samchain/econo-pairs-v1 huggingface dataset:
with perfectly controlled deficits and levels of public debt, which logically places limits on the growth of public debt markets. This contradiction is known by economists as the “Triffin dilemma”. It was first identified in relation to the U.S. balance of payments deficits and the value of the dollar, but it can also be applied to fiscal equilibrium. The economy needs a growing volume of risk-free assets, but the more they are issued, the more risky they become. We cannot totally side-step this dilemma, but we can avoid making it worse. It is clearly not good for major developed countries to find themselves in a situation where their solvency is put into question, or to allow markets to think that under certain circumstances, they may be unable to honour all their commitments. But this is what we have done in Europe, against the better judgement of the ECB, by introducing the principle of private sector involvement. The idea is attractive in theory. However, its consequences for financial stability are extremely negative. There has never been any doubt about whether the United Kingdom or the United States would honour their debts. Today they are enjoying very favourable interest rates compared with Spain and Italy even though the latters’ fiscal fundamentals are better. I know that some attribute this difference in borrowing conditions to the actions of the UK and U.S. central banks. I do not agree.

Low interest rates, for example, can contribute to the build-up of  4  On this, see the discussion in Robert Shiller (2000), Irrational Exuberance, Princeton University Press. 5  This has been convincingly argued by Christina Romer (1990), “The Great Crash and the Onset of the Great Depression”, Quarterly Journal of Economics, 105(August), 597–624  6  As quoted in John Lewis Gaddis (2005), The Cold War: A New History, Penguin Press. BIS Review 158/2010  3  financial imbalances via the so-called “risktaking” channel. 7 Simply put, very low interest rates may create incentives for banks to take on more risks. Recent research has provided empirical evidence compatible with such a notion. It has been documented, 8 for example, how market based measures of bank’s risks as perceived by financial market participants tend to react positively to changes in interest rates, so that a lower interest rate leads investor to perceive banks as less risky. By the same token, several papers 9 have shown that credit standards are correlated with the level of interest rates: lower interest rates, in particular, imply lower credit standards including to customers who are perceived as representing a higher credit risk. On the theoretical side, research done at the Banque de France 10 has shown that, when the regulatory environment is not transparent, a decrease in the level of real interest rate increases banks’ risk-taking behavior, in parts because it may facilitate the under-pricing of risks typical when asset prices rise.
The data confirm the view that the earlier decline in consumer confidence was mainly due to the adverse effects of the increase in oil prices until November 2000, which dampened private household real disposable income growth. Overall, consumer confidence has continued to remain at a high level, reflecting favourable financing conditions and improving conditions in the labour markets. The latter is indicated by a robust growth in employment and a further decline in the unemployment rate. In addition, tax reductions in a number of euro area countries can be expected to fuel domestic demand this year. All in all, it seems likely that real GDP will continue to expand at a robust pace this year. Hence, there is reason to be optimistic with regard to further economic developments in the euro area. 4  BIS Review 10/2001  Turning to price developments, inflation fell to 2.6% in December, down from 2.9% in November, reflecting the decrease in oil prices in euro terms. Provided that this drop in oil prices and the recovery in the effective exchange rate of the euro are sustained, the annual rate of consumer price inflation is expected to fall to below 2% in the course of the year. However, this may take some time. Over the short term, the process may be slowed down by the delayed impact of previous import price increases. Given the present situation, potential second-round effects remain a risk to price stability. Against this backdrop, it is important to proceed with wage moderation.

The stage has been set for the transition to SARON, and it is now up to market participants to use the time until the end of 2021 to complete the work that remains to be done. A successful transition from Libor to SARON is crucial for the smooth functioning of the Swiss franc money and capital markets. Importance of climate risks for the SNB’s investment policy  I would now like to say a few words about the importance of climate risks for the SNB’s investment policy. Let me start by summarising this policy. Our asset management is governed by the primacy of monetary policy. In applying its investment policy, the SNB has two main objectives. The first is to ensure that the balance sheet can be used for monetary policy purposes at any time. In particular, the SNB must be in a position to expand or shrink its balance sheet if needed. The second objective is to preserve the value of currency reserves in the long term. A high degree of asset liquidity and diversification is required to ensure sufficient room for manoeuvre in the implementation of monetary policy. As the SNB does not pursue any strategic or structural objectives with its investments, it seeks to achieve the broadest possible market coverage in managing its assets. So what do climate risks mean for the SNB’s investment policy?
This include RMB outflows through official aid, international loans by banks in China, foreign issuance of debt in Chinese markets, direct investment abroad, inter-company loans, repatriation of corporate profits, resident spending abroad and so on. Some of these are already happening. Offshore RMB balances in Hong Kong, Chinese Taipei and Singapore for example rose almost 40% between late 2013 and early 2014 to RMB1.4 trillion. These numbers are indeed encouraging, except for one thing. When the RMB is abroad, it gets homesick, terribly homesick. It yearns to return home to the land of its birth. When the legal avenues for it to do so are limited, it desperately seeks other ways to do so. And as the size of overseas RMB pool increases, the pressure of the homeward bound flows will also increase. Will the Qualified Investor Schemes, RMB clearing banks and the eventual introduction of the China International Payment System alleviate this situation of the offshore RMB? Yes, it would, but not entirely. In the current situation, despite the sharp increase in RMB related trade and investment transactions, the data I have seen suggests that the use of RMB remains rather lopsided and favours the flow of RMB into China rather than out of China. A significantly greater proportion of China’s exports were paid for in RMB, then its imports. Similarly, while 63% of the FDI into China was in RMB, only 16% of the direct investment out of China was in RMB.

