samchain/econo-pairs-v1 huggingface dataset:
Svein Gjedrem: The management of petroleum wealth Lecture by Mr Svein Gjedrem, Governor of the Central Bank of Norway, at the Polytechnic Association, Norway, 8 November 2005. The charts can be found on the Central Bank of Norway’s website The lecture does not contain assessments of the economic situation or the monetary stance. *  *  *  The oil age in Norway has spanned 30 years and it appears that it will continue for many years ahead. In this lecture, I will attempt to take stock of how we have managed petroleum wealth thus far. Moreover, I will look at the challenges that still lie ahead. On some scores, our management of petroleum wealth has been very successful. We have managed to define it as national wealth, and have ensured that the bulk of this wealth benefits society as a whole. Both the state’s ownership interests through the State’s Direct Financial Interest in petroleum activities (SDFI) and the tax system have contributed to this. The companies that extract oil earn a reasonable return on their investments and have incentives to invest, but the economic rent has essentially accrued to the general public. My theme today concerns the economic challenges linked to petroleum wealth and certain aspects of government wealth management. The most important economic challenges we would be facing were widely recognised early on. As early as in 1974, in Report no. 25 to the Storting “The role of petroleum activities in Norwegian society”, was discussed in depth.

It is reasonable to ascribe this difference to petroleum revenue spending. In principle, this development should have occurred. If we are to benefit from the petroleum revenues, they must be used to stimulate domestic demand. The wealthier we are, the higher demand for services is. Many services cannot be imported, but must be provided domestically. This requires a higher share of employment in sheltered sectors. The question is how rapidly and to what extent this shift should occur. Changes in industry structure involve costs in that the capital invested may remain idle and labour resources may be used less efficiently in periods. It may take time and be difficult to re-establish the use of these resources. Restructuring costs are probably so substantial that we should take them into account when we decide how fast petroleum revenues should be used in the Norwegian economy. An economist at Norges Bank has looked at the level of petroleum revenue spending that minimises restructuring costs, and in that respect represents the most efficient use of revenues. In his analysis, Farooq Akram7 assumes that petroleum revenues are not permanent, and that the mainland economy will continue to expand. This implies that the return on the Petroleum Fund will eventually decline as a share of national income. If we use the entire return as stipulated in the fiscal rule, earlier changes in industry structure will have to be reversed in the long run. Production resources will have to be shifted back from the sheltered to the internationally exposed sector.
The lender of last resort function - the ultimate source of liquidity in a banking system - is one of the most important functions of any central bank. One of the measures of the soundness of a banking system, however, is the rarity with which this function is exercised. The fact that the HKMA has not yet had to activate its lender of last resort policy is perhaps one of the firmest demonstrations of the soundness and stability of Hong Kong’s banking system that we could have. We owe this success to the prudent policies and skilful management pursued by the members of this Association and to the productive partnership between UHJXODWHGDQGUHJXODWRU $ which to tackle the challenges that now face us, and I look forward to seeing that partnership continue to flourish in the years ahead. 7  BIS Review 77/1999

While the PRA has not yet consulted on a reform package, it has recently published a Discussion Paper[5] seeking views on a range of areas that are likely to be key in forming such a package. Our intent lies in finding a set of reforms that protects policyholders and enables even greater investment flexibility than we have seen already, whilst reducing any misaligned investment incentives. To achieve this intent, the Solvency II reform package we develop must address the two significant deficiencies in the current regime: a risk margin calibration that is overly sensitive to interest rates; and an allowance for retained risk – the FS - that varies very little, if at all, as credit risk premia vary across assets and over time. The risk margin is currently pulling more than its weight in the current Solvency II construct – the resulting incentive being for insurers to reduce the insurance risk they are taking. However, the MA as currently formulated rewards taking certain non-insurance risks, potentially in significant quantum, and with a set of incentives that may be misaligned. We therefore see quantitative reform of both the risk margin and Matching Adjustment, as integral to any package. The PRA seeks a calibration package that is better able to capture how liability transfer values are likely to be impacted by the assets held to back the business. Such a package should also take account of different financial and economic conditions that might pertain at the point that a transfer became necessary, including times of stress.
These new instruments have of course emerged, and so have been priced, during a period when the default rate has been extraordinarily low. A second question is whether the trade off between the demand for financial engineering and the demand for liquidity in the structured finance markets, not just amongst leveraged players, could switch – back to liquidity – if market conditions were to shift from benign to stressed. An illustration of what can potentially happen is perhaps provided by the disruption just over a decade ago in the US Collateralised Mortgage Obligation (CMO) market. After a period of ever more refined financial engineering of mortgage claims into capital market instruments, resulting in some fairly illiquid tranches being created, stress occurred when the dollar yield curve rose sharply in 1994. This underlines the importance of industry scenario analysis building in some allowance for the possibility of system-wide liquidity stresses. 6  Leverage, in this sense, can be understood as the sensitivity of the spread over risk-free rates on a particular credit instrument to a given change in credit spreads generally. In a CDO, the credit risk on an asset portfolio is split into tranches of varying seniority. The vast majority of expected losses from credit risk are concentrated in the most junior (or ‘equity’) tranche. In consequence, the prices of such junior tranches are highly sensitive (up to 20 times greater than the price of the entire portfolio) to changes in the general level of credit spreads, giving a highly leveraged exposure.

