samchain/econo-pairs-v1 huggingface dataset:
My colleague, Fritz Zurbrügg, will provide further details on interest rate developments on the money and capital markets. Despite the low interest rates, mortgage growth has continued to weaken slightly in recent months. Notwithstanding this, imbalances on the mortgage and real estate markets remain high. My colleague, Jean-Pierre Danthine, will discuss this in greater depth in his remarks. 1  2  In October 2014, Consensus Economics projected inflation expectations of 1.4% for the period 2020–2024; in April 2015, it put these at 1.5% for the period 2021–2025. Long-term inflation expectations are only surveyed on a half-yearly basis. BIS central bankers’ speeches  In light of the uncertainty regarding the future of Greece, the Swiss franc continues to serve as a safe haven currency. In trade-weighted terms, the Swiss franc is still approximately 12% higher than it was at the beginning of the year. Over time, negative interest rates on the Swiss money and capital markets should help to correct the overvaluation of the Swiss franc. The rise in long-term interest rates abroad has also led to a widening of the interest rate differential with these countries of late. As conditions continue to normalise on international financial markets, investments in other currencies should become more attractive; this, in turn, is likely to help ease the overvaluation of the Swiss franc. The slowdown we are now observing in the economy also suggests that the Swiss franc is very unlikely to remain persistently high. Monetary policy outlook I shall now move on to our monetary policy.

Our monetary policy decisions have indeed given predictability for the whole year to come, and we will during this period look through transient inflation changes to focus on the medium term inflation outlook for the euro area as a whole. Lastly, interest rates do not depend on monetary policy alone, they also stem from economic growth. It is therefore in the savers’ interest that growth should be more vigorous in Europe. Yet, as my colleague, Jens Weidmann, said last spring, “people are not just savers” [ “ Menschen sind nicht nur Sparer”]. In Germany and in Bavaria, businesses, employees, consumers and home buyers benefit from the ECB’s low interest rates. Our measures create particularly favourable financing conditions for businesses and households. Lending has grown significantly: in Germany, lending to businesses had grown by 3.5% year on year in the 12 months to November 2016. Moreover, borrowing costs less as bank interest rates have fallen steadily. As has been confirmed by several studies, monetary policy has also boosted GDP growth – for more than 1.5 percentage points from 2015 to 2018. The definitive stability of exchange rates within the euro area and the more favourable effective rate observed outside the euro area are clear advantages for German and Bavarian exporters, from Airbus to Dräxlmaier or BrauKon. The economic studies all agree: the benefits linked to the euro have been good for all the member countries but it is the German economy that has benefited most from belonging to the euro area.
More specifically, their legality is safeguarded by virtue of the risk management measures with which they are associated, to ensure that the Eurosystem would not suffer losses if the collateral were realised. In this way, the ACCs which are not loss sharing like the standard monetary policy instruments, can be classified as “adequate collateral” in accordance with Article 18.1 of the Statute of the ESCB. Even though the tools we use are not new and had been deployed previously, we adapted them further during the current crisis. At the same time, our actions complemented other European or national policies, such as the provision of public sector guarantees on the fiscal side. Taken together, these measures have reinforced the effectiveness of liquidity support offered to the real economy. We should ensure, however, that the collateral easing measures do not inadvertently lead to further fragmentation and the re-introduction of a Tier-2 collateral framework. More importantly, they should respect the level playing field throughout the euro area. It is true that the expansion of the ACC frameworks can increase the overall complexity and opaqueness of the ACC collateral landscape. The country-specific legal and institutional features of these frameworks could give rise to additional legal risks in relation to our collateral framework. Therefore, as with the PEPP, it is crucial that our collateral easing packages are designed as strictly temporary measures that will remain in place until September 2021 or only as long as the direct consequences of the pandemic are with us.

