samchain/econo-pairs-v1 huggingface dataset:
Jean-Pierre Roth: Recent economic and financial developments in Switzerland Introductory remarks by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the half yearly media news conference, Geneva, 19 June 2008. *  *  *  The Swiss National Bank (SNB) is leaving the target range for the Swiss franc three-month Libor unchanged at 2.25-3.25%. It intends to hold the rate in the middle of the target range for the time being. Despite a slowdown in economic activity, the global economy remains robust and the price of oil has continued to climb. This has led to a general increase in inflation. The situation on the financial markets is still uncertain, but less turbulent than it was a few months ago. Although the Swiss economy has also grown at a slower pace, the SNB has not changed its forecast of real GDP growth of between 1.5% and 2% for 2008. However, it has increased its inflation forecast and is now expecting an average rate of 2.7% in 2008. Nevertheless, assuming that the Libor remains unchanged at 2.75%, inflation should edge back down to 1.7% in 2009 and 1.3% in 2010, as a result of the expected economic downturn. Considerable risks are attached to this inflation forecast. Stronger price increases are likely, should energy prices rise again or the Swiss franc depreciate on the foreign exchange market.

To date, though, we do not yet observe trading in these instruments in the secondary market. 15 Importantly, we have succeeded in increasing the stock of outstanding reserve-absorbing operations without depressing interbank activity. As Slide 14 shows, trading volume in the interbank money market even increased temporarily following the rate hike. It has remained solid since then, ensuring a robust calculation basis for SARON. The stock of outstanding repo transactions in the overnight segment is currently close to 10 billion Swiss francs, which is near the year-to-date average in this market segment. The pass-through of our September rate hike has also progressed well in other money market segments. For instance, as we show in Slide 15, overnight rates in the unsecured money market also shifted up significantly during the first business day on which the positive policy rate went into effect. We have also seen a good pass-through to SARON-based swap rates, as the 1-week rate, the green line on the slide, illustrates. Naturally, as swap rates incorporate  15  Some banks, however, do seem to be interested in secondary market trading, as they have begun placing quotes for SNB Bills. Page 8/10  expectations of future overnight interest rates, the 1-week swap rate had already increased before the monetary policy assessment in September. On the slide, we also show the 1-week implied rate from USDCHF FX swaps. This rate is generally somewhat lower than the other Swiss franc money market rates.
In terms of the different agents, a deficit target, in National Accounts terms, of 3.8% of GDP is proposed for central government and the Social Security system, compared with a deficit of 4.5% of GDP projected in 2012, which would represent an improvement of 0.7 pp of GDP, similar to that projected for the regional governments, which should reduce their deficit from 1.5% in 2012 to 0.7% in 2013. The adjustment would be completed with the projected reduction of 0.3 pp in local government to reach a balanced budget in 2013. Revenue On the revenue side, this budget tightens the fiscal pressure both in terms of direct and indirect taxation, with a range of new measures. Furthermore, it should be recalled that, in 2013, the measures approved in 2012 in relation to higher personal income tax rates, the increase in the rate on income from fee-earning activities, changes to corporate income tax and the rise in VAT rates will still have a significant impact. Despite the background of recession, the tax take is projected to increase overall by 3.7%. The net effect of all the tax regulation measures with an impact in 2013 is estimated to be approximately € billion. Net of this impact, revenue would fall by 0.5%. As for the Social Security Budget, the 1 pp reduction planned last July is postponed or ruled out, and a 1.1% fall is projected in 2013 in total social security contributions compared with the initial budget for 2012.

