samchain/econo-pairs-v1 huggingface dataset:
Finance will complement - and potentially amplify these initiatives– but it will never substitute for climate policy action. The policy frameworks with the greatest impact will be: time consistent; transparent; target-based; and committed, through treaties, nationally determined contributions (NDCs), domestic legislation and consensus. The 20 countries – including the UK – that have plans to legislate for net zero show what can be done. 9  All speeches are available online at www.bankofengland.co.uk/news/speeches  9  If countries build their track records, their credibility will grow, and the market will allocate capital to deliver the necessary innovation and growth and pull forward the adjustment to a low carbon future. The more prolific the reporting, the more robust the risk management and the more widespread the return optimisation, the more rapidly the insurance sector can build resilience while promoting the transition that our citizens demand. 10  All speeches are available online at www.bankofengland.co.uk/news/speeches  10

The three transformations are: first, the rapid advances in financial technology, or ‘fintech’; secondly, the deepening of cross-border banking, particularly in relation to the Greater Bay Area1; and thirdly, the trends in green finance. Fintech 7. First, fintech and its fast adoption by banks and their customers. Hong Kong is among the fintech leaders in Asia. The COVID-19 pandemic has given new impetus to the use of mobile banking and electronic payment services, the most important technology in times of social distancing. 8. Customers who once relied on face-to-face teller services are now paying their bills and transferring money to family and friends through electronic services. Older generations – 1/5  BIS central bankers' speeches  who are especially vulnerable to COVID – have proven that they can be tech-savvy. Some 80% of payments under this year’s Cash Payout Scheme were made through electronic registration, easily beating our expectations. The Faster Payment System, introduced just over two years ago, now has nearly six million registrations and handles about 400,000 transactions a day – over twice the amount compared with last year. 9. Other initiatives transforming the way banks serve their customers include the recent launch of Hong Kong’s virtual banks and the growing adoption of open API2 technology. Retail banks are increasingly adopting artificial intelligence (AI) and big data analytics to provide tailored products and services to customers. These fintech initiatives help promote innovation and competition among banks, while increasing convenience for customers and improving the transparency of choices available to them. 10.
It is almost self-evident that monetary policy could have been better if the decision-makers had been aware that these shocks would happen when they made their decision. It is often equally self-evident that it was not possible to foresee the shocks at the time the decision was made. The relevant question is therefore primarily whether monetary policy could have been better given the information on the state of the economy and other factors that the central bank had access to when the decisions were made. How then should an ex ante evaluation of monetary policy be carried out? I believe that we must take flexible inflation targeting seriously. For a central bank that conducts flexible inflation targeting it is important, as I mentioned earlier, to choose a policy rate path so that the forecasts for inflation and resource utilisation "look good" in terms of stabilising both inflation and the real economy and, in the event of conflicting objectives, entail a reasonable  2  The loss function should be minimised under commitment in a timeless perspective in order to be consistent over time. The former Deputy Governor of Norges Bank, Jarle Bergo, has discussed this in a pedagogical manner in the speech ”Interest rate projections in theory and practice”, 26 January 2007, www.norgesbank.no. For a more technical approach see, for example, Malin Adolfson, Stefan Laséen, Jesper Lindé and Lars E.O. Svensson (2008), "Optimal Monetary Policy in an Operational Medium-Sized DSGE Model", www.larseosvensson.net.

As I emphasised earlier, an ex ante evaluation can on the other hand be performed in real time as a part of the ongoing public debate on monetary policy. Was monetary policy credible? The credibility of monetary policy is always an important factor. The credibility of an inflation targeting regime is usually measured by to what extent inflation expectations for different time horizons correspond to the inflation target. The greater the degree of correspondence, the higher the degree of credibility. This provides a direct indication of the level of confidence in the ability of the central bank to meet the inflation target. Figure 10 shows how inflation expectations among money market agents developed in 2008 and early 2009. It is evident that expectations for both one and two years ahead have been revised significantly downwards recently, which is hardly surprising given the development of the economy. In the longer term, however, the expectations are well anchored around the target. How well inflation expectations are anchored around the target also has a direct impact on how well the central bank succeeds in meeting the target and on the possibilities the central bank has to also stabilise the real economy. This is because inflation expectations directly affect price and wage setting in the economy. Stable inflation expectations eliminate a potential source of shocks and make it easier for the central bank to stabilise both inflation and the real economy.
For example, the foreign investor’s total holding of Government securities reduced from K1,054.7 billion in the third quarter of 2008 to K446.2 billion by the second quarter of 2009. Similarly, the flow of foreign investments at the Lusaka Stock Exchange switched from a net inflow of $ million during the period January to May 2008 to a net outflow of $ million in the similar period this year. Exchange rate volatility and domestic inflation The global financial meltdown caused a contagion effect to our foreign exchange market and led to volatility in the exchange rate of the Kwacha against major currencies. This unfavourable development was partly a consequence of reduced earnings from copper exports arising from the fall in copper prices as reflected in the lower supply of foreign exchange on the market by mining companies. For instance, the supply of foreign exchange to the market by mining companies declined by 35.7% to a monthly average of US $ million in the first half of this year from an average of US $ million in the last half of 2008. In addition, the weakness of the local currency was a consequence of increased risk aversion to emerging and developing economy financial assets, as stated earlier, attributed to the deepening global financial crisis. In this regard, the supply of foreign exchange by foreign portfolio investors for the purchases of Kwacha financial assets, such as Government securities and domestic company equities, declined significantly, with most non-residents preferring to liquidate their investments and externalising the foreign exchange.