However, a large part of these outflows have been official and they have not been in RMB. This in fact touches at the heart of what is known as the Triffin Dilemma. China has been sending USDs abroad because that is what it has been receiving through its current account surpluses and FDI inflows. Sometime in the future, China may develop a structural current account deficit, but I do not see that happening in the foreseeable future. Opening up the capital account and domestic financial system to non-resident investors could lead to even more foreign currency capital inflows. On both accounts, China will not only continue to export USD capital but could find itself confronted by persistent appreciating pressure on its exchange rate due to the high demand for RMB. Promoting RMB for trade settlement will only go so far in resolving this. If more of China’s trade is settled in RMB, less USD will flow in, and China would need to intervene less and would have less USD to send abroad. But the question remains, with more RMB flowing in through the current and capital account, how do you get more RMB out of China in the first place? There are in fact numerous possibilities for China to create a significant pool of RMB liquidity abroad without necessarily running a current account deficit.
Most importantly, we are in an exciting time for the GMS when the AEC draws closer. As most GMS countries are members of the AEC, the GMS will significantly benefit from the growth opportunities of the AEC in the coming years. 4. With integrated markets being forged under the AEC, this will greatly benefit the GMS through a more interconnected production base. Let me give you three key examples where I see this will materialize: 5. First, on the tariff reductions. Much has already been completed here, with the group of ASEAN-6 countries,2 including Thailand, having already removed tariffs for almost all of our products since 2010. The plan according to the AEC Blueprint, will see CLMV countries’ tariffs being removed by 2015. The benefits will of course multiply throughout production and distribution chains of the region. The increase in trade and related investments will naturally spill over to peripheral areas such as southern China, which has strong trade ties with the region as part of the GMS. 6. Second, on trade logistics facilitation. This is another crucial element to complement tariff reductions to reduce costs and time in order to facilitate cross-border trade. One of the key initiatives under this area is the “ASEAN Single Window”, which will streamline customs procedures and expedite cargo clearance. Owing to this, cross-border traders can save both costs and time for customs clearance region-wide. 7. Third, on payment systems linkages.

What ASEAN central banks are aiming for is to enable businesses and individuals to make and receive electronic payments more conveniently yet less costly. A prominent example here is the “Asian Payment Network” which translates to full regional ATM interoperability. Through this initiative, an ASEAN  1  World Bank website (2014) (http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD)  2  ASEAN-6 includes Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand. BIS central bankers’ speeches  1  resident, for instance, can use his or her local ATM card to withdraw cash from a machine in another ASEAN country without having to pay the fees charged by third-party payment providers. 8. We can see that the upcoming realization of the AEC is a springboard for a more vibrant GMS region. However, the benefits for the region go beyond the AEC. I can see some points where tangible outcomes will take place in the near future. 9. The first one is the more integrated production networks of the main industries which dominate the GMS. We all know that the region has a comparative advantage in primary industries which are demanded by other ASEAN countries. This is why we have observed the large inflows of investment into agro-industry, garment and mining sectors. Realizing the high potentials of these sectors, we have also seen contract farming practices in Laos, where key commodities such as corn and sugarcane are produced using advanced technology and practices. 10. The other point concerns the development of infrastructure.
What then can the United Kingdom bring, initially as an ‘out’, or ‘pre-in’, to the European party, in terms of contributing to the euro’s success? There are, I think, two things in particular. First, we can continue to pursue macro-economic - both monetary and fiscal discipline alongside the euro-area countries. The Government is committed to that course as a matter of national economic self-interest, but it reflects the same philosophy as that which underlies the Maastricht Treaty. One of its very first acts in Government, for example, was to give operational independence for the conduct of monetary policy to the Bank of England, and we have been set the objective of delivering, consistently, underlying retail price inflation of 2½%. That objective appears to be compatible with the ECB’s target for the European Harmonised Index of Consumer Prices of less than 2% - in fact while we are, on the most recent data, precisely on track in terms of our own target measure, our inflation rate in terms of the harmonised index is down to 1.3%. And on the fiscal side the Government has committed itself both to maintaining the debt to GDP ratio at a stable and prudent level over the economic cycle and to the “golden rule” (under which public sector borrowing is limited to the financing of investment). These fiscal rules, too, are broadly consistent with those established for euro-member countries under the Stability and Growth Pact, and will ensure that we continue to comply with the Maastricht Treaty fiscal criteria.