As with our monetary policy tools, we are closely monitoring the situation and we will review our approach on a regular basis. Independent of the ECB’s actions, banks need to perform proper risk management, acknowledge the recognition of impairments, and book an appropriate level of provisions. I would now like to turn briefly to the subject of central bank digital currencies (CBDCs) and how the pandemic has had an impact on them. The arguments in favour of CBDCs have intensified during the pandemic; one of them is reaffirming the role of central banks as the sole issuers of money. Although these arguments are legitimate, they do not necessarily tip the scales in favour of immediate action in favour of CBDC issuance. This is due to the many legal, operational and policy issues around CBDCs which remain unresolved, standing in the way of a transition from traditional cash to CBDCs. I have touched on those issues in some of my previous speeches. Suffice to say that the issues in question will continue to provide food for thought for the ECB, euro area NCBs and central banks throughout the world as they further explore the costs and benefits of CBDCs. Conclusion Let me conclude. In the blink of an eye, the coronavirus pandemic and the response to it placed the global economy in an induced coma. The ECB has acted forcefully and well within its mandate. Our crisis response shows that our legal framework is flexible, but only up to a certain point.
Few have implemented integrated policies, key indicators and metrics, mitigation strategies, detailed monitoring, and risk appetite statements. We recognise that there are some areas where the science, data or tools are not yet sufficient to estimate risks accurately. But in these cases firms can and should explore the use of reasonable proxies and assumptions to work around these issues, rather than leaving risks unrecognised. Imperfection is not an excuse for inaction. Supervisory expectations and working with industry We set out our supervisory expectations of firms’ approach to managing the financial risks from climate change in April 2019, covering governance, risk management, scenario analysis, and disclosure.13  At the time we said we would follow up with further guidance to industry. And today we are publishing that guidance in the form of a Dear CEO letter.14 In which we are being clear that we expect firms to have fully implemented these supervisory expectations by the end of 2021. As I said earlier, addressing the risks and opportunities from climate change in the financial sector is a shared and unprecedented challenge, for which we do not yet have a comprehensive how-to-do-it manual. To help address that, in March 2019, the PRA and FCA established and co-chaired the Climate Financial Risk Forum (CFRF) to work with industry to build expertise and share best practice on managing climate-related financial risks.15  The Forum brings together banks, insurers, asset managers, and other key stakeholders to consider challenges around climate disclosure, scenario analysis, risk management, and innovation in the interest of consumers.

Role of the Bank of England  That brings me to the role of the Bank. Our work is focused on building resiliency to the risks from climate change into the financial system, so that it can steward the real economy to an orderly transition to net-zero. Being resilient means pro-actively managing climate risks and pre-emptively reducing them. This is central to the Bank’s mission. Indeed earlier this year climate change was made one of the Bank’s strategic priorities.8 I became the Executive Sponsor for the Bank’s work on climate change in 2016, at a time when there was only a handful of people at a handful of central banks working on climate-related issues. But since then the scope and depth of our work and that of other central banks has expanded significantly. We are working domestically and internationally with key stakeholders including government, industry, investors, regulators, and climate scientists to further this critical agenda. 8  Bank of England Annual Report 2020 4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4  Climate action at the Micro-level: Disclosure and Risk Management  So what are we asking financial firms to do? Put simply, they need to make financial decisions that take the risks and opportunities from climate change into account. The first step in achieving that is to have the right information. That is why the Bank has been making the case for some time for consistent, comparable, and comprehensive climate disclosures.
Role of the Bank of England  That brings me to the role of the Bank. Our work is focused on building resiliency to the risks from climate change into the financial system, so that it can steward the real economy to an orderly transition to net-zero. Being resilient means pro-actively managing climate risks and pre-emptively reducing them. This is central to the Bank’s mission. Indeed earlier this year climate change was made one of the Bank’s strategic priorities.8 I became the Executive Sponsor for the Bank’s work on climate change in 2016, at a time when there was only a handful of people at a handful of central banks working on climate-related issues. But since then the scope and depth of our work and that of other central banks has expanded significantly. We are working domestically and internationally with key stakeholders including government, industry, investors, regulators, and climate scientists to further this critical agenda. 8  Bank of England Annual Report 2020 4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4  Climate action at the Micro-level: Disclosure and Risk Management  So what are we asking financial firms to do? Put simply, they need to make financial decisions that take the risks and opportunities from climate change into account. The first step in achieving that is to have the right information. That is why the Bank has been making the case for some time for consistent, comparable, and comprehensive climate disclosures.

