samchain/econo-pairs-v1 huggingface dataset:
Central banks: Observers or leaders of change? Published: 9/3/2023  Speech by Deputy Governor Sandra Švaljek at the Money Motion 2023 Conference on 9 March 2023 Dear guests, I remember when governor Vujčić stood here on Lauba stage in December 2020 at the time of Covid restrictions... Today, there are so many more speakers and participants here, many of you from abroad and I would like to congratulate organizers on that, and for bringing together banking, financial and fintech representatives all in one place. Moreover, having both challengers and incumbents here means there may even be a chance for a few of them to engage in coopetition. The Times They Are A-Changin' In recent years, we have seen many negative global developments, such as lockdowns, restrictions, supply chain bottlenecks, aggression in Ukraine, oil price shock and sanctions. On the positive side, technology is constantly changing and evolving, revolutionising how we live and work owing to pronounced advancements in computing power, AI and machine learning, 5G technology and cloud computing. It all profoundly affects how we perceive money. So, the name of this conference - Money Motion- precisely depicts the evolving and shape-shifting nature of money due to these developments. While the diffusion of technologies is accelerating as well, it is precisely in the area of payments where it is the most rapid. We are still determining what this will bring and which form the money will eventually take.

Adnan Zaylani Mohamad Zahid: Launch of the World Bank's Islamic Trade Finance Report Opening remarks by Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Launch of the World Bank's Islamic Trade Finance Report, 23 August 2021. * * * Thank you to the World Bank for inviting me today. I am pleased to be part of this event to launch the World Bank’s Islamic Trade Finance Report. The publication of this special report will provide greater insights into the substantial role that Islamic trade finance can play to support trade, foster growth, and accelerate post-pandemic recovery. I therefore, wish to congratulate the World Bank for this timely contribution towards advancing Islamic finance. It was recently reported by the World Trade Organization (W TO) that global trade in goods, which has been at record highs, could be near its peak. Some indicators point to a slowing with the outlook clouded by downside risks. The biggest threat being the pandemic which could undermine the recovery. Global trade, at least in goods, has been quite robust and resistant to the economic adversity that we see in general across many sectors and economies. Indeed, W TO still expects the volume of merchandise trade to hit 8% growth in 2021 after the 5.3% drop last year while the International Monetary Fund estimates expansion of 9.7 percent in 2021. As a trading country, Malaysia has certainly benefited from this despite the pandemic-related challenges to domestic activity.
I am confident that the FOMC’s gradual and predictable plan to normalize the balance sheet will reduce the balance sheet’s size at an appropriate pace, that it will promote good market functioning, that it will not disrupt the mortgage market or Treasury debt issuance, and, importantly, that it will mitigate the risk of sharp or outsized asset price reactions. I am also confident that the Federal Reserve is well prepared, both operationally and analytically, to identify, understand, and address unforeseen circumstances over normalization as directed by the FOMC. Finally, by accomplishing all these things, I am confident that the FOMC’s policy normalization plan should help promote the ongoing economic expansion. Early signs on this front are encouraging, with no to very modest financial market volatility around balance sheet announcements and the reduction in the balance sheet to date. It’s too early to declare success. However, should this stability continue, I believe the FOMC’s approach may offer useful lessons to other central banks which anticipate reaching a time of transition in their policy stance. Thank you for your attention. I would welcome your comments and questions. 5/7  BIS central bankers' speeches  1 I would like to thank John Clark, James Egelhof, and Deborah Leonard, for their assistance in the preparation of  these remarks, Adam Biesenbach for his assistance with the data, and colleagues in the Federal Reserve System for their insightful comments and suggestions. 2 The FOMC reaffirmed this policy in its November 1, 2017 statement and implementation note.