In the fiscal consolidation process, the long-term perspective is fundamental. Over this horizon, it is well known that the biggest challenge to public finances stems from the pressure that population ageing will exert on specific expenditure items, particularly pensions spending. Following the Social Security reform approved in July 2011, a specific definition is  4  BIS central bankers’ speeches  now needed of the so-called “sustainability factor”, which should result in an automatic adjustment of the system’s parameters if imbalances are detected in the long run. The 2013 budget Before moving on to the Budget for 2013, I would like to specify the framework for debate of the draft legislation. Spain is a very decentralised country in terms of public spending, more so than certain countries with a federal political structure. Currently, almost half the consolidated public spending in Spain, i.e. net of transfers between general government sectors, is by regional and local government. Based on figures for 2011, central government was responsible for only 22% of total public spending; regional government for 34%; local government for 12%; and the Social Security system for 32%. That is to say, overall central government and social security spending in 2011 accounted for only 54% of the total, while that of regional and local government amounted to 46%. The picture given by the State and Social Security Budget is thus necessarily incomplete in respect of overall general government spending.
Another difference is that, transactions associated with TF may be conducted in very small amounts, which when not viewed in the TF context could be the very transactions that are considered as low money laundering risk. Therefore we have chosen to assess money laundering and terrorist financing risks separately. Methodology of the NRA The methodology used in conducting this NRA is loosely based on factors used in the World Bank’s NRA tool and the Asia and Pacific Group on Money Laundering (APG) Strategic Implementation Planning Framework. The NRA is largely a combination of quantitative and qualitative assessment. It draws together statistical information from across key government ministries, supervisory and regulatory authorities (SRAs) and LEAs. Statistics on the mutual legal assistance requests received from other countries and the types of matters to which the requests relate to, and the financial intelligence requested or disclosed by the foreign FIUs are used as indicators as to the level of foreign proceeds of crime being laundered in Malaysia. This is complemented by qualitative information sources such as perception surveys involving respondents from officers of the LEAs, reporting institutions and foreign FIUs, intelligence insights, independent and external studies and public information on current and emerging threats to form a consolidated picture of the country’s money laundering and terrorism financing environment. The findings were then validated through a focus group involving subject matter experts from amongst the NCC members.

•  Fabrication demand for gold, by contrast, for jewellery as well as for industrial uses, has contracted in recent months. In the industrialised countries, this decline has been mainly brought about by the economic slowdown. The high gold price, however, has also played a role, especially in developing countries. In countries such as India, which accounts for a quarter of gold demand, the precious metal is held in the first place for saving purposes. Investors use a more or less fixed portion of their disposable income to purchase gold. In times of rising gold prices, investors buy correspondingly less gold. From these developments we can draw two conclusions: •  In the long term, the main elements influencing gold price expectations are changes in private investors' demand, mines' production costs as well as the central banks' fundamental attitude towards their gold reserves. •  In the short and medium term, any change in producers' hedging policies and in the central banks' gold holdings, as well as speculative demand can trigger noticeable shifts in the gold price. These price movements, both upward and downward, may be relatively significant because the gold market is not very liquid, as experience has shown. Under this point of view, the central bank gold sales agreement of September 1999 has had a stabilising effect, since it has made the operations of central banks transparent and eliminated an important source of uncertainty. Our sales will continue until we have completed our programme, i.e. until we have sold 1,300 tonnes of gold.
8 It is important that the Riksbank understands these changes, both to be able to conduct an effective monetary policy and to be able to identify risks on the financial markets. In other words: the Riksbank must be able to manage the economic consequences of climate change. 6 Some people talk about central banks’ role being not just “lender of last resort” but also “market-maker of last  resort”. See, for example, the Bank for International Settlements (2014). NGFS (2019) talk about physical impacts and transition impacts, respectively. 8 See Cœuré (2018). 7  4 [7]  Should the Riksbank buy green bonds? Another question that is sometimes discussed is whether the central banks themselves should try to affect climate change. This usually involves two different directions. The first is regulating the financial markets to steer investments in a more sustainable direction. In many countries it is the central bank that is responsible for this type of regulation, but in Sweden it is the responsibility of Finansinspektionen (the Swedish financial supervisory authority). The Riksbank does not have any of these tools at its disposal. The second direction concerns the central bank’s own investments. After the financial crisis, many central banks, including the Riksbank, built up large balance sheets through asset purchases. Shouldn't these purchases reward sustainable assets, for instance by focusing on green bonds? This is a question faced by central banks today, and the answer is not evident. I shall try to describe my views on this.