Since the near collapse of the UK banking system, bold steps have since been taken to shore up its resilience. £ billion of new bank capital has  4  Term premia, which measure investors’ compensation for holding long- rather than short-maturity claims, are also estimated to have declined since last summer, perhaps reflecting growing expectations for central bank asset purchases. 5  For the UK, December 2008; and for the euro area, June 2012. 6  The non-financial corporate sector was a net saver in Germany, Ireland, Spain, Greece and the UK at end 2013, based on Eurostat data (ESA 95 basis). 7  The “equilibrium” rate of interest is that which equates demand with potential output, thereby delivering inflation at target in the absence of “cost-push” shocks. 8  As my colleague Ben Broadbent recently said, central banks aren’t the cause of low interest rates, but rather are actors reading a script written by others, Broadbent, B (2014), “Monetary policy, asset prices, and distribution”, speech at the Society of Business Economists Annual Conference. BIS central bankers’ speeches  3  been raised in recent years, and banks’ performance in the recent UK stress test suggest growing confidence in the resilience of the system is merited. 9 Second, the UK’s fiscal policy framework helps insure against severe systemic shocks. The UK had the space to allow its automatic stabilisers to cushion the impact of the recession.
Based on my experience as a central banker for more than 30 years, it requires a deep understanding of the economy and the financial system to make the right policy decisions. Such policy formulations needs to be based on rigorous assessments that provides the insights that will guide the decision making process. This is aided by relevant statistics, and complemented by sound judgement. Central banks are therefore not only major consumers of statistics, but also producers and disseminators of monetary and financial data. More importantly, central banks, have placed much importance on providing sufficient analysis and assessment in conjunction with the release of statistics. This aims to provide context, avoid misinterpretation and reduce uncertainty for the economic agents. BIS central bankers’ speeches  1  Key global trends shaping the universe of statistics As the world evolves, two key trends have emerged and in turn, created new and diverse demands, challenges, and opportunities in the field of statistics. First, the steady liberalisation and deregulation of economies and financial markets have resulted in intricate interlinkages within domestic financial systems and spanning across borders. While financial markets have become more interconnected globally, capital and labour mobility across borders have also intensified while trade and investment barriers have been dismantled. This has resulted in closer proximity to growing markets and facilitated the creation of globalised supply chains by corporations. These developments have had wide ranging benefits, including better risk diversification, improved efficiency and greater economies of scale.

