samchain/econo-pairs-v1 huggingface dataset:
With a daily transaction amounting up to USD4 trillion, it is the most liquid and dynamic market in the world. It is a market that is prone to excessive movements and overshooting. Any effort to engineer a significant exchange rate adjustment within a short period of time carries the risk of highly destabilising consequences. Global imbalances that have been built up over several years need to be unwound by a combination of adjustments  BIS Review 131/2010  3  in demand, prices and exchange rates. Over reliance on the exchange rate to do the adjustment may not only not produce the desired result, but it also risks becoming a trigger factor to causing instability and future crisis. The final development that I wish to say something on is the global development of Islamic finance and its increasing role in enhancing global economic and financial linkages particularly among emerging economies. Islamic finance is all about basic banking that is always supported by underlying economic activity. Its profit sharing feature provides for risk sharing and thus the necessary due diligence, disclosure and transparency, risk management and governance. The industry is also well supported by the regulatory and supervisory standards issued by the Islamic Financial Services Board (IFSB). While the focus has been on keeping the regulation abreast with the developments in the financial system, emphasis is also given on the supervisory oversight, capacity building, and institutional and financial infrastructure development as part of the efforts to ensure financial stability.

In view of the far reaching implications of any reform agenda, it is an important global responsibility to ensure that the reforms achieve their intended results and that this new phase of globalisation will result in a more inclusive international financial system that will allow for the effective participation in the global economy and international financial system regardless of size or stage of developments. On the specific regulatory reforms to address the issues and problems that caused the crisis, of importance, is that the goal of such regulatory reform should not be overlooked – promoting financial stability is a means to an end and the ultimate goal is to achieve sustainable growth and development. Many have already highlighted the potential increased regulatory costs on intermediation and hence on economic activity. This is even more relevant in Asia where there is greater reliance on the banking sector for financing. The efforts undertaken to comprehensively assess the macroeconomic impact including by the IIF is highly relevant and will be important to the reform process. A further concern and one that is less discussed is on the implementation of the regulatory reform. With greater capital mobility across borders, the stricter regulations could result in the migration of financial business to less regulated market segments, institutions or financial centres. Important to this is the need for the development of the framework for cross border policy coordination and resolution.
But the price-stability oriented policies of the Great Moderation proved to be instrumental in delivering not just low and stable inflation but also steady growth for a sustained period. The maintenance of price stability may be insufficient on its own to guarantee continued overall macroeconomic stability, but it surely has to remain the central objective of monetary policy in the long run, even if other considerations may intrude in the short run. Any other objective risks de-anchoring price expectations and inducing unnecessary extra volatility into the economy. Flexible inflation targets (explicit or implicit), which allow the monetary authority some constrained discretion in accommodating temporary price-level shocks, therefore remain a suitable organising framework for the conduct of monetary policy. We remain sceptical of the net benefits of moving to a higher inflation target in normal times so as to provide monetary policy with more room for manoeuvre. And a move to price-level targeting looks likely to offer only modest gains – particularly when there are also costs to changing the framework – though further analysis may shed additional light on this particular issue (Section 4). 6. Monetary policy and credit/asset-price booms. The twin beliefs that financial markets are efficient and that financial innovation is necessarily welfare-enhancing have been dealt a serious blow by the crisis. We have seen that financial markets are riddled with any number of incentive distortions and market failures. Alongside that, the crisis has also raised serious question marks about a policy of benign neglect towards credit/asset-price booms.