3 6/7  BIS central bankers' speeches  3 Potter, Gradual and Predictable: Reducing the Size of the Federal Reserve’s Balance Sheet, October 11, 2017. 4 See Potter, Implementing Policy with the Balance Sheet, November 6, 2017, for further discussion of lessons  from experience with balance sheet policy. 5 The maturity structure of the balance sheet was only loosely incorporated into the purchase plan. Purchases of  Treasury securities were targeted at maturity sectors; within each sector, specific issues were selected for purchase using a relative-value approach based on a spline fitted to market prices. Sack, Implementing the Federal Reserve’s Asset Purchase Program, February 9, 2011. Treasury securities acquired through reinvestment are purchased in proportion to issuance. Agency MBS purchases are distributed across instruments roughly in proportion to anticipated gross issuance of those securities at the time. Potter, The Implementation of Current Asset Purchases, March 27, 2013. 6 Early FOMC discussions of balance sheet normalization, then referred to as an “exit strategy,” were predicated  on an intention to return to, as put in the January 28, 2009, meeting transcript, “a more normal framework for conducting monetary policy,” which meant a return to an asset and liability structure closely resembling that which prevailed before the financial crisis. Normalization-related matters were discussed in the minutes to most of the FOMC’s 2009 meetings.
A few examples of structural factors include a demographic shift from working-age to older population, which swells up the volume of pension funds that need to fulfill their obligation to retirees; the rise of sovereign wealth funds in the era of high international reserves under rigid exchange rate arrangements; technological innovation and the decline in telecommunication, transport and other financial transaction costs from credit risk transfer mechanisms; and, capital account liberalization that have over the years eliminated a significant degree of cross-border financial friction. At the same time, the liquidity glut is also due in no small part to accommodative monetary policy in advanced economies, whether one looks from the angle of low interest rates or high money growth. BIS Review 98/2008  5  the foreign exchange market. Both of these actions are accommodative from a monetary policy sense and tend to sow the seeds for inflation down the road. And in the case where capital inflows are persistent, the flows may even induce authorities to make use of prudential measures, which can range from credit policy to capital account restriction on short-term inflows. The core issue facing emerging market central banks in the short run, therefore, is how best to contain financial vulnerabilities that accompany the volatility of short-term capital. On this issue, when the challenge is on the side of managing capital inflows, there are three key decisions that emerging market policymakers must face in the short term.

It is therefore important to focus on the process of implementing structural reforms and how to ensure that they remain on track. In what follows, I will discuss some of the complexities that arise on this issue and highlight some of the lessons learned from many previous reform efforts. The most prominent conclusion obtained from the literature on structural reforms is that they are difficult to implement. The first problem is that the gains from reform are hard to quantify because they are often indirect and thus rarely fully appreciated by the wider public. The enshrinement of central bank independence, for example, helps to insulate monetary policy from short-term political consideration and paves the way for monetary stability in the long run, but making a case for this in a non-technical manner to a wide audience, with conflicting interest, often proves a communication challenge for central banks. Next, the fact that many structural reforms entail short-run costs compounds the problem. The opening up of the domestic banking sector to foreign competition, for example, brings long-run benefits in terms of improved banking services but may adversely impact domestic banks’ profitability in the short-run. This time mismatch between the costs and benefits of reforms is a prime reason why they are hard to sell.
To get the full picture you need to take both into account, not just the partial impact of a change in the exchange rate but those of its underlying drivers as well. Take sterling’s fall in 2008 and 2009. One plausible explanation was that the financial sector is more important for the UK – notably its exports and the government’s tax receipts – than for other countries. So its economy and public finances were more vulnerable to the global financial crisis. The depreciation helped to cushion these effects but it wasn’t enough to outweigh them. The downturn was no less severe here than elsewhere, notwithstanding sterling’s fall. Sterling’s more recent decline was clearly prompted by the referendum result. It also seems likely that the foreign exchange market has decided the consequences are negative. The most plausible explanation for the depreciation is that, in the eyes of the market, leaving the EU will make exporting harder and more costly. To help compensate the currency needs to be cheaper. There are many important differences with 2008/09, of course. One is this: Brexit hasn’t happened yet. Back then sterling’s fall happened alongside its cause. On this occasion the depreciation reflects beliefs about a change in the UK’s future trading arrangements, but it’s acting on an economy where those arrangements are for the time being unchanged. The result – higher prices and profits but unchanged rules and costs – represents something of a sweet spot for exporters and businesses that compete with imports.