There are arguments, however, that call for specialization of some functions. So far, we have seen in Chile a banking supervisory agency that takes into consideration the macro-systemic aspects and a central bank concerned about both price and financial stability, arrangement that has permitted the necessary coordination in dealing with situations of financial distress. The role of capital flows In what follows, I will deal with the issue of capital flows as a source of financial instability within the framework of inflation targeting and flexible exchange rate. In particular, I am concerned with the interaction between price and financial stability when a small open economy, like Chile, is exposed to volatile capital flows. I have to start by emphasizing that in the current surge of capital inflows, Chile was not subject to massive inflows as was the case in the past. However, we cannot rule out this possibility, as prospects for advanced economies are very gloomy, while emerging markets offer very healthy returns to investment. First, the long history of emerging markets booms and busts has shown us that frequently in this type of economies the building up of risks is associated with periods of capital bonanzas that fuel credit booms, asset bubbles, and exchange rate misalignments, and that frequently end in sudden stops and reversals of capital inflows that wreak havoc in the financial system and the real economy.
This prudence is well captured in the FOMC’s Policy Normalization Principles and Plans, released in September 2014, which note that, in the long run, the Fed’s balance sheet should be no larger than necessary for the effective and efficient implementation of monetary policy and should consist primarily of Treasury securities.24 We also need to make sure that the impulse of monetary policy is transmitted effectively to the real economy. Given the growing importance of nonbanks in many money markets, especially in the U.S. dollar markets, we should think about the counterparties with whom we interact. Would expanding the types of counterparties that we do business with increase the effectiveness of monetary policy? What are the costs and benefits of interacting with counterparties beyond our traditional set? Any long-run monetary policy implementation framework should be assessed relative to goals. That assessment may be informed by recent experience. For example, a framework should allow us to achieve an appropriate degree of control over short-term rates, both in normal times and during periods of financial distress. It should also be as robust as possible to potential structural changes in the financial system. The framework should enhance our ability to achieve macroeconomic objectives at very low or even negative interest rates. Further, it might be important to consider the framework’s ability to address liquidity strains in money markets and to support overall financial stability.

Certainly, a lot of work has been done in the London market, co-ordinated and steered by a team in the Bank, to ensure that London is as well prepared as other European BIS Review 67/1997  -6-  centres for EMU. And our assessment now, which I believe is shared by the EMI and the Commission, is that London is as well prepared as most if not all European centres. I can assure you that the Bank of England itself will be ready for EMU on 1 January 1999, whether or not the UK is a member. We will be able to offer euro accounts and euro settlement facilities. We have taken the lead in work on market conventions across Europe. EMU is likely to bring harmonisation of conventions such as day count and frequency of coupon payments among Europe’s bond markets, and the London market is ready to do that. We have been in regular discussion with ISDA which is taking a leading role in co-ordinating preparations of those involved with swaps and other OTC derivatives. And a recent working group chaired by the Bank has examined the adaptations that may be needed in the gilt market, covering re-denomination of gilts into euro, whether to quote in decimals or fractions, the frequency of coupon payments, etc. There seems a reasonable chance that the dramatic move to abandon 30 seconds as the basis for gilt pricing may come about before too long.
For some economists, this is a perplexing and contentious conclusion. It is made all the more so by the fact that the evidence on global trade integration points overwhelmingly towards positive effects (Kose et al (2009) and Berg and Krueger (2003)). Yet, outside of economics and finance, this conclusion would be far less perplexing and contentious. For many other disciplines, it is well-known that the increased integration of a network can be double-edged from a stability perspective (Watts (2002), Haldane and May (2011)): whether it is physical networks, like utility grids; or natural networks, like eco-systems; or social networks, like the world wide web. The logic is straightforward. Within limits, connectivity acts as a shock-absorber. Links in the system act as a mutual insurance device, helping distribute and disperse risk. These systems are then “robust” to shocks. But when shocks are sufficiently large, connectivity may instead serve as a shocktransmitter. Risk-sharing becomes risk-spreading. Links in the system act as a mutual incendiary device, amplifying risk. These systems are then also “fragile”. So connected systems tend simultaneously to be both stable and unstable, calm and turbulent, robust-yet-fragile (Acemoglu et al (2013), Gai and Kapadia (2010)). In other words, integration can be double-edged. It generates a world with instances of more frequent and/or  BIS central bankers’ speeches  3  larger dislocations. In short, what is true of natural, physical and social systems is also true of global economic and financial systems. To illustrate that, consider Chart 4.