We need this collaborative approach to turn promises into practice. One glance at the NGFS website will show you just how much we are doing on that front.23  22 23  NGFS Climate Scenarios NGFS Website 8  All speeches are available online at www.bankofengland.co.uk/news/speeches  8  Green Finance and Green Recovery  Governments around the world are now considering green recovery packages to rebuild economies hit by Covid-19. Such measures to “build back better” offer a unique opportunity for the financial sector to step up by mobilising green finance to maximise the impact of these packages. The benefits for the financial sector go beyond managing the risks from climate change. Identifying the risks will also reveal the enormous opportunities of supporting the transition. And the innovation that follows will be good for business as well as good for the planet. Indeed, there is increasing evidence of a commercial benefit to sustainable investment, both during the recent market volatility around Covid-19 and over the long-term. 24 It is therefore no surprise that global sustainable funds reached nearly $ trillion in assets under management at the end of 2019.25  Next steps  So where does this leave us and what is next on the climate pathway? I like to think of our journey in phases. The first phase was identifying what risks climate change posed to the financial system and convincing the financial sector of the need to act. We have done this.
I have no doubt that such scepticism also exists in the monetary policy committees of other countries. As far as I know, there is no central bank that literally conducts and describes its monetary policy in accordance with the simple loss function that I showed earlier. The central bank that comes closest is probably Norges Bank, but it too has recently taken some steps away from a too theory-based interpretation of practical policy in terms of the simple loss function.21 An incorrect estimate of the equilibrium level leads to incorrect policies One of the risks of a policy that ambitiously tries to stabilise the real economy around a numerical, long-term target for, for instance, production or employment, is that the estimate may be incorrect. If so, this will lead to policy being conducted incorrectly. If the estimate of the long-term sustainable rate of production or employment is too high, monetary policy will be too expansionary, which can lead to problems with the nominal anchor. It has been claimed that this is an important explanation of the high rate of inflation in the United States during the 1970s, the period of the “Great inflation”. It is claimed that the Federal Reserve pursued a too activist stabilisation policy at that time, based on a too-high estimate of the long-term sustainable rate of production.22 Before I go on, I would like to emphasise that theoretical research has been valuable for the development of the monetary policy framework that we have today in Sweden and many other countries.

I would therefore like to encourage more countries to follow the initiative taken by the EU countries. 6  BIS Review 134/2008  Concluding remark Let me now conclude. The crisis we have seen over the last one and a half years will most likely redraw the global financial landscape in various ways. And even if the recent measures taken by governments and central banks have improved market conditions somewhat, it is far from certain that the crisis will be over any time soon. What will come out at the other end of the crisis is also still much too early to tell. Today, I have given you my views on some of the issues that need to be dealt with in the aftermath of this crisis. It all adds up to a quite significant to-do list, including various aspects of regulation, crisis preparedness, central bank policy and assessment and so on and so forth. It will most certainly take time before we can put an end to these discussions. In the meantime, the financial industry and the responsible authorities have to make certain that the costs of the prevailing financial turbulence are kept as low as possible. For me, as a central banker, this task translates into standing by the commitment to provide key markets and sound institutions with the liquidity needed to ensure that the financial system can function properly. Thank you! BIS Review 134/2008  7
Second, the Federal Reserve and African central banks maintain direct operational ties through the U.S. dollar correspondent and custody accounts that many central banks in this room hold at the New York Fed. African countries represent approximately one-quarter of the total number of the Federal Reserve’s foreign official accountholders, the second largest regional representation, with some very long-standing account relationships. Let me speak for a moment about the role of our services to the global central banking community. The Federal Reserve’s provision of U.S. dollar account services to the global official community stems from our recognition that central banks around the world have a mutual need for correspondent banking and custody services to execute on core central banking functions in which the safety, confidentiality, and reliability of service provision is essential. Given the global 1/2  BIS central bankers' speeches  role of the U.S. dollar as a reserve currency, we recognize the special role that our account infrastructure plays in supporting policy implementation by central banks around the world. As such, we devote significant attention and resources to maintaining a robust operational and risk management culture. This allows us to continue to provide these services for the benefit of the global central banking community. This brings me to the third reason why enhancing relationships with African central banks is a high priority for us, and that is the need for stronger dialogue on the evolving risk environment in cross-border payments.