My predecessor at the helm of the Dallas Fed, Bob McTeer, used to say, “The first rule of forecasting should be “don’t do it.” The second rule, he would add is, “If you give a number, don’t give a date.” But given the assignment to venture a vision as to where the fed funds rate would be in each of the next three years and over “the longer run” to the nearest onequarter of one percent, the 17 intrepid souls of the FOMC, including yours truly, did so. Only three envisioned that the fed funds rate might rise from current levels by year-end 2012; six saw it doing so by year-end 2013 and 11 by year-end 2014. Over the longer term, the 17 members envisioned a funds rate of between 3¾ and 4½ percent. Bob McTeer’s admonishment clearly does not resonate with the FOMC. And yet I would caution, again, that at best, the economic forecasts and interest-rate projections of the FOMC are ultimately pure guesses. I have yet to find a single economist on this planet who consistently forecasts the economy accurately, let alone projects with any precision the interest rate on overnight funds one year out or far into the future. If you examine the record of the Blue Chip economists or even of our superb Federal Reserve staff, you will find confirmation of a paucity of reliable economic forecasts.
The underlying causes of this phenomenon are interactions, feedback loops and amplifiers that exist within the financial system that can act as turbo chargers in both directions;  •  the aim of macroprudential authorities should be to prevent these dynamics from driving up financial stability risks in good times and driving the system down in bad times. That requires not only setting the overall framework of standards and regulation in the right place to address systemic risk; it requires also adjusting the framework in response to the buildup of risk as the turbo chargers inherent in the financial system begin to kick in; and  •  a recognition that what distinguishes “macroprudential” from “microprudential” and from “macroeconomic” is its objective of financial system stability rather than the instruments it deploys. Macroprudential authorities like the FPC use many of the same instruments as microprudential regulators such as bank capital standards. And in the very final resort, monetary policy may need to be used to counter financial stability risk. But the objective of ensuring the financial system as a whole is stable is different to the objective of promoting the safety and soundness of individual firms or that inflation is kept at target. With the benefit of hindsight, policymakers and regulators should all have paid a great deal more attention to these ideas in the early years of the century while the great financial crisis was in the making.

There is now a growing body of evidence on the very damaging impact of financial crises on the productive capacity of economies. Third, we should not imagine that there is some recent halcyon world of banks supporting the real economy to which we can quickly return if the regulatory straitjacket is loosened. The system was badly distorted in the long run up to the crisis. The post crisis world requires a major adjustment in bank business models. This is not some unintended consequence of overzealous regulation. It is a necessary, if painful adjustment to a new reality. Some numbers from the UK illustrate this point starkly. In the long upswing of the credit cycle, the stock of domestic lending by UK banks in the UK grew enormously from 95% in 1997 to 170% of GDP in 2008. The stock of non-property lending to companies as a proportion of GDP, however, grew only modestly from 19% in 1997 to 23% in 2008. Meanwhile, mortgage lending increased from 45% to 70% of GDP; lending to real estate tripled from 5% to 15% of GDP; and lending to the UK non-bank financial sector – including institutions like hedge funds, securities dealers and insurance companies – shot up from 25% of GDP to 60%. And these numbers do not count the explosion in UK-owned banks’ overseas exposures which more than quadrupled between the end of the 1990s and 2008.
The usual strategy adopted by governments to attack poverty has been the attainment of a high economic growth continuously over the long run. With that growth, it is expected that the benefits of economic uplifting would trickle down to lower levels of the society. As a result, the overall economic conditions of all segments of the population would elevate to a higher level. It will kill the absolute poverty levels. Some good examples are countries like Malaysia and South Korea. Both these countries were able to reduce absolute poverty from a very high level of over 50 percent to a very low level below 6 percent within about four decades. If macroeconomic growth can tackle poverty, the n why should one be bothered about microfinance? The reason is very clear. When macro-policies are adopted, there are certain gaps that are created in the alleviation of poverty. As a result, some segments of the society would experience a worsening of their situation. This is because all the people in a society are not capable of moving along with the market at the same speed. Some move faster than the market. They are the super-performers and stand to gain more. Some move at the same rate as the market. They attain a gain more or less equivalent to the market performance. There is no problem about both these categories. That is because they have the capacity to look after themselves.