It is evident that no wage formation system can operate under such conditions. The labour market researcher (Bertil Holmlund in Uppsala) argued at that time that NAIRU – the unemployment consistent with constant inflation was between 2.5 and 3 per cent, which today appears to be very low. The stabilisation policy problems accumulated towards the end of the 1980s. The Government encountered a crisis situation in 1990 and introduced a prohibition on strikes, a number of freezes such as a wages freeze, a rent freeze, a freeze of local government tax increases among others. The Government announced that Sweden was to apply for membership of the EU. On 15 February, the Government lost a vote in the Riksdag on the prohibition against strikes. Kjell-Olof Feldt resigned (the Minister of Finance). BIS Review 59/1999  2  It can probably be said that the events of autumn 1990 were the last of the old stabilisation policy interventionist kind. The “corporative” co-operation policy had failed. The fact that the end of the road was reached in February 1990 was actually a result of the Government’s own actions in the latter half of the 1980s and its inability to restrict demand. The credit market had been successively deregulated during the 1980s. Foreign exchange regulation began to be dismantled in 1986 and was completely abolished in summer 1989. Foreign exchange policy formally changed course when the krona was linked to the ECU at Whitsun 1991.
It is a critical market that is relied upon by households, corporations, financial institutions, asset managers, sovereigns and many others. In 2015, I called on the industry to help strengthen the foundation of the market and to uphold its integrity. Today, I am pleased to say that the industry answered that call and there has since been significant industry engagement on work to promote the integrity and effective functioning of the FX market. After more than two years of work, the FX Global Code1 (the Code or Global Code) has been published to serve as a single, global set of principles for the FX market. The Code is accompanied by a set of adherence principles to promote its widespread adoption, and includes a set of illustrative examples to further describe various practices. In addition, a new, formalized Global Foreign Exchange Committee (GFXC) was launched to engage an even broader set of regions than past efforts and to continue a more defined work program across jurisdictions for upholding the Global Code. In my remarks today, I will share reflections on the Global Code, including some lessons learned in its development and the various steps underway to help promote and support its adoption. I will then discuss the Global Foreign Exchange Committee’s (GFXC) objectives, which include the ongoing evolution and maintenance of the Code.

With the new Act, the SNB specifically bears the responsibility of overseeing the systemically important payment and securities settlement systems. The operators of such systems will in future have to meet certain minimum requirements, which will also include requirements with regard to information security. Secure and reliable information and communications structures are an essential precondition for the smooth functioning of the financial system. In the context of its mandate, the SNB limits itself to systems-relevant aspects in these areas. Systems-irrelevant problems concerning individual banks or payment systems, by contrast, are explicitly not a part of its mandate. This is based on the conviction that the problems in the financial system must be solved by the market itself whenever possible. BIS Review 32/2004  1
Of course, the execution of our exit strategy will still present us with a tricky judgement call. We do not want to nip a recovery in the bud prematurely. Equally we will not want to let the inflation genie out of the bottle. But that is the sort of balancing act that monetary policy makers regularly face, even if the scale of the downturn and the size of the policy stimulus that has to be withdrawn are so much larger now. A previous guest at this Feast, Winston Churchill, declared that he “would rather see finance less proud and industry more content”, shortly before he took the fateful decision to return  BIS Review 62/2009  3  the pound to the gold standard at an overvalued rate. Finance has certainly been humbled by the events of the past couple of years and the post-crisis financial world is bound to look very different from the pre-crisis one. But let us also hope that it is a world in which industry is more content. It remains only for me to thank you again for a marvellous meal and to propose a toast. To the Manufacturing Industries of Hallamshire. 4  BIS Review 62/2009

