samchain/econo-pairs-v1 huggingface dataset:
Encik Abdul Rasheed Ghaffour: ASEAN - advancing its potential, hurdles and the way forward Closing remarks by Mr Encik Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Conference, Kuala Lumpur, 4 August 2017. * * * Thank you for having me here today to deliver the closing remarks for the ASEAN@50 Conference. I am also honoured that you have chosen Sasana Kijang to be your meeting point for this Conference. I’m sure that all of you have greatly benefited from the two thought-provoking panel discussions earlier, that drilled down the measures required for ASEAN to achieve its economic promise. ASEAN proudly welcomes its golden jubilee next week. This momentous occasion not only celebrates our achievements thus far, but also marks the gravity of the work ahead of us. We will continue to galvanise all sectors of society – public, private and civil – to ensure ASEAN’s achievements are not just reflected on paper, but more importantly, can be seen, felt and heard. ASEAN stands out as a dynamic region – with diverse strengths that continues to benefit its growing population of 625 million people. In 2015, ASEAN contributed to more than 7 percent of world exports. Our strong trade performance has contributed to increased employment by about 70 million over the past 17 years – enabling better livelihoods of households. Millions have been lifted out of poverty with the significant rise of ASEAN’s GDP per capita, from USD1,054 in 1996 to USD4,000 in 2016.

This process – which has complemented the fixed-rate-full-allotment decision – has always balanced the need to be supportive to our counterparties with the goal of exercising an appropriate degree of risk control, and to protect our balance sheet. Incidentally, Portuguese banks have greatly benefited from these measures. For instance, they were able to strengthen collateral buffers by mobilising additional credit claims for the purpose of obtaining Eurosystem liquidity – and more effectively than other banking systems in the euro area. 2  BIS central bankers’ speeches  Second, the refinancing risk faced by euro area banks has been minimised by giving them reassurance that monetary policy will remain accommodative for an extended period of time. In the course of 2013, this reassurance has taken two forms: conditional forward guidance on the level and direction of our policy rates in the future, and a pledge to maintain the fixedrate-with-full-allotment policy for as long as needed and at least until mid-2015. These measures proved powerful in addressing the funding risk faced by our counterparties throughout the crisis, as evidenced, for example, by the significant decline in money market term premia. Addressing redenomination fear premia, however, is more alien to central banks, and therefore required a new approach. The Outright Monetary Transactions (OMT) initiative was the innovative instrument that we deployed to remove break-up fears from the market pricing of sovereign credit risk, and promote more regular financial conditions. The initiative proved an extremely effective instrument.
Generally, the area of business practices is one in which it is quite conceivable that some best practices can be defined by the players themselves. To do this, dialogue is required as well as commitments that are binding enough to be enforced. The AERAS Agreementwhich aims to facilitate access to credit for people with serious health problems, is a good example and I would like to thank Mr Emmanuel Constans, Chairman of the AERAS Mediation Committee and member of the ACPR College for having agreed to present today the changes in this Agreement. III/ Lastly, our supervision of business practices must increasingly take account of developments in technology and in changes in Europe. I believe that it is important, not only for the ACPR but also for the market, to anticipate these changes wherever possible. European legislation that is recent or in the process of being adopted calls for the standardisation of customer information. This is the case for the Packaged Retail and Insurance-Based Investment Products (PRIIPs), the Directive on Credit Agreements Relating to Residential immovable Property (CARRP), and the Insurance Distribution Directive (IDD). Also, under the aegis of the AMF, with which we share a joint unit that is efficient at 2  BIS central bankers’ speeches  supervising business practices, there is the Markets in Financial Instruments Directive (MiFID). European legislation recasts the obligations of product distributors to include in particular the concept of independent advice in the sectoral directives.