One of the main motivations for this rapid research effort is the swiftly decreasing use of cash. Just some two per cent of the money supply is now created directly by the central bank in Sweden, for instance. But even the avant-garde Swedes consider the e-krona a complement of cash, not a fully-fledged substitute. The potential advantages of distributed ledger technology and central bank digital currency are the following: more efficient payment systems, direct and more efficient conduct of monetary policy (perhaps even practically enabling helicopter drop of money) and, if implemented on a sufficiently large scale, an end to the need to run costly deposit insurance schemes. But will central bank digital currency become a complete alternative to cash one day? I’m not sure. Many questions remain: anonymity, susceptibility to cybercrime and IT issues. But above all those, a key issue arises: the problem of competition. Will the central bank change into a direct competitor to commercial banks? Will it serve as a “bank of last resort” for all deposits in bad times? Should it also provide credit to the real economy? Might it become a real monobank, like the ones we saw a few decades ago in former socialist countries? What would the entire money-creation process look like? These questions are too important to rush around. So far it seems to me like social engineering to talk about abolishing cash fully and issuing digital currency instead.
For large international groups, typically the most complex, the most important decision is whether resolution is going to be addressed at the group level, by the home resolution authority (Single Point of Entry – SPE) or whether each part of the group is looked at separately, usually by the host resolution authority (Multiple Point of Entry – MPE). The choice between SPE and MPE will have implications for resolution planning, including steps that the firm may need to take to be resolved under that strategy – for example in which entities the capital will be held. The BRRD requires that all banking firms should have recovery plans, and that resolution authorities should develop resolution plans for all firms, based on assessments of their resolvability. The resolution planning that the UK has already carried out has identified some  8  BIS central bankers’ speeches  common barriers to resolvability, such as a lack of loss-absorbing capacity in the right legal entities, that need to be addressed. The BRRD also establishes that resolution authorities should determine a minimum requirement for own funds and eligible liabilities (MREL) that will be available to absorb losses and form new capital, if the authorities need to carry out a bail-in. The BRRD demands that the MREL requirement will have to be met at all times. It is being introduced from January 2016, but will be phased in over four years (i.e. until 2020). The precise rules for setting MREL in the UK firm by firm are currently being formulated.

I have argued, however, that, given the global nature of the problem and the risks that even the best regulated economies are exposed to, the most lasting and fundamental solutions must lie in long-term prevention and joint action. These preventive measures should include urgent reforms to the international financial architecture to enable it to cope with changing market practices and to reduce the extreme volatility in fund flows that has been such an important factor in this crisis. In the medium and longer term, they should also include efforts to develop stable and transparent debt markets in the region, and greater monetary cooperation, which might also include the development of an Asian Currency Unit. At today’s symposium we are both celebrating a fiftieth anniversary and addressing some of the difficulties that we currently face in this region. This is not a time for complacency, but it is perhaps useful to step back for a moment from present difficulties to reflect on how far we have come, as a region, in the past fifty years. Fifty years ago most of this region was still recovering from the devastation of World War Two; many countries were to face more upheaval in the years that followed. But over the last few decades the region has, through a variety of economic strategies and in differing degrees, enjoyed growing prosperity, greater stability, advancing crossborder co-operation, and, increasingly, freedom from the poverty and strife that confronted earlier generations. This has all been achieved in a context of globalization and economic liberalization.
About monetary policy, the baseline scenario just described uses as a working assumption that the MPR will follow a trajectory that is similar to the one that can be deduced from the financial asset prices at the statistical closing of this Report (figure 8). This means that monetary policy will advance in its normalization throughout the policy horizon, in line with the assumed economic outlook at that horizon, only a little more slowly than we thought in March. Under this assumption, monetary policy will continue to provide a boost to the economy. It is important to stress that monetary policy has kept a very expansionary stance, helping the economy to weather the changes in macroeconomic conditions as best it can. In this way it has succeeded in accommodating a significant depreciation of the peso and inflationary consequences without jeopardizing our monetary policy’s medium-term anchor: inflation expectations two years out. Unlike other economies, we have been able to sustain an expansionary monetary policy without driving inflation expectations away from the target (figure 9). This expansionary monetary policy is most notorious in market interest rates. On one hand, Chile’s long-term rates are low by historic standards and also in a cross-country comparison. The same is true for lending rates, which are now below their historic averages and, in the case of mortgage loans, even at or near record lows (figure 10). Risk scenarios As usual, the implementation of monetary policy will respond to incoming information about the projected inflation dynamics.