In Switzerland by contrast, the collateral accepted in 99.8% of the transactions in the secured interbank market corresponds to the definition of the SNB collateral basket, that is, to the collateral accepted by the SNB in its own repo operations. The SNB’s collateral policy is based on a transparent, essentially rule-based approach. This means that when securities are excluded from the list of acceptable securities  2  See Diamond and Dybvig (1983). “Bank runs, deposit insurance, and liquidity”, Journal of Political Economy 1983, vol. 91, no. 3, pp. 401–19. 3  Typically, the total amount of the deposit will be some amount less than the value of the underlying asset, with the difference called a “haircut”. For more details, see Gorton and Metrick (2009) “Securitized Banking and the Run on Repo”, NBER Working Paper Series (NBER Working Paper No. 15223), August 2009. 4  This could be a reasonable approximation. See Gorton (2009): “Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007”, Prepared for the Federal Reserve Bank of Atlanta’s 2009 Financial Markets Conference, May 2009; and Gorton and Metrick (2009). 5  Chart 4 illustrates the average repo haircut on structured debt. This is a good indication for an overall “haircut index”, as shown by Gorton and Metrick (2009). 6  Another important difference is that the Swiss repo market is conducted on a highly efficient automated and centralised platform while US repo transactions are traded over the counter. 7  Hördahl and King (2008).
There are I think three reasons for this. First, it is in the nature of the shock – Covid itself does not destroy economic capacity over the longer term in the same way as a war, although of course the number of lives lost has been tragic. Second, the evidence here and in other countries indicates that the economic impact of Covid has attenuated with each successive wave – we are all by nature adaptive in our behaviour. For that reason, both in the UK and in a number of other countries, GDP releases during more recent periods of restrictions have typically surprised to the upside, relative to our expectations based on the effect of previous lockdowns. Third, the economic policy response has been designed to ensure that the longer term damage – often termed scarring – has been as small as can be. This has involved both monetary and fiscal policy pursuing their own independent objectives in a consistent and complementary manner. And just to be very clear on this point, when we use the tools of policy 1/5  BIS central bankers' speeches  consistently, and the objectives of policy are consistent, there is no compromise of independence whatsoever. So, we find ourselves now in a situation where there is an output gap, or slack as it is also called, but it is nowhere near as large as would be implied by the fall in demand if this was a normal recession.

CPI inflation rose to 2.1% in May, just above the MPC’s target and above where we thought it would be in the MPC’s May forecast. Goods prices were strong, while consumer food prices ticked down slightly, and the pattern for services prices was very mixed. For instance, hairdressing and personal grooming inflation was strong in particular, at an annual rate of 8%, and saw a 29 year high. Pent-up demand, essential need, or recreating the early 1990s David Beckham look, I leave that to others to judge. Further up the supply chain, food input prices were up, and producer input inflation was around a 10-year high. However these price rises are certainly not universal, and for balance I should note that we also learned last week that Victoria Beckham is reducing the average selling price of her dresses by almost 40%.footnote[1] 2/5  BIS central bankers' speeches  There are at least three reasons why the increase in inflation should be temporary. First, there are annual inflation base effects caused by very weak activity and prices last year which will not last beyond a year as a matter of arithmetic. But while they are present, they mechanically push up inflation. An illustration helps here. Let’s suppose that here in the UK, from May onwards, the consumer price level rises each month by an amount consistent with an annual rate of exactly 2% (i.e. at the inflation target).
As well as potentially helping to broaden the range of investors, the STC criteria should make risk transfer more robust. And third, to help regulators. Setting risk sensitive capital requirements for securitisation tranches is challenging. One solution is to use credit ratings but the shortcomings of that approach were exposed during the crisis. Another is to use a regulatory formula capturing dimensions of risk such as the credit quality of the underlying pool, tranche seniority and maturity. In our view, including a differentiation based on STC in that capital calculation helps to capture other important dimensions of risk related to structure, transparency and governance. Because one of our objectives is to broaden the investor base, it is important that the STC designation makes things simpler for investors, particularly non-banks. For example, they should be able to place greater reliance on it when conducting their own due diligence on matters covered by the STC criteria, such as risk retention. Investors would thus be in a position to concentrate with more confidence on other, existing due diligence requirements, such as in relation to the creditworthiness of the underlying assets and cash flows characteristics. The implementation process for the STC designation is therefore important. In our view, the primary obligation should be on the originator to attest compliance with the criteria. But this needs to be in the context of a regulatory regime with effective supervisory oversight and sanctions. We must also be careful not to label all non-STC transactions as “bad”.

In general, banks still provide loans to profitable enterprises. To sum up: The covered bond market provides investors with a broad set of investment opportunities, banks with cheap funding and house buyers with ample credit. At the same time, extensive regulatory measures safeguard the solvency and liquidity of the banking system as a whole. A well-capitalized banking system with stable and liquid funding options is a prerequisite for markets to develop and thrive. That includes the covered bond market. Thank you for your attention. 2/3  BIS central bankers' speeches  3/3  BIS central bankers' speeches