In the last rounds of interviews with our regional network, an increasing number of companies reported that wage growth in 2006 will be higher than budgeted early this year. The level of unemployment that is consistent with stable real wage growth is uncertain and probably varies over time. We have assumed that increased economic integration across countries, both in the form of an increase in inward labour migration and intensified competition in product markets, may have a dampening effect on wage demands for a given level of unemployment. In the period ahead, a tight labour market is expected to result in higher real wage growth. Nevertheless, it is assumed that labour inflows will have a dampening impact on wage demands, so that real wage growth will be a little lower in the next few years than in previous periods of equally low unemployment. The upward pressure on price and wage inflation given the level of current resource utilisation, as reflected in the output gap, is estimated to be lower than in the previous expansion even though the unemployment rate is at approximately the same low level. This is due in part to high productivity growth in recent years. Growth in disposable income has been high in recent years. Lower interest expenses and relatively high real wage growth have resulted in an increase in household purchasing power. The rise in house prices may also have fuelled growth in private consumption.
Above all, these pre-conditions have to be in conformity with the Shariah framework. Whilst it is necessary to have in place the market infrastructure, institutional players and the regulatory, Shariah and legal framework, it is still not sufficient in sustaining the robustness and dynamism of an Islamic financial system. To achieve this, the strong linkages and synergies especially among the components in the financial markets, namely, the money market, foreign exchange market and the capital market, have to be extensively capitalised. The Islamic money and foreign exchange markets are integral to the functioning of the Islamic banking system, firstly, in providing the Islamic financial institutions with the facility for funding and adjusting portfolios over the short-term and thus the necessary liquidity mechanism to promote stability, and secondly, serving as a channel for the transmission of monetary policy. The inter-linkages in the functioning of the Islamic financial markets have brought about a natural environment for innovation of Islamic financial instruments. A broad spectrum of instruments, such as Government papers including bonds and treasury bills, Central Bank notes and Islamic accepted bills, can be structured on a Shariah-compliant basis to meet the needs of these markets. In addition, instruments for a risk mitigating mechanism for hedging or value protection need to be developed. While risk mitigation is desirable in Islamic finance, innovations need to be made for this purpose.

As a platform to promote greater cooperation among Muslim countries and further promote IIFM, a proposal that can be explored is the creation of an Islamic universal bond, structured similar to the universally-accepted asset-backed Ijarah sukuk. Under this proposal, interested countries and selected organisations could be invited, where each country sells its assets to an SPV, which in turn would lease back the assets to the country. Proceeds could then be transferred to the participating country for the general purpose of socio-economic development. This could be an avenue for countries that have not secured stronger ratings to get more competitive funding. Indeed regional and multilateral entities would be well positioned to explore the viability of this proposal. The role of Shariah is one of the key elements that can spur the innovation process and enhance the global integration of the Islamic financial system. To effectively enhance Shariah governance, the understanding of the mechanics of finance by the Shariah experts is imperative to assist in the deliberation process in deriving a sound Shariah decision. The Shariah decision should then be made transparent. With such disclosure, the ability for others to appreciate the juristic reasoning based on contemporary analysis and logical inference of process could lead to wider acceptance of a Shariah decision, especially if it has implications on cross-border transactions.
As is well known, the long lags of policy creates a need for central banks to “take the punch bowl away when the party gets going”. Given the longer duration of financial cycles, the need to act well before the risks become obvious may mean that central banks will have to “take the punch bowl away even before the party gets started”. But that is a political economy challenge that needs to be resolved and managed through careful redesign of central bank mandates. Heed must be paid also to institutional arrangements, especially for central banks where the financial supervision authority lies with another body as coordination will be harder. This will take time. But the risks to financial stability is immediate. In the interim, central banks may need to interpret their mandates more flexibly and avoid overly narrow and zealous interpretations of price stability. Inflation targets need to be implemented flexibly and over longer horizons. All the while explaining clearly and consistently the logic of policy. In doing so, it should be stressed that fundamentally, macroeconomic and financial stability are two sides of the same coin. Macroeconomic trajectories cannot be sustainable 9  if the financial sphere is out of equilibrium. And the avoidance of financial boom-bust cycles leads to better economic outcomes over the long run. The perceived trade-off between growth, inflation, and financial stability, therefore, is to a large extent an artifact of the short horizon focus of policy.

Page 7  Towards an international effort – central banks, industry and public authorities rowing in unison In a highly connected and networked industry such as payments, we can only make a real difference if we work together in a coordinated way. We need to row together in unison to reach our destination of faster, cheaper, more transparent and more inclusive cross-border payment services. So what are the concrete actions that each of the groups – central banks, industry and public authorities - need to take? The role of central banks Central banks, both as operators and supervisors, of payment infrastructure, we have a key role to play. We build infrastructure, add new functionality and set standards and policies to underpin safe and efficient economic and social activity. Central banks need to start changing policies and enhancing core payment systems in line with the best practices, assessments and analysis that are developed as part of the work on the 19 building blocks. To do so effectively, we need to listen to and collaborate with industry, involving them in outreach and consultations and updating them on latest developments. And we also need to share our learnings and experiences with our peers, and beyond. This could be done through the establishment of communities of practice, through which central banks can discuss challenges and barriers with peers and find ways to overcome them. The role of industry The payments industry is another key, and wide range group including correspondent banks, FMIs and the non-bank FinTech.