There is possibly a risk that labour market conditions in Sweden could result in a somewhat weaker economic upswing than we expected, mainly in the current year. As regards the view of domestic cost pressure, there are reasons to be somewhat more optimistic. It appears possible that the rate of wage increases could be slightly lower. At the same time, productivity was unexpectedly positive last year. Inflation in November and December has also been slightly lower than we expected in our last forecast. One of the risks of higher inflation that we stressed - that rises in electricity prices would filter through to other areas of the economy - also appear now to be somewhat lower. This is both because electricity prices have fallen sharply and that those rent negotiations that have been concluded have not resulted in such high outcomes as could have been feared. So it is a case of small adjustments to our assessment on  4  BIS Review 6/2004  a few points that, on the whole, imply somewhat lower inflation. But as the inflation outlook as early as December was judged to be fairly benign, even a small revision as I now see it could be significant for the monetary policy decision we will make at the beginning of February. By way of conclusion, there is, as always, reason to underline the fact that new data is being received every day and that any decision on interest rates at the next monetary policy meeting can not be made now.
So the challenge of designing an international monetary system that could prevent the emergence of “too high to last” imbalances remains. The financial crisis has reminded us all of the importance of solving this problem. Sudoku for economists shows that it is essentially a political and not a technical problem: how can we ensure that the economic policy frameworks of countries are consistent with each other? At present there is no political mechanism for achieving that consistency. Finding such a mechanism is urgent. Having narrowed somewhat at the height of the crisis, the imbalances are now widening again. There is a risk that countries will, out of frustration, impose unilateral  BIS Review 4/2010  3  and ultimately self-defeating protectionist responses. Because the number of countries involved in the international trading system is now so large, and the countries so diverse, the idea of another Bretton Woods conference is wholly impractical. The IMF, despite the legitimacy bestowed by its membership of 186 countries, is too unwieldy without reform. The G7 omits some of the key players, such as China. Of more immediate promise is the G20 group of countries, which produces almost 90% of world GDP. Last year, under the UK Presidency, the G20 agreed to a new policy coordination framework which commits member countries to a process, using the expertise of the IMF, of assessing the consistency of their national policies. G20 Heads of Government will meet twice this year, in June and November, to discuss progress.

The fact that the effects of monetary policy are surrounded by major uncertainty and cannot be calculated with good precision is something we probably need to remind people of more or less constantly, and in that case an interval can be useful. The most obvious approach in this case would perhaps be to reintroduce a tolerance band around the inflation target. If this route is chosen, it is important of course that it is given a practical significance and fulfils some kind of function, in contrast to the interval removed in 2010. One possibility could be that the Riksbank undertakes to explain in a special report why inflation has ended up outside the interval whenever this occurs – in roughly the same way as the Bank of England writes an open letter to the Chancellor of the Exchequer. On the one hand, this could lead to deviations outside the band being seen as slightly dramatic, but on the other hand it could also make deviations within the interval less dramatic. I believe the latter would be an advantage seen against the background of what I have just said about monetary policy not being able to fine-tune inflation. Naturally it is also important that the breadth of any band matches the variations in inflation in a meaningful way. It could be questioned whether this was the case for the previous tolerance  17  One possibility could be that long-term inflation expectations would have been anchored better if there had been an interval.
The new rules provide pension funds in particular with incentives to lengthen asset maturities, improving the balance between asset and debt maturities. Increased demand for long-term bonds push up bond prices and push down yields. Normally, an investor will, on an expectations basis, be compensated in the form of a positive term premium for holding long-term bonds instead of rolling over short-term bonds. Various conditions  3  Though the literature is vast, see for example Ahrend, R., P. Catte and R. Price (2006) ‘Factors behind low long-term interest rates’, Working Papers 490, OECD, www.oecd.org, IMF (2005) ‘Global Imbalances: A Saving and Investment Perspective’, World Economic Outlook September 2005, www.imf.org, IMF (2006) ‘Awash with cash: Why are corporate savings so high?’, World Economic Outlook April 2006, www.imf.org, and Rajan, R. G. (2006) ‘Is there a global shortage of fixed assets?’, Remarks 1. December, www.imf.org  BIS Review 10/2007  7  relating to saving and investment patterns in the world economy and new accounting and solvency rules may have led to a marked fall in term premia in recent years. In some markets, they can even be negative. The level of long-term interest rates is frequently used as an indicator of the normal interest rate level. If low long-term interest rates are caused by extraordinary conditions and not expectations of low growth and low inflation, long-term market interest rates may underestimate the normal interest rate level. When preparing an interest rate forecast, we must have a view of what the normal interest rate level is.