8  6  All speeches are available online at www.bankofengland.co.uk/speeches  6  There is ample empirical evidence of this channel in the data. Chart 5, for example, is a cross-country plot of relative price levels (the real exchange rate) against per-capita income. The latter is determined by whole-economy productivity. But much of the variation in aggregate productivity, across countries as well as over time, is in the tradable sector specifically. So the correlation is reasonably persuasive evidence of the 10  link between tradables productivity and exchange rates . And it’s quite possible that this is what lies behind sterling’s reaction to the referendum. Foreign exchange markets may believe that exiting the EU will in some way raise the cost of exporting – either directly, via the erection of barriers of one sort or another, or by depressing inward investment and productivity in the tradable sector (relative to that in other countries). What does the weaker currency do in the meantime? Some more exchange-rate economics I should emphasise at this point that what I’m musing about here are the implicit beliefs of the foreign exchange market. The specific question is why that market thinks the long-term consequences of leaving the EU warrant a lower sterling exchange rate. For its part the MPC has no particular expectation about the forthcoming negotiations. The currency market could turn out to have been too pessimistic. Two things are clear, however.
Their explanations emphasize different factors in the crisis, but one point on which there seems to be general agreement is that banks were at the heart of the problem. A highly stylized description of their role in the Asian crisis might run as follows. When banks are already weak, for example because of a high level of non-performing loans, an external shock such as an attack on the currency will severely damage confidence in the banking system. Banks will lose domestic deposits and will find themselves unable to rollover short-term external borrowing. The resultant capital outflows will put further downward pressure on the exchange rate, force up interest rates and drive down asset prices. The customers to whom banks have lent will get into financial difficulties, further weakening the position of the banks. With their capital and liquidity impaired, the banks are in no position to lend, and this leads to the phenomenon of the “credit-crunch” and resultant shrinkage of the real economy that we have witnessed in so many countries in the region. Banks can get into difficulties in many ways. But, as is usually the case, the principal culprit in banking weakness in the region was weak credit policies and procedures. Although the particular way this manifested itself varied from country to country, some of the common themes were as follows: •  First, banks overlent to unproductive sectors, notably the property and stock markets. This created the familiar pattern of boom and bust.

Mr Carse gives a speech on the subject of credit risk during the Asian crisis Speech by Mr David Carse, a Deputy Chief Executive of the Hong Kong Monetary Authority, at the Asian International Conference & Trade Credit Workshop in Hong Kong on 5 May 1999. Ladies and gentlemen, I am very pleased to have the opportunity to speak to you today on the subject of credit risk during the Asian crisis. Given the fact that just about every economy in the region has been affected by the crisis to a greater or lesser extent, this is rather a large topic; and I hope that you will forgive me therefore if I begin with some generalities about the region as a whole, but then make some specific observations based on my own direct experience of credit risk as it has affected banks in Hong Kong. Hong Kong is a melting pot of international and regional banks and you can be sure that any credit problems that surfaced in Hong Kong during the crisis manifested themselves elsewhere in the region, and probably in a much more virulent form. It is a sobering fact that we are only two months away from the second anniversary of the Asian crisis, and we are still analyzing what went wrong. Explaining the origins of the crisis has helped to maintain many academics, particularly in the United States, in gainful employment.
First, I want to look at the changes in the behaviour of the UK economy in recent years. How far is the improvement attributable to the MPC? Second, I want to review how the MPC has operated as a decision-making body. Has the process lived up to its billing as the most effective way of reaching technical judgements on the level of Bank Rate? Third, and most important of all, I want to consider the challenges to the MPC for the next ten years. What can we learn from the experience of the first decade that may help us to improve over the next? 1. Changes in the UK economy  In examining the first ten years of the MPC a natural starting point is to ask what has been its impact on the UK economy since 1997. The objective of the MPC is, of course, to meet its inflation target. Chart 1 shows that since the mid-1990s, inflation in the UK has been lower than for a generation. And  1  How a decision would be reached in such unlikely circumstances is explained in King (2002a). 2  Not-so-bad is an acronym for the “not of the same order but also desirable” decade. See King (2004). 3  I am indebted to Professor Peter Hennessy who, in his admirable book Never Had It So Good: Britain in the 1950s, drew attention to the context of Macmillan’s remarks which were made in a speech in Bedford on 20 July 1957.