I owe a big debt of thanks to my predecessor Zdeněk Tůma, who steered the bank to a position where its reputation, which had been severely tarnished before his arrival, was growing steadily. He achieved this by, among other things, imposing his own highly developed sense of self-control and restraint on the bank. As the Czech National Bank started communicating less on general topics and more on its areas of expertise, it became recognized as an institution of true independence and authority – to such an extent that the Czech political system allocated all supervisory competences to it and continues to broaden its responsibilities. I believe that the crises from which a significant part of the developed world is still emerging have – at least for smaller economies – justified a scheme in which some or all supervisory roles are allocated to the central bank, which holds responsibility for stability issues anyway. But I also have to warn against the trend where the public sees central banks gaining more and more competences and mandates and starts to overestimate their ability to deal with crises. Central banks are far from omnipotent, and this trend may harm them. After all, their independence is only a product of the political system in which they operate. And such independence depends chiefly on their reputation. A central bank’s reputation is based on qualities such as accountability, transparency, and proper management of its own operations, as well as on its ability to make good choices and good decisions.
In Switzerland, the potential costs of capital injection and asset purchases amounted to about nine per cent of GDP. While the Swiss government has been able to sell its stake in UBS with a profit, the SNB exposure in illiquid assets taken over from UBS still amounts to approximately USD25 billion. 2  “We agree to take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.”, G7 Finance Ministers and Central Bank Governors Plan of Action, 10 October 2008. 3  The recommendations and principles to strengthen financial systems, published on 2 April 2009 (based on the “Report of the Financial Stability Forum on Enhancing Market and Institutional Resilience”, April 2008), and “Improving Financial Regulation: Report of the Financial Stability Board to G20 Leaders”, 25 September 2009. BIS Review 145/2009  1  recommendations. 4 Individual firms and industry groups, most notably the Institute of International Finance (IIF), have become increasingly vocal in stating what they consider to be appropriate and inappropriate changes to the global financial regulatory framework. 5 In short, good progress is being made on many issues. In particular, some of the largest banks have begun to reorient their business models and operating procedures. But many implementation challenges – in regulation as well as in business strategy – lie ahead of us. Moreover, given the proliferation of ideas put forward by both the public and the private sector, it is increasingly difficult to keep track of competing recommendations.

If Parliament had not passed the emergency legislation in October 2008, thereby ensuring that there was a functioning banking system and that domestic deposits were secure, if capital controls had not been introduced in November 2008, if we had not been so successful in repairing domestic balance sheets, if the economic recovery had been weaker and the rate of return on domestic assets had been lower, then the domestic assets of the old banks would have been worth much less, as would the offshore krónur. In this scenario, these positions might have exited Iceland long since, at just a small fraction of the value they had just before the resolution of the old banks. Instead, the domestic assets of the old banks amounted to 25% of GDP and the stock of offshore krónur was estimated at around 15% of GDP. It was clear that free exportation of these positions without mitigating action would have resulted in a new currency crisis, with potentially serious effects on financial stability. That was both economically and politically unacceptable. As a matter of fact, the population had been promised solutions to these problems entailing no negative effect on the exchange rate. The Icelandic authorities have publicised three versions of their capital account liberalisation strategy: the first in 2009, the second in 2011, and the current one in June 2015. It was under the second strategy that the stock of offshore krónur was reduced through a series of auctions.
The growing importance of balance sheet considerations in monetary policy only reinforces the importance of transparency in central bank communication. 5 Finally, let me make an obvious but nonetheless crucial point, even if it goes beyond today’s topic. Transparency is a valuable good in its own right. For good reasons, central banks are powerful and for the most part politically independent institutions. Moreover, the officials who run central banks are typically appointed for lengthy terms and are difficult to remove from their positions. Transparency is a crucial element in creating democratic legitimacy for politically independent institutions whose actions can have wide-ranging consequences for a country’s citizens and its elected government. As former Fed Chairman Alan Greenspan (1996) said ten years ago, it “cannot be acceptable in a democratic society that a group of unelected individuals are vested with important responsibilities, without being open to full public scrutiny and accountability.” Transparency is of little use if markets and the public do not believe what a central bank says. Credibility is therefore a condition that is a sine qua non for a successful monetary policy. How can credibility be established? Alan Blinder (1998) summarises credibility as a "painstakingly built up history of matching deeds to words". A long history of actually matching deeds to words, of honest communication and a reputation for delivering price stability will therefore ensure central bank credibility.