Undoubtedly, there has been a significant shift in global perceptions of the seriousness of cyber threats across the board, be they in the realm of politics, business, finance, or the media. For financial institutions, while cyber threats at one point may have been regarded as a relatively minor cost of doing business, it is not an exaggeration to say that they are now viewed as potential existential threats, not just to individual firms but also to the broader financial system and critical infrastructures that support it. As central banks with broad mandates for financial stability, this is certainly a concern for us all. For the Federal Reserve, a cyber breach at one of our central bank customers last year led to authenticated yet fraudulent SWIFT messages being sent to us to wire out substantial sums of money. While neither SWIFT nor Federal Reserve systems were breached, this incident was a strong reminder that the robustness of our customers’ internal control environment is a matter that concerns the entire central bank community. We recognize the challenges and complexities in strengthening prevention, detection, and incident response regimes around processing of fraudulent payment instructions. SWIFT users span the full range of IT sophistication and capacity, and remediating deficiencies in prevention and detection may require a substantial re-orientation of priorities and resources for some institutions. Overcoming these obstacles will be no easy task, but so long as there is a weak link in the cybersecurity chain cybercriminals will seek to exploit it.
That is why in the minutes of its March meeting, the MPC  BIS Review 46/2009  5  indicated that, just as with its decisions on Bank Rate, we would review the appropriate scale of the asset purchase programme each and every month. 3. Conclusion  The extraordinary developments in the global economy since the autumn have been matched by the magnitude of the policy response. Monetary policy continues to play its part, with Bank Rate set at a historically low level and the launch of a large-scale asset purchase programme. Throughout these dramatic developments, the objective guiding the Committee’s decisions has remained the same: the need to keep inflation on track to meet the Government’s 2% inflation target. It was that objective that underpinned the decisions to reduce Bank Rate to unprecedented levels. And it was that objective that drove the MPC to adopt unconventional policy measures. The inflation target will also dictate the rate at which the stance of monetary policy is returned to normal as economic prospects recover. The outlook for inflation relative to the inflation target provides the natural guide to exiting from this period of exceptional monetary stimulus. Importantly, this exit strategy is clear, transparent and open to public scrutiny. Openness and transparency have been the cornerstones of UK monetary policy since the Monetary Policy Committee was established in 1997. That has never been more important than now. The inflation target is symmetric. That requires the MPC to set policy in a symmetric way.

It is my firm belief that fulfilling its primary objective to maintain price stability is not only the best service which the ECB can deliver to the citizens of Europe, but also the most appropriate way of fostering the legitimacy of our new institution. In the first few months of the euro’s existence we have indeed provided an internally stable currency, although the public perception of this accomplishment has often been confused by too much attention on developments relating to the euro’s external value. In this context, allow me to reiterate that the ECB’s monetary policy objective is the internal value of the euro and that in the longer term the euro’s internal strength will also be reflected in its external value. Our task of maintaining price stability will certainly be made easier as the ECB acquires a track record and further builds up its credibility with the markets inside and outside the euro area. In my view, this process will be greatly facilitated by a monetary policy strategy oriented towards guaranteeing price stability in the medium term, rather than responding to short-term considerations. I should emphasise that it is the ECB’s independent status which will continue to allow it to stand above day-to-day pressures, to pursue a stability-oriented policy to the benefit of all citizens without the interference of short-term political objectives and to ignore short-term market developments if they are deemed to be excessive.
Alongside those immediate forces driving reform, I want to highlight a second kind of change – the no less major impetus for transformation in the financial services business that stems from larger macroeconomic and technological change. As we think about public sector and private sector reform, I submit that we need to address and adapt to both types of change. What are some of those longer run forces that have been transforming the financial system? Let’s start with two macroeconomic trends that reflect the result of successes in global economic policy. One is the rapid rise in wealth in much of the world and with it, new or greatly expanded institutions to concentrate and manage that wealth. The function of the banking system in the 19th and early 20th century was to intermediate scarce capital on one side and a large supply of ambitious projects on the other, projects such as the building of the transcontinental railroad. By contrast, today we live in a capital-rich world where the financial system’s problem to solve is effective deployment of abundant capital, not gathering sufficient savings to meet capital needs. Another long-run macroeconomic force has gathered substantial momentum in the last decade: the shift of income, wealth and economic energy from the so-called advanced economies of the United States, Japan and Europe to the so-called emerging economies. Ten years ago, the emerging market countries accounted for about 20 percent of world GDP – the advanced economies 80 percent.

This involves combining the insights from both experts and non-experts, to reap the benefits of diversity of thought and action. But this larger pool is not so large as to dilute the time available for slow-thinking and deliberation. It is a cocktail of expert and non-expert opinion, comprising diversity and deliberation in equal measure, that cause good ideas to flourish and bad ones to perish. A relevant, practical question is where the optimal point along the insight curve lies. What is the optimal number of people from whom to seek views if we are to maximise the benefits of folk wisdom? My stylised example cannot provide an answer to that question. But some studies have looked at this question using experimental methods and, reach interesting conclusions. Christian Wagner and Tom Vinaimont ask two questions. 39  First, how large does a group of non-experts  need to be to exhibit expert-like performance? Second, how large does this group need to be to outperform consistently a group of experts? On the assumption experts’ views are ten times more precise than a non-expert, their answer to the first question is around 30 and the second around 1,000. This bookends the range of non-expert views we might need in seeking the “wisdom of crowds”. Representative Decision-Making  If we take this analysis at face value, the question is how practically central banks can engage a wider, non-expert, audience to help inform their views on the economy and financial system?