Today, there are no signs of a financial bubble, but we are ready to act, if necessary, by implementing macroprudential measures, in the framework notably of the Haut conseil de stabilité financière (High Council for Financial Stability – HCSF) that you created via the Banking Act of 2013. For instance, at our eighth meeting held on 15 March 2016, we issued a warning about the office sector in the Paris area. BIS central bankers’ speeches  1  2. Monetary policy thus contributes greatly to our economy, but it can’t do everything. It cannot be the only game in town. It is vital that Europe and France seize this opportunity now. In France, growth is expected to be both robust and inadequate: Robust, as it should remain in 2016 at least at the 1.2 percent level observed last year. But inadequate, as it will probably linger a little below the euro area average of 1.4–1.5 percent. For growth and employment, three essential actions are necessary: reforms in France; private and public investment; the coordination of economic policies in Europe. First, in France, orderly and sustained reforms are needed to rebuild confidence. Keeping our public deficit and our debt under control is a contributing factor: the good figures published on Friday (deficit reduced to 3.5% in 2015) are another reason to strictly respect our European commitments by bringing it below the 3% limit in 2017.
To the contrary, innovation came thick and fast in the pre-industrial era, from the windmill in the 12th century to the mechanical clock in the 13th, from the cannon in the 14th to the printing press in the 15th, from the postal service in the 16th to the telescope in the 17th.20 It is clear pre-industrial innovation played an important role in fuelling subsequent growth. Shakespeare’s imaginative genius would not have been sparked without Guttenberg’s 14th century invention. Einstein would not have transformed our understanding of the world without Lippershey’s 17th century creativity. Yet neither great invention translated into consistently higher living standards for the great mass of society at the time. What was the missing ingredient? A number of historians believe it was a second “i” – institutions.21 In the words of economist Douglass North, institutions are “humanly devised constraints that structure political, economic and social interactions”.22 If ideas and imagination are the fuel and engine that drive economies forward, rules and institutions are the bolts and chassis holding societies together. Institutions, defined broadly, play two crucial roles. First, they provide the rules of the game that allow the creative process to flourish. For example, the rule of law can help ensure property, physical and intellectual, is not stolen and contracts are honoured. This provides private individuals and companies with the foundations to flourish.

Some put the date when the Bank became a genuinely central bank at 1844, with the passing of the Bank Charter Act granting the Bank a monopoly over issuing legal tender. This was a year before the founding of the GSA. A five minute walk from my office is St Paul’s Cathedral. In the churchyard of St Paul’s on 6 June 1844, the same year as the Bank Charter Act, George Williams set up a shelter for young men who had come to London in search of work as part of the first wave of industrialisation. These shelters offered a roof and food. Their role spread quickly across the UK then globally, like home insurance after the Great Fire. The YMCA was born. 170 years on, the YMCA is still offering food and shelter. But it now operates in 119 countries and has helped millions of young men (and, through the YWCA, women) to improve their lives. It is one of the millions of civic institutions providing social insurance to those in need. Many of these institutions, including the GSA, YMCA and Bank of England, can trace their roots to the Industrial Revolution. Institutions turned tragedy into triumph after the Great Fire and turned stagnation into success either side of the Industrial Revolution. The lesson of history is clear. For societies to grow sustainably, we need the imagination inside our heads to generate creativity, ideas, innovation. But we also need social institutions that connect and curate these heads to generate collective intelligence and collective action.
The outlook for the Spanish economy points to declines in GDP over the rest of the year that should lead to a significant fall in 2009, albeit slightly lower than is forecast for other European countries. It is highly likely that the worst of the contraction has already passed, and that the intensity of the restrictive impulses will begin to diminish in the second half of the year as the broad range of measures implemented progressively deploy their effects. As a result, the fall in activity in 2010 is expected to be less pronounced. The course of employment in this scenario, in any event, is a cause for concern; despite the somewhat more positive signals given by some recent indicators, linked in part to seasonal factors, job destruction may run for some time and the unemployment rate may continue further on its rising trend. The imbalances built up during the long expansionary phase, in the form of the inflation differential and the resort to external financing, are being swiftly reabsorbed, providing an unquestionable source of relief in the global outlook described. Yet this rapid correction is occurring on the back of an excessive brake on activity, entailing major costs in terms of job destruction, higher unemployment and the deterioration of the productive fabric.