Movements in the demand for broad money, relative to spending in the economy, reflecting changes in the way different assets and liabilities are used in transactions or shifts in portfolio preferences, have no implications for spending in the economy or the path of inflation. They make the relationship between money growth and inflation unpredictable. That contributed to the poor outcomes when explicit money supply targets were used to guide monetary policy in the late 1970s and early 1980s. Changes in the supply of broad money, however, will lead to an imbalance in the relationship between money and prices. Either spending and the price level will adjust or the central bank will have to alter its policy rate to eliminate the change in the supply of money. The practical problem facing all central banks is how to distinguish between shocks to the demand for money and shocks to its supply. After a period of rapid financial innovation during which shocks are predominantly to the demand for money, it is understandable, though unfortunate, if monetary developments are given insufficient attention in the analysis of the inflation outlook. How should a policymaker respond to developments in money and credit? One approach is to ignore them on the grounds that they contain no incremental information about the outlook for inflation. This approach – which is compatible with many modern models of inflation – may well appear appropriate when money growth is associated with shocks to the demand for money that have few, if any, implications for spending and inflation.
Concluding remarks By way of conclusion, there are a number of issues on which we need to evolve our thinking. I believe that the contributions to this conference have indeed succeeded in capturing the most important and relevant ones. 2  See, for example, Fischer, S. (1996), “Why Are Central Banks Pursuing Long-Run Price Stability”, in Achieving Price Stability, symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming. A recent reference that has brought the problem to the fore once again is Faust, J. and D.W. Henderson (2004), “Is Inflation Targeting BestPractice Monetary Policy?”, Federal Reserve Bank of St. Louis Review 86(4), 117-143. BIS Review 45/2005  3  One of the most central from my point of view concerns, as I have indicated, the balance between inflation stability and output stability - both in terms of the most appropriate way to accommodate it in the practical policy and the best way to communicate it. Although there is hardly any doubt that “we are all flexible inflation targeters now”, how can we progress as regards concretising this flexibility in action and communication? Another interesting question is whether inflation targeting is better suited than other regimes when it comes to anchoring long-term inflation expectations. I have always thought so myself, but it is of course an issue that requires empirical investigation.

One might also ask whether inflation targeting, even if it should have succeeded in anchoring long-term inflation expectations, can become better than it is today at facilitating the formation of expectations in the near and medium term? This relates to an issue that is addressed in several of the contributions, namely how we should best communicate our expectations and plans regarding the future conduct of policy. Recently, a number of central banks have begun to depart from the assumption of an unchanged policy rate in their forecasts, choosing instead to work with paths for future interest rate developments. What kind of interest rate paths should we use in that case - “exogenous” paths based on implied forward rates or “endogenous” paths that reflect the central bank’s own expectations and plans, and what are the advantages and disadvantages of both options? And could, for example, an excessive degree of openness and detail as regards the central bank’s own expectations risk increasing market volatility instead of facilitating economic agents’ planning? These are just a handful of the issues that are addressed in the contributions to the conference and that I hope will provide the basis for a rewarding discussion. Once again - you are all very welcome! 4  BIS Review 45/2005
Conceivably, too, such a failure could have such serious consequences for the liquidity of - or price level in some particular sector of the financial markets, that concerns would arise for the liquidity, or solvency, of other bank or non-bank institutions that were known, or believed, to be heavily exposed to that market. In this sense size does matter - and, whether or not one chooses to describe the risk of this happening as systemic, there is no doubt that a sufficiently large disturbance originating in the non-banking activity of one financial institution could put others in difficulty. This possibility must be of concern to financial regulators, including central banks, concerned with the stability of the financial system as a whole. It certainly in my view provides macro-prudential justification for regulatory oversight of the activity of (large) non-bank financial institutions, and of the non-banking activities of banks - quite apart from micro-prudential regulation in the interests of consumer protection. It provides justification, too, for some form of consolidated prudential oversight of multifunctional financial groups and for monitoring large exposures, both intra-group and to outside counterparties. Where a problem of this sort does arise, it may well justify technical central bank intervention to help contain it - for example by facilitating payments and settlements to minimise market disturbance.

In this latter context banks have traditionally played a key role in financing the corporate and household sectors, earning their return by gathering information about, and assessing and monitoring, the creditworthiness of private sector borrowers, especially those who do not or cannot cost-effectively provide the comprehensive, public, information that would allow them to access the capital markets. Much of the banks’ lending, while nominally at short-term, for example in the form of callable overdrafts, is in practice illiquid and non-marketable. So a further  BIS Review 13/1997  -2-  distinctive characteristic of banks is that they typically function with a mismatch between their highly liquid liabilities and their less liquid, non-marketable, assets. There is no need, I think, to labour the importance to the economy as a whole of these distinctive banking functions, or the damage that would be caused if the banks’ role - as the repository of liquidity, as the core payments mechanism, and as the principal source of finance to at least a large part of the economy - were seriously interrupted. That in itself helps to explain the public interest in the effective functioning of the banking system, or why banks collectively have been regarded as special. But beyond that, the distinctive banking characteristics that I have described, of liquid liabilities and less liquid assets, give rise to special needs. Given the banks’ role in the payments system they may need late access to liquidity to square their positions vis-à-vis each other after executing payments instructions on behalf of their customers.