We have had considerable benefit of households and companies, savers and investors, expecting a future rate of inflation that is on a reasonably low level and that their expectations are more or less consistent with one another. This has contributed to a completely different stability in price setting and wage formation over the past two decades than in the two decades prior to this, which has in turn contributed to inflation falling at the same time as we have had more stable and much higher real wages on average. That high and fluctuating inflation has disappeared as a disturbing factor should also have meant that financial decisions by households and companies have in general become simpler and better. But the key to this type of development is a joint anchoring of inflation expectations and a condition for this is that the inflation target of 2 per cent is perceived as credible. This is the problem that has marked the Riksbank's monetary policy in recent years. In January 2015, when I became a member of the Executive Board, we were in an unfortunate situation where inflation expectations in the longer run were losing their anchorage around the 2 per cent target. Monetary policy had been expansionary for a long time and further measures were needed to strengthen confidence in the target and to send very clear signals about the Riksbank’s intentions to bring inflation back to 2 per ce nt.
The FPC has set out a steady-state resilience framework to promote financial stability. But let me leave you with an encouragement to each play your role. LDI fund managers and pension schemes must ensure lessons from the crisis are learned and fully embedded into their operations and onto their balance sheets. I look forward to your support in building the operational and financial resilience that will help ensure we deliver financial stability. I’d like to thank Alex Briers and Natan Misak for their assistance in drafting these remarks. I would also like to thank Renée Horrell, David Baumslag, Leo Fernandes, Pierre Ortlieb, Steven  Page 8  Dodkins, Stephane Amoyel, Lee Foulger, Gian Valentini, Clare Macallan, Thomas Wise, Danny Walker, Ali Moussavi, Andrew Bailey, and Georgia Waddington for their helpful input and comments. The views expressed here are not necessarily those of the Financial Policy Committee. 1. See A roadmap for increasing productive finance investment 2. The responsibility for supporting and enabling an orderly transition to net zero is wider than the pension sector. It is for the entire finance sector to support and enable that transition. See Climate action: approaching a tipping point? − speech by Sarah Breeden 3. See Risks from leverage: how did a small corner of the pensions industry threaten financial stability? − speech by Sarah Breeden 4. In this speech, I will use ‘LDI funds’ to refer to leveraged LDI funds and LDI mandates in which many pension schemes invest. 5.

Finally, persistently high oil prices may add another element of caution with regard to the sustainability of the currently impressive growth dynamic in the United States. On the monetary side, Federal Reserve officials have repeatedly pointed out that despite firm consumer growth and gradually firming spending, there remains much slack in the U.S. economy. As it stated in its release of September 16, the Federal Open Market Committee therefore believes that pricing power and increases in core consumer prices remain muted. Or, as Federal Reserve Governor Don Kohn stated a few days ago, “it will be a while before we can be sure that a self-sustaining expansion is underway of sufficient strength and persistence to put the economy back on a path toward full employment.”13 Switzerland will undoubtedly benefit from the improved outlook in the United States. Unfortunately, apart from the lack of internal growth dynamic I discussed previously, Switzerland’s growth prospective is further curtailed by economic developments in the rest of Europe where there is currently little evidence of a robust and sustainable upswing in economic activity. This is reflected in the fact that despite more favourable exchange rate conditions, Swiss exports during the second quarter declined again. While consumer spending had a stabilizing effect, investment also continued to decline. 12  Ex post, this phenomenon can be observed empirically for the recessions of the 1990s. 13  Don Kohn (The Federal Reserve Board): “Productivity and Monetary Policy”. September 24, 2003.