To be more precise, it is the yield curve of both the home and the foreign country, and thus the monetary policies of both the home and the foreign country which affect the exchange rate between two currencies. In practice, exchange rate movements often deviate significantly from what interest rate differentials would suggest. In light of the practical uncertainties about the effects of monetary policy on exchange rates, the exchange rate transmission channel for monetary policy is also not easily exploitable. Other assets Apart from bonds and exchange rates, monetary policy also affects the stock market. The relationship between monetary policy and stock prices is complex, because stocks are influenced by monetary policy through several channels. First, if stocks are priced using the dividend discount model, then monetary policy affects stock prices via the interest rate which is used to discount future dividends. Interest rates may also affect the value of domestic assets of a company, and the exchange rate affects the value of its foreign assets and foreign profits. In addition, monetary policy influences the financing cost of a company as well as the availability of loans. Moreover, the medium-term effects of monetary policy on the real economy can influence a firm's profits. Monetary policy can also affect commodity prices. Expansionary or restrictive monetary policy supports or weakens real activity in the medium run and can thus influence the demand and the price for commodities. Obviously, this dynamic can only occur in economies large enough to impact the global demand for commodities.
The question is what effect, if any, the growth of influential investors like these is having and may have in future on relative prices in financial markets. Economists tend to assume that asset markets are efficient so that any deviation from fundamental value represents a profit opportunity that will be quickly eliminated through the actions of rational traders who are constantly on the lookout for such opportunities. Underpriced assets are bought while overpriced assets are sold short, thereby bringing prices back in line with their fundamental value. In this way, investment flows and trading activity should not impact prices, unless they reflect information about the fundamentals. In practice the position can be more complicated. 4  BIS Review 84/2007  In the UK, demand for long-term gilts from pension funds is widely thought to have had a significant impact especially on indexed gilt prices. Trustees have become more concerned in recent years to reduce the volatility of funds’ valuations, since changes now appear on the sponsoring companies’ balance sheets. There has been a wide move towards Liability Driven Investment (LDI) and to matching their long term liabilities either by buying more index-linked bonds or by buying equivalent hedges in the derivative markets. The narrowing of pension fund deficits as equity markets have improved may have strengthened the trend since funds may now want to “lock in” the improved position. Even a relatively small shift in pension funds’ strategies would represent a large increase in demand relative to the size of the inflation-linked bond market.

My argument is that the uncertainties today are a return to normality after two years of exceptional predictability in monetary policy both in the UK and elsewhere. A particular area of uncertainty at present is in the credit markets. The dangers of combining a traditional credit cycle with the new derivatives markets have emerged in the US sub prime sector. The US housing market is in its downswing and there are some signs that the same is true in the UK of unsecured credit and commercial property. The position of the bigger UK sectors is less clear cut. The shift in pension fund priorities and the growth of sovereign wealth funds are further clouding the picture. It is our job on the MPC to work through these issues and reach a judgement on them. Our target is to reduce inflation to 2% and keep it there. I can assure you that we will do whatever is needed to achieve that.
These events, along with the reversal of certain losses previously charged to equity and the effect of these adjustments on the corporate income tax charge, mean that we can anticipate a notable decrease in net worth, which, however, will remain positive. In sum, I have to inform you that the final adjustment figures are not yet available. Nonetheless, I can assure you that they are substantially lower than some of the figures that we have heard in the last few days. Also, the submission of the annual accounts by the provisional central bank nominees has been postponed in application of the powers established in Article 36.2 of Law 26/1988 of 29 July 1988 on the Discipline and Intervention of Credit Institutions, since it has been considered preferable to await the conclusions reached in the inspection now drawing to a close. With regard to liquidity, the turmoil of the last few months put CCM in a difficult position: •  Wholesale financial market tensions and the downgrading of CCM’s credit rating closed the door to institutional funds. This lack of access to funding via wholesale  BIS Review 42/2009  3  markets was particularly painful for it, as it had resorted extensively to this source of funds for its business expansion plans. •  The institution’s gradual deterioration was common knowledge and increasingly the subject of political and media discussion. This adverse publicity gave rise to a drain on deposits.

