samchain/econo-pairs-v1 huggingface dataset:
Prasarn Trairatvorakul: Achieving Thailand’s true growth potentials – the role of the central bank Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the Thailand Focus 2014: Reforming for Sustainable, Bangkok, 27 August 2014. *  *  *  Ladies and gentlemen, I am very honored and pleased to be addressing you at Thailand Focus once again. I would like to thank the Stock Exchange of Thailand, Phatra Securities and Bank of America Merrill Lynch for arranging what has become the must-attend forum on investment, policies, and the Thai economy. This year’s topic, potential growth, has gained new dimensions on the world stage since the Global Financial Crisis. Through harsh experience, advanced economies have learned that their long-term growth potentials may have been diminished by a protracted period of sub-par short-term growth. This idea of “secular stagnation” which went back to Alvin Hansen during the Great Depression and brought back to the spotlight last year by Larry Summers has now been widely discussed in the media as well as policy circles. While our situation is different from the West, Thailand has also been experiencing sub-par growth during most of the past seven years. As the economy now wakes up from the third contraction since 2008, it is natural to ponder about the economy’s growth going forward. Ladies and gentlemen, I am most pleased to have this talk with you today because the Bank of Thailand stands between short-term hiccups and Thailand’s long-term growth, bringing decades of experience in economic stabilization.

Therefore, cooperation of financial and business sectors is vital for lifting growth potential. The private sector needs to add more value to products and services by having long run commitment and investing in both physical and human capital, for example, high technology machinery, employee training as well as research and development. In order to support this, the public sector and Bank of Thailand can improve accessibility to sources of funds, especially for SMEs, and lower the costs of long-term investment. Ladies and Gentlemen, The Bank of Thailand pursues economic growth as part of its commitment to sustainable well-being. Economic growth, as discussed today, is maximized by keeping growth close to potential as well as lifting growth potential itself. The central bank can contribute to growth potential by stabilizing the overall economy. The Bank of Thailand has looked after growth, price, and financial stability during the downturn, leaving the economy on a more confident track to recovery. As for raising growth potential, cooperation of all sectors is needed, while the central bank provides a favorable financial environment which is prerequisite. In the football game of the economy, the Central Bank acts as Center Back. In order to safeguard stability during the recent circumstances, we have played a proactive role due to high economic uncertainty. Now that political and economic clarity is higher, the central bank will play a supportive role.
In comparative terms, the assistance granted in the form of capital in Spain (FROB and FGDEC), amounting to 6% of GDP, is similar to that provided in Belgium and the United Kingdom, somewhat higher than that furnished in Germany and the Netherlands, where it stands between 2% and 4% of GDP, and clearly below that made available in other countries such as Cyprus, Greece and Ireland, where it accounts for between 11% and 38% of GDP, according to European Commission figures. This most sizeable contribution of taxpayer funds can be justified by the need to mitigate the harm caused by banking crises to the economic system as a whole via the effects on the confidence of bank customers and the proper functioning of financing flows in the real economy. That said, in view of the enormous impact the crisis has had on numerous countries’ public coffers, the international regulatory community is developing new resolution regulations – largely already incorporated into our legal system – which should in future allow for the management of banking crises with much less involvement of public funds. In any event, the clean-up and recapitalisation of the Spanish banking system goes far beyond the measures taken by the public sector. The strengthening of balance sheets has been across the board in the entire industry, which has resolutely set about raising provisioning substantially and increasing its own funds. Hence, since 2008, the sector has set aside provisions for outstanding loans or foreclosures for more than € billion.