Horizontal integration, however, allows users to select between interlinked providers, exposing them to ongoing competition. Yet the feasibility of this model depends on whether there is a cost-efficient way for users to route transactions to their preferred provider. In any case, the emergence of poles around Euronext and Deutsche Börse shows that the consolidation process has begun. From a Swiss perspective, both SWX and SIS are engaged in the race - not really as hunters, given their relative size, but as partners with proven technology and know-how. Financial market infrastructures are also subject to higher competitive pressures. The driving forces behind these pressures are, without doubt, technological innovation and the expected profits resulting from the achievement of economies of scale and, possibly, economies of scope. Three kinds of competitors can be distinguished. First, competition among exchanges, clearing and settlement organisations within and across countries has increased. Indeed, for trading, clearing and settlement, physical location has become less and less relevant. As you are confronted with these pressures in your daily business, you certainly know better than any central banker what I am referring to. Second, non-financial institutions may provide trading, clearing and settlement services to financial markets. More precisely, I think here not only of alternative trading systems, but also of outsourcing partners such as payment and securities processing centres. Third, and maybe less visible, but of growing significance, are competitive pressures exerted by large custodians, especially by global custodians.
Muhammad bin Ibrahim: Major milestone for financial integration in ASEAN Remarks by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Luncheon, hosted by Bank Mandiri, Kuala Lumpur, 6 July 2017. * * * I am pleased to be here today to deliver the remarks for the lunch gathering hosted by Bank Mandiri. I am confident that Bank Mandiri will be the first Qualified ASEAN Bank in Malaysia, a major milestone for financial integration in ASEAN. Indonesia and Malaysia – neighbours and friends Let me start with the close relationship between both of our countries. Our relationship extends beyond our geographical proximity but is bound by our similarities in language, culture and of course – food. These natural forces have allowed us to forge and strengthen a strong history of cross-border trade and investments. Businesses from both countries have also strongly committed to invest and contribute to each other’s socio-economic development. Malaysian companies have made significant investments in Indonesia, amounting to USD12.1 billion at end 1Q-2017. These investments span the financial services, telecommunication and agriculture sectors. In fact, the collaboration between Malaysian and Indonesian corporates gave birth to Malindo Airways Sdn Bhd in 2012. It speaks volume of the partnership and close cooperation between our two countries. Indeed this venture will further open up ASEAN skies and expanded the close ties between the people of Indonesia and Malaysia. Over the last few years, Indonesian firms have also started to increase their presence in Malaysia.

And it seems somewhat inconsistent with the rise in equity and other asset prices, the fall in credit risk premia, and the relatively low levels of uncertainty about the future reflected in measures of expected future volatility in many different types of financial instruments. One feature of present conditions that is not captured by these explanations and that is likely to be playing a significant role in contributing to the combination of these large imbalances and relatively low forward interest rates is the pattern of exchange rate and monetary policy arrangements in the global economy today. Even with the broad shift globally to more flexible exchange rates, a substantial part of the world economy now run monetary policy regimes targeted at limiting the variability in their exchange rate against the dollar, or a basket in which the dollar plays a substantial role. Sustaining that objective in the past several years has required a large accumulation of dollar assets. The scale of this activity has been particularly dramatic in parts of Asia. The significant rise in the earnings of the energy exporters, many of whom also run exchange rate regimes that seek to shadow the dollar, has also generated a substantial rise in investments in U.S. assets. A large share of the capital flows to the United States that have financed our current account imbalance come from these official sources. These flows add to other sources of private demand for U.S. assets.
My answer is that a number of political, technological and economic changes over the past 15–20 years have combined to bring about a more intensive phase in global economic integration. The political changes can be summarised in the word deregulation, which has released flows of capital, goods and services across national borders. Trade barriers and customs duties between countries have declined. 1 The international capital markets were deregulated during the 1980s, which enables a free movement of capital towards investments that have the best return. Many product markets, particularly within the EU, have been opened up to competition. Large countries, such as China and India, which together comprise approximately one third of the world’s population, are rapidly being integrated into the world economy. Following the breakdown of the Soviet Union, central European countries have joined the EU and adopted market economies. Technological progress, particularly within the field of information technology, enables rapid and simple communication and money transfers from one part of the world to another, which makes it easier for companies to build up global trade and manufacturing networks. The cost of transporting goods between countries has also declined in recent decades, although the really major breakthrough in this field came earlier. This has resulted in world trade increasing almost twice as much as GDP since 1985, direct investment has increased four times as much and the turnover in the global foreign exchange market is currently ten times larger than it was 20 years ago.