Even though the region saw quite notable bond fund outflows since the Fed began to raise rates in March, such outflows have yet to cause any significant disruptions. That being said, there is no room for complacency. For one, as the global economy is heading towards a growth slowdown, if not an outright recession, Asian EMEs may be less able to look for support from external demand to cushion the effect of tighter global financial conditions. Moreover, capital outflow pressures faced by the Asian region may persist, leaving EM Asian currencies and FX reserves to bear the brunt of global tightening. 4. Unfortunately, there are limits as to how much these shock absorbers can shield the domestic economies from tighter global financial conditions. In particular, even though exchange rate flexibility can be a useful shock absorber, research suggests that currency depreciation is not a panacea for cushioning the impact of US rate hikes. As a few papers in today’s Workshop would argue, given the centrality of the US dollar in the international financial and monetary system, a US monetary tightening shock and an appreciation in the broad US dollar index can still induce a widening of EMEs’ sovereign credit spreads. Worse still, for more vulnerable EMEs with significant FX mismatches, allowing their currencies to depreciate is not an appealing option; instead, their central banks may actually have to tighten monetary  policy even when global financial conditions are already tightening, in order to support their currencies and prevent their FX liabilities from spiralling out of control.
Given the nature of the shock and the restrictions, it is unclear in principle whether we would expect the hit to demand to be greater than to supply. In other words, the implications of the Covid shock for the output gap, and hence inflation, are unclear as a matter of theory. It is clear restrictions forced large number of businesses to close and large numbers of workers to be furloughed, constricting supply in the economy. The crisis clearly also had a large adverse impact on the demand for certain goods and services – for example, social spending due to health concerns and travel spending due to working from home. The net effect of these large forces of supply and demand on slack in the economy is an empirical judgement. Empirically, the unemployment rate typically provides the cleanest guide to slack in the economy. Unfortunately, that is not the case at present. Statistical surveys of employment are less reliable than usual. Official measures of unemployment from the UK Labour Force Survey (LFS) show a fall in employment of around 500,000 over the past year, giving an unemployment rate of around 5.1%. But administrative data from HMRC suggest job losses 1½ times that, implying an unemployment rate of over 6%. A further complicating factor is the various government support schemes. By design, these have broken the link between the demand for workers by firms and the unemployment rate.

We should stress here that, of the larger euro area countries, France has the highest proportion of market-based financing, at 40%. Non-bank financing in France totals EUR 1.748 trillion, and the leading asset manager in Europe is a French firm, Amundi. France also has an internationally recognised regulator, in the form of the AMF, while Paris is home to the European Securities and Markets Authority, ESMA. After Brexit, I also have every reason to believe that a significant share of the market activities of the largest global banks will be based in Paris. First of all, I want to put an end to the non-debate over whether market-based financeis better than bank-based finance and vice versa, and the misconception that the US system should be 1/3  BIS central bankers' speeches  replicated in Europe: working towards a balanced development of non-bank finance simply means giving companies the option of diversifying their debt financing. Fun damentally, the real debate lies elsewhere: it is about switching from debt to equity.This is crucial in advanced economies, where growth is dependent on innovation. Equity financing is better suited to the uncertainty and often long-term returns associated with innovative projects. The euro area is seriously lagging behind in this respect: equity only accounts for 74% of GDP, compared with 125% in the United States. Moreover, it only makes up half of the total external financing of euro area corporations (equity + debt), compared with three quarters in the United States.
I’d be surprised if those who question our technical judgement at any particular moment could offer more than that. In the circumstances, I do not ask that the technical charge brought against us should be dismissed. But I would encourage you to suspend judgement, or at least to limit our sentence to an extended period of probation. I’m ready now for the cross examination, before the jury begins its deliberations! 3  BIS Review 31/2000

And in this, the measures I’ll outline this evening constitute one aspect of a broader post-crisis endeavour to build, and maintain, a financial system that supports, and does not disrupt, the real economy. It goes by the name of macroprudential policy. Banking system resilience The first step to nurturing a resilient environment is to reduce the prospect of a sudden crunching of credit supply from an injured banking system. In the financial crisis, as banks were holed below the waterline and new lending seized up, the flow of new lending to commercial property collapsed to a third of its earlier level. Since the crisis, the Bank of England has been building a safer banking system. Measured on a consistent basis, major banks hold 10 times more capital than they did before the financial crisis1. And through stress testing, we’re making sure they’re able to withstand severe stresses. By withstand, I don’t just mean survive. I mean continue to lend, including to you. Last year, we tested whether the banking system could withstand a snap back of long-term interest rates, a sharp fall in residential and commercial real estate prices, and a deep recession – all without cutting lending. This year we’re testing whether they can withstand a synchronised, sharp slowdown in China, emerging markets and Europe, and sharp falls in asset and commodity prices – all while increasing lending to the UK real economy by 10%. We showed last year that, where the tests say a bank needs more capital, we’re prepared to take action.