With the social need to ensure general access by the population to financial services having largely been met, an area in which the savings banks have undoubtedly made a historical contribution, the endowment and management of the welfare project fund – which should be maintained given its great public usefulness as the distinguishing mark of the foundations – can be perfectly fulfilled, and indeed strengthened, on the basis of the return on diversified assets that do not necessarily comprise a controlling position in a specific bank. 4. What results have been achieved? I consider that the effort made has essentially enabled the objectives set to be achieved. This has been corroborated by the assessments made both domestically and by international organisations. In particular, the ECB’s comprehensive assessment of banks at the end of last year, as part of the groundwork for the start-up of the Single Supervisory Mechanism, was illustrative in this respect. As you will recall, the comprehensive assessment exercise comprised two legs: an asset quality review and a stress test. The asset quality review revealed that Spanish bank balance sheets broadly reflected the risks derived from their investment with greater rigour than that observed in other jurisdictions, with fewer shortcomings having been detected in respect of valuation or provisioning for the exposures analysed. Hence, the incidents encountered in this review subtracted, on average, 14 bp from Spanish banks’ common equity tier 1 (CET1) ratio, compared with an average impact three times greater at the participating European banks.
During the transition, the supply capacity of the economy accordingly increased by more than would otherwise have been achieved; and any given increase in real aggregate demand would have put less pressure than otherwise on supply, and so would have had a weaker effect on firms’ costs and prices. That does not mean, however, that the feed through of demand pressures into inflation will be permanently weaker. Instead, the apparently flat relationship, illustrated in Chart 3, between unemployment and wage inflation is, at least in part, most probably a symptom of the sustainable level of unemployment having gradually fallen. That is effectively what the MPC has assumed in making judgments about the outlook for inflation. We can be reasonably confident about the direction of change, but not about its size. That can be illustrated by the current conjuncture. Over the past few years, there have been at least two other influences at work. First, for some years we enjoyed an improvement in our ‘terms of trade’. That meant, simply put, that the aggregate price of the goods and services we produce and export rose relative to the aggregate prices of our imports. This increased the purchasing power of households’ incomes (Chart 9), and so may have dampened wage pressures as the labour market tightened. To the extent that this explanation should be given any weight, it would tend to be a temporary factor, pointing to an upside risk to earnings growth looking ahead. A second apparent feature of our environment works the other way round.

Based on an assumed product ion funct ion which describes t he relat ionship bet ween input s - labour and capit al - and out put . T he measures show est imat es of t he changes in out put est imat ed t o be due purely t o changes in t he ut ilisat ion of t he input s.  BIS Review 16/2005  17
Churchill apparently uttered in 1925 that he “would rather see finance less proud and industry more content.”  4  Currently no exact definition of the “shadow banking system” exists. According to the FSB, it can broadly be described as “credit intermediation involving entities and activities outside the regular banking system” (See Shadow Banking: Strengthening Oversight and Regulation, Recommendations of the Financial Stability Board, 27 October 2011). 5  Financial Stability Board: Key Attributes of Effective Resolution Regimes, 4 November 2011. 6  See Frankfurter Allgemeine Sonntagszeitung, 30 October 2011. 4  BIS central bankers’ speeches  The negative perception of the financial industry often focuses on compensation practices. In fact, commentators have frequently expressed their scepticism on whether the activities of bankers and market players deserve those high wages and bonuses compared to the economic rewards earned in other industries. Already Keynes wondered “… how long will it be necessary to pay City men so entirely out of proportion to what other servants of society commonly receive for performing social services not less useful or difficult?” It is by now well understood that excessive wage and bonus packages in some segments of financial markets have encouraged irresponsible risk-taking. Thus, incentives were set inappropriately. Against this backdrop, it comes as no surprise that the overhaul of compensation practices in the financial sector appears to have dragged the most broadbased public attention among all the components of the financial sector reforms.

As Raguram Rajan summarized in his book “Fault Lines”: “The financial sector is, in many ways, the brain of a modern economy. When it functions well, it allocates resources and risk effectively and thereby boosts economic growth. [...] It works for all of us. Of course, when it works poorly, as has done recently, it can do enormous damage while befitting a very few.”12 Part of the failures was certainly attributable to deficiencies in financial regulation and supervision. The regulatory overhaul of the financial sector is intending to correct this and thus help the financial sector to refocus on its servicing role. 10  See Schumpeter, J.A. (1934), “The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycle”, Harvard University Press. 11  For this list of functions see Levine, R. (2005), “Finance and Growth: Theory, Evidence, and Mechanisms”, in P. Aghion and S. Durlauf (eds), The Handbook of Economic Growth, North Holland. 12  See Rajan, R.G. (2010), “Fault Lines”, Princeton University Press. 6  BIS central bankers’ speeches    Strengthening of bank capital and liquidity standards,    addressing systemically important financial institutions,    improving over-the-counter infrastructures,    and a reform of compensation practices, that I mentioned before,    these are all important elements in this process. derivatives  markets  and  core  financial  market  At the same time, regulatory reforms themselves require regular revaluation.
But looking forward, given the size of the OTC derivatives markets and the participation of hedge funds in those markets, it is worth reflecting on whether central counterparty clearing arrangements for the more standardized portion of the OTC derivatives market could play a useful role. Certainly, there are many challenges associated with such a project, and its potential to mitigate risks effectively would have to be clearly demonstrated, but surely it is worth looking carefully at whether that or similar efforts could provide meaningful improvements to the core infrastructure of what is undoubtedly a systemically important set of markets. Taken together, these areas of focus are important to ensure that there is adequate capital not just against growing direct exposures to hedge funds, but the indirect exposures that could affect market conditions and firms’ positions in a more stressful environment. We believe that the dealers that act as major counterparties to hedge funds have a collective interest in improving market practice in these areas. This is a good time for them to reassess how practice has evolved against the standards set out by the CRMPG in 1999, and to examine whether the bar established at that time is appropriate for the conditions that exist today. It took a major market event to expose the extent of weaknesses in market practice that prevailed prior to 1998 and to catalyze improvements across the financial community.