The driving forces behind this were a budget deficit that amounted to 2.6 per cent of GDP in 2005, and a large and growing deficit in household saving. Private household saving turned negative in 2005, which was the first time since the 1930s and corresponded to 0.3 per cent of GDP. The US current account deficit is counterbalanced to 40 per cent by the surplus in Asia, particularly China and Japan. The remainder is accounted for by a number of oilproducing countries and a few small, open economies, including Sweden, Norway and Switzerland. Several different explanations have been put forward for the large US current account deficit. The explanation most often highlighted in the United States is that the deficit reflects stronger productivity growth and higher growth potential in the United States, compared with other parts of the world. Many of the investments made in the 1980s and 1990s, particularly IT investments, had substantial positive effects on productivity, after some time lag. When these investments were supplemented by reorganisation and internal training within the companies, they had an even greater effect on productivity. The labour supply has also benefited from substantial labour immigration. According to the OECD, potential growth, that is, how fast the economy can grow without problems arising in the form of overheating, amounts to 3.4 per cent in the United States, with around 1 percentage point being explained by the labour supply. 10 The corresponding estimate for the euro zone is 1.9 per cent and for Japan it is only 1.3 per cent.
In contrast, bank deposits are claims on private banks. CBDC raises some fundamental questions as to the role of central bank money. This is much more than a question of technology. Chart 4 Central bank digital currency Norges Bank is not alone in assessing the need for central bank digital currency. Many central banks are engaged in similar research. Several are in the process of testing technical solutions. Both Sveriges Riksbank and the central bank of China launched pilot projects earlier this year. The European Central Bank (ECB) signalled last month that it was stepping up its research on a digital euro. Central banks are considering introducing a CBDC for a variety of reasons. In emerging economies, the focus is on financial inclusion and low-cost payments. In advanced economies, the focus is more on the role of cash and the emergence of new monetary and payment systems. A trend specific to Norway and some of our neighbouring countries is the low and falling level of cash use. Users increasingly choose solutions offering contactless payments and payments via smartphone apps. These solutions use bank deposits as the means of payment. At the same time, cash has some unique characteristics that could be important to preserve in the payment system of the future: Cash is part of the contingency arrangements if the electronic contingency solutions fail. Cash is a credit risk-free alternative to bank deposits and can promote competition in the payment market. 2/6  BIS central bankers' speeches  Cash is legal tender that is widely accessible.

Interoperability across systems and operators merits continued focus. Big technology companies, or BigTechs, have so far offered services to end-users overlaid on top of traditional payment infrastructures. They can also have an interest in offering their own currency and payment systems. One example is Libra, backed by among others Facebook. Regulation of such systems will be important if we as a society are to secure the benefits of these new solutions while limiting the associated risks. The European Commission recently presented legislative proposals for an EU regulatory framework on crypto-assets as part of its digital finance package. As an EEA country, Norway will also be affected by this framework. Globalisation is about more than BigTechs entering the payments market. Payment infrastructure providers are also undergoing structural changes. Global operators are taking positions in Norway and the Nordic region. Mastercard will be acquiring many of Nets’ services and will be an important provider for Norway’s payment system. Central bank digital currency Structural changes in the payment landscape raise questions around whether there is a need for Norges Bank to implement measures to ensure that payments can continue to be made efficiently and securely in NOK in the future. A central question is whether Norges Bank should provide central bank money to the public in digital as well as physical form. Central bank digital currency – CBDC – will be both a new type of money and a new payment system. CBDC, like cash, is a claim on the central bank.