the first than the second, and to pay some heed too to the “smoothness” of interest rates). The resulting path obviously depends on the extent to which interest rates are assumed to affect demand and inflation. The higher the policy multipliers the smaller the “optimal” response of interest rates is likely to be. It’s also conditional on – and therefore highly sensitive to – the particular forecast on which it’s based. Any observer – indeed any individual MPC member – who sees the risks differently from those in the central projection will come to a different conclusion about the most likely path of future interest rates.