Those reforms have played an important role in reducing risk in the system, alongside the overall improvements in capital, risk  4  BIS Review 70/2004  management, and the financial infrastructure. Further progress in strengthening risk management practices is an investment worth making, particularly at a time when the markets appear to be pricing in a relatively benign view of risk in the financial system and in the economy overall. BIS Review 70/2004  5
It is important to note that in our case, the objective was not to expand the monetary base. Central bank money created through these purchases has been sterilized. There have been some criticisms against this bond buying program. But it is; in my view, totally justified by our primary mandate. Faced with a clear risk of completely disrupted financial markets, and with huge divergences in credit market interest rates, the ECB was in danger of not being able to implement a truly single monetary policy, nor to meet its primary mandate, i.e. maintaining price stability over the medium term in the whole of the euro area. There have been calls for more. Both markets and some governments seem to consider that the ECB should take a more aggressive stance in buying public debt. Let me give you some perspective on the issue. In some jurisdictions, unconventional monetary policies have led central banks to purchase significant amounts of government debt – these purchases amount to 58% of total debt issued since 2009 in the UK, 21% in the US and between 9 and 10% in the euro area (there was a monetary policy objective in all cases). Although this was not the primary purpose, this policy stance has contributed to providing markets with an insurance, or even an assurance, against a potential dry-up in liquidity. In countries where significant amounts of debt have been purchased by monetary authorities, long-term interest rates have been kept at very low levels, irrespective of their fiscal situation.

In current, unstable circumstances, what role should the central bank play? Monetary policy should certainly stick to its mandate and ensure price stability in the medium run. In Europe, with financial conditions tighter as a result of the explosion in sovereign spreads, increased uncertainty and loss of confidence, – as shown by the fall in most indicators – there are now more downside risks to price stability. It was therefore appropriate to lower our policy rates by 25bp, a decision reached unanimously by the Governing Council. Second, we need to ensure that the banking system has access to liquidity –what is sometimes called the role of lender of last resort of the central bank. In this respect, the  BIS central bankers’ speeches  3  Eurosystem has confirmed its policy of providing unlimited liquidity – at fixed rates – to the banking system until at least until the end of Q2 2012. Collateral policy has been adjusted to avoid the shocks and liquidity squeezes borne out of rating changes. Dollar funding, based on the existing swap with the Federal Reserve, has also been made easier. Finally, in a period of intense market disruption, it is essential to ensure that the monetary policy transmission mechanism actually works. This may involve temporary and exceptional interventions on those market segments where dysfunctions are most apparent. This is the purpose of the Securities Markets Program (SMP), initiated in May 2010 by the Eurosystem.
Much can be done by individual governments to craft exchange rate policies that truly 7  BIS Review 53/1999  complement economic fundamentals. But actions by individual jurisdictions can only go so far towards tackling problems that also arise from defects in the international financial architecture and not just out of local imbalances. Reforms to the international financial architecture are needed to help ensure that capital flows reinforce, rather than undermine, monetary stability. In the long run, we should also be looking towards a more sophisticated and solidly based regional financial system: this would include taking further the debt market and infrastructural development that is already in progress, as well as greater monetary cooperation - perhaps, on the distant horizon, even monetary union. For Hong Kong’s part, the experience of the last two years has left us more firmly convinced of the appropriateness of our linked exchange rate system to the special needs and characteristics of Hong Kong’s economy, and more confident in our ability to defend the link under the currency board arrangements. I am not so complacent as to suppose that there is no room for improvement, and we continue to explore ways of refining the system. Nor do I suggest that such a system is suitable for every economy in the region. But I believe that it has provided Hong Kong with the anchor of monetary stability that such an externally oriented economy needs, particularly during these years of global instability.