In time, several aspects of transition differed from one country to another: smaller countries, such as the Baltic states or Slovenia and Slovakia, opted for a fast track towards Eurozone entry, inter alia because of geopolitical and security reasons, while states with larger and more complex economies, such as Poland, Hungary, Czechia or Romania, focused their efforts more on internal development. For instance, in Poland there is talk of “Polish-ization” and “nationalisation” of development, the spotlight being on the requirement to increase the country’s power resources: “if you cannot stand on your own feet, no one will listen to you”. In Romania, we had a very difficult transition in the first post-communist decade, with half-hearted, gradual reform, yet after 2000 our economy has evolved more coherently, having two important anchors: the EU and NATO. Events that were hard to foresee in the early ’90s took place as well. For instance, who would have thought that Slovakia, the less developed part of Czechoslovakia, would join the euro area and Czechia would not? Under the circumstances, does euro adoption testify to a high development level?
This in turn could create a drag on real economic activity and productive investment that cannot take place without appropriate insurance coverage. Equally, there is a risk that supply will be curtailed. As a result of potentially large and unintended accumulations, insurers will naturally take actions to limit their future exposure. This could be in the form of tighter policy wordings, exclusions, withdrawal of capacity or significant price rises, reducing the availability and affordability of non-specific peril cover and creating an increasingly concentrated market. For example we know that on average, D&O (Directors’ and Officers’ protection) premiums have doubled this year.1 To some extent this is of course individually sensible risk management, and it is right that insurers consider the broader lessons from recent events about the potential contract uncertainty within their portfolios, and take  1  See Financial Times article (September 2020): 'Cost of insuring board directors from lawsuits doubles in Covid era' 3  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  3  steps to reduce this. But there is a risk of excessive risk aversion and an overshoot leading to an aggregate reduction in supply that damages recovery. It is not impossible to transform a seemingly uninsurable peril into a diversifiable, insurable one. Cyber risk is a helpful example. A severe, global cyber event causing systemic losses is considered uninsurable – the risk does not diversify, and the industry’s capital could never be sufficient.

There are a number of industry initiatives across the world to explore further public-private partnerships to provide ultimate backstop for systemic losses. Clearly there is a limit to the size of losses that private insurance capital can cover, and it is worth exploring whether an explicit public-private backstop along similar lines to Pool and Flood Re in the UK is one way of mitigating the risk of a shock to supply of insurance. But we should be mindful of the risk of moral hazard and of crowding out private capital. To return to the example of cyber risk, the industry is now able to provide explicit cyber cover for those aspects of the risk that are insurable such as recoverability, physical damage and the cost of notification of lost records. And we know there is appetite in the market to keep the insurance business model relevant and seek out alternative sources of profit by underwriting new risks. As investors in longer-term, illiquid assets, insurance companies are well suited to support the UK’s economic recovery As this audience will be well aware, the industry’s contribution to the economy goes further than transfer and pooling of physical and financial risk.
The number of banks, however, was reduced by half during that period and the number of bank employees remained stable despite expanding financial activities. These figures show that our financial industry has been eager to react swiftly to the challenges posed by globalisation. •  Switzerland has a solid balance of payments position. Thanks to a large excess of savings over domestic investment, our current account surplus is constant and substantial. Contrary to popular belief, my country is not an importer of capital, but a net capital exporter. Our current account surplus represents 14% of our GDP, a level which can only be compared to that of some Asian countries. In recent years, our surplus in absolute terms was even larger than the surplus of the euro zone as a whole. •  Switzerland is well-known for its stable monetary framework. Average inflation over the last 20 years amounted to 1.8%. We never went through monetary reforms as many European countries did in the past few decades. In fact, we still use the coins put into circulation in 1850, when the Swiss franc was created. There is no better proof of monetary stability. •  Switzerland enjoys the lowest interest rate level in Europe. This situation has nothing to do with the appeal of our bank secrecy, as many believe, but with the abundance of savings  1/3  and the high degree of price stability.

Let me show you the hidden side of Switzerland. You will see that modern Switzerland is adjusting rapidly to the changing reality of the world economy. Let's consider a few facts: •  With 7.5 million people, Switzerland is indeed a small country. Although we have no natural resources, we have a highly developed economy and a GDP per capita that clearly exceeds the European average. Contrary to the situation among some of our neighbours, our population is still growing, thanks to immigration. Our foreign population now represents about 20% of the total population and 25% of the labour force. Despite strong immigration, our unemployment rate – 3.5% – is relatively low. •  Switzerland remains a slow-growing country when compared to the United States. Our weak growth performance is due in part to the full employment, the relatively high level of personal income and the limited scope for domestic investment. However, in recent years, the Swiss economy has been doing better than its neighbouring countries in terms of growth and employment, and also in terms of price stability. Obviously, the fact that we are not a member of the European Union is not an obstacle to our development. •  Switzerland is increasingly becoming a service-producing country. The flagship of our service industry is the financial sector, which expanded markedly in the 90s and now accounts for 15% of our GDP – more than the machine tool industry and the chemical industry together.