This is precisely the aim of this conference. I thank you for your attention. BIS Review 108/2006  3
Percent 8  8  7  7  6  6  5  5  4  4  3  3  2  2  1  1  0  0  –1  US UK Euro area Norway  –1 2015  2016  2017  2018  2019  2020  2021  2022  Sources: Refinitiv Datastream and Statistics Norway  8  Inflationary pressures abroad do not only stem from electricity prices. High demand, stimulated by very loose economic policy, is also part of the backdrop. At the same time, global supply chain disruptions have caused delays in the production of a range of goods. Freight rates and commodity prices have surged, and the associated increase in costs is being passed on to other prices. Labour markets have also tightened in many countries. Wage growth in the United States has accelerated after many years of moderate pay increases for US workers. NORGES BANK ECONOMIC PERSPECTIVES 17 FEBRUARY 2022  There is therefore growing international concern about whether inflation will remain elevated, and several central banks have started the tightening cycle sooner than indicated earlier. The longer the mismatch between supply and demand persists, the greater the risk of higher inflation. With fewer pandemic-related restrictions, some of the demand will likely shift back from goods to services, which could dampen pressures in goods markets. On the other hand, households have substantial savings that can be used to increase consumption when society reopens.

Frozen capital markets threatened even solvent banks. At an early stage, there were fears that the pandemic that hit us in 2020 might also trigger a financial crisis. Three different situations, but one common endeavour for central banks: The financial system had to be protected. At the start of the pandemic, access to market liquidity was narrow, and the price of available capital was disproportionately high. Norges Bank stepped in and provided additional liquidity support to the banks (Chart 2). The purpose was to contribute to smooth market functioning and ensure that the policy rate cuts passed through to the interest rates faced by households and businesses. 3  NORGES BANK  Chart 2 Additional liquidity support during the pandemic  ECONOMIC PERSPECTIVES 17 FEBRUARY 2022  F-loans. In billions of NOK 200  200  150  150  100  100  50  50  0 Jan-20  Apr-20  Jul-20  Oct-20  Jan-21  Apr-21  Jul-21  Ordinary F-loans Extraordinary F-loans  0  Source: Norges Bank  The actions taken build on several important principles:3 First, the risk transferred to the central bank should be as low as possible. If the support schemes are too favourable, we risk undermining the banks’ own motivation to maintain sound credit and liquidity policies. Those who take risks must also be prepared to bear the losses. Second, loans should only be given to banks that are solvent. The central bank’s role is not to help recapitalise banks.
According to a simulation by the World Bank, if the number of immigrants in wealthy countries keeps growing by 2025 at a pace slightly lower than the average over the past three decades (which, being a very prudent assumption, means that over 14 million people will move from the developing to the developed countries, and even more taking into consideration their family members), the global income will increase by 0.6%, of which by 1.8% in the developing countries and by 0.4% in wealthy countries. Migration should also be analysed by central banks, as it may influence relative price developments and the general level of prices. According to estimates by the World Bank, migration causes a slight decline in the general level of prices in the developed countries, whereas the decline is larger in services (such as health services, services in the construction industry, and leisure), and the largest – in the economy sector for which no data is typically available, i.e. the domestic help (babysitting, cleaning, etc.). As opposed to other world regions, the flow of persons across the countries of the EU has been stable. Annual net migration to the EU15 has remained at a level below 5 persons per 1000 inhabitants over the past 40 years. Ca. 9% of the UE population was born in countries other than those in which they currently live, whereas in the US this figure stood at 12% and in Canada and Australia at 20%.

Do we use the potential lying in the Polish universities (e.g. Poles that study in China or India and their counterparts studying in Poland)? -  What is the role of trade unions? Should they add to their mandates, so far involving the defence of employee rights, informing employees of the anticipated changes and preparing them for the changes, e.g. through providing appropriate means for re-qualifying and training? -  Do we have a policy to tackle the imminent mass migration, mostly from Asia and Africa, over the forthcoming decades? How should we provide social integration of immigrants so as to help them become Polish global patriots? How can we mitigate the possible pressure on social expenditure due to the immigration of poorly qualified workforce, and how can we attract highly qualified staff to move to Poland? -  Do we sufficiently consider global factors, especially the involvement of countries with low manufacturing costs to the global manufacturing, services, knowledge and labour markets, in our strategic planning, both at the country and corporate level? -  Are we able to anticipate Poland’s specialisation on the global market, with the view to the demographic trends, and do we invest sufficient funds to develop such areas, at the expense of the discontinuing areas?