samchain/econo-pairs-v1 huggingface dataset:
The Regulations specify that at least 60% of an authorised bank’s notes in circulation must be backed by Bank of England notes and UK coin and that the remainder, plus all notes with the potential to enter circulation, must be backed either by such notes and coin or by funds placed on deposit in an interest bearing account at the Bank of England. 7  4  All speeches are available online at www.bankofengland.co.uk/speeches  4  Adam Smith worried about the potential debasement of public money and for good reason. Throughout history, governments would often betray the trust of their citizens be it Henry VIII reducing the precious metal content of his coins during the Tudor era, Pitt the Younger depleting the gold vaults of the Old Lady during the Regency period, or a pliant Reichsbank financing the government in Weimar Germany. With the wisdom borne from such sad experience, most countries have now settled on centralised, public fiat money backed by robust institutions in order to provide the public with money that is both highly trusted and easy to use. To understand the breadth of institutions needed for good money, it is important to recognise that modern money takes three forms that are linked by retail and wholesale payments systems. Each link in the chain is critical to the resilience of money.

Rather than placing trust in central institutions – such as banks (and by extension the 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  In this spirit of dystopian fear and libertarian optimism, the message accompanying the first or genesis Bitcoin block read: “The Times 3 Jan 2009 Chancellor on brink of second bailout for banks.” How well do cryptocurrencies fulfil the roles of money? The answer has to be judged against the functioning of the entire cryptocurrency ecosystem (which extends beyond the currencies themselves to the exchanges on which cryptocurrencies can be bought and sold, the miners who create new coins and verify transactions and update the ledger, and the wallet providers who offer custodian services). The long, charitable answer is that cryptocurrencies act as money, at best, only for some people and to a limited extent, and even then only in parallel with the traditional currencies of the users. The short answer is they are failing. Poor Stores of Value Cryptocurrencies are proving poor short-term stores of value. Over the past five years, the daily standard deviation of Bitcoin was ten times that of sterling. Consider that if you had taken out a £ student loan in Bitcoin in last December to pay your sterling living costs for next year, you’d be short about £ right now. If you’d done the same last September, you’d be ahead by £ That’s quite a lottery. And Bitcoin is one of the more stable cryptocurrencies.
On the other hand, reabsorbing this huge volume of liquidity once monetary policy began to normalise would have been very difficult and extremely costly. Communication and timing of the discontinuation The discontinuation of the minimum exchange rate took the financial markets by surprise and the price reactions on the foreign exchange and equity markets were correspondingly strong. In an age when transparency and openness in monetary policy matters are riding high, the decision to exit the minimum exchange rate policy so abruptly bewildered many observers. However, transparency is not an end in itself; it is part of monetary policy. Traditionally, monetary policy has been steered via short-term interest rates. These then feed through to exchange rates and long-term interest rates, thereby influencing – albeit with a time lag – the demand for goods and services and, ultimately, wages and prices in the economy. By communicating its intentions transparently and credibly, the SNB can influence expectations (e.g. on the financial markets), thereby rendering its monetary policy more effective. Fundamentally, we are keen to avoid surprising the economy and triggering major price movements on the financial markets with our monetary policy measures. In the context of conventional interest rate policy, it is thus advantageous to keep the gap between financial market participants’ expectations and the SNB’s actual interest rate adjustments within reasonable limits. Normally, therefore, there is no contradiction between the notion of transparent communication and our monetary policy intentions.

Lastly, I would like to emphasise that a key issue in discussions on changes in regulation and supervision is the search for ways to mitigate the problem of moral hazard associated with so-called systemic institutions. Some of the more perverse consequences of the crisis have manifested themselves in these institutions, i.e. those which, owing to their size, their inter-connectedness or the difficulty of replacement of their business areas, are too “big” to allow them to fail. The governments of most developed economies have had to intervene to avoid the consequences of their failure for the system as a whole, at a considerable cost to the public coffers of these countries. The treatment of these systemic institutions is a cornerstone of the reforms proposed by the G20. The wide variety of work under way includes most notably improving countries’ restructuring and resolution capabilities, i.e. the ability to disaggregate the balance sheet of these institutions, and reducing the likelihood and systemic impact of their possible bankruptcy or severe financial stress. In this respect, the members of the FSB undertook to ensure that cross-border institutions have a restructuring plan whereby these can obtain emergency liquidity and deleverage their financial position to improve solvency, and that they have a detailed resolution plan if they are unable to continue operating. That said, the solution to the problem of systemic institutions must be a global one and encompass many other measures.
When the economy is in balance and the long-term inflationary expectations are in line with the target, there are good prerequisites for monetary policy aimed at an inflation target also leading to cyclical swings being evened out and that production will increase apace with the supply of labour and productivity growth. This is due to fluctuations in inflation in an economy in balance largely being related to fluctuations in real demand and the use of resources in the economy. Stable inflation and stable inflationary expectations also favour long-term growth, which is the reason for monetary policy being given the task of maintaining an inflation target. Since the means of monetary policy - the short interest rate - affects inflation with a time lag of one to two years, the design of monetary policy must rest on forward-looking assessments of inflation. Demand for goods and services and the supply of labour and productivity growth are important determining factors for inflation. At the same time, it is primarily through the effect of the interest rate on the demand for goods and services that monetary policy has an effect on inflation. When the use of resources is low, inflationary pressure is normally also low. The interest rate is then determined so that demand is stimulated and inflation reaches the target and vice versa when the use of resources is too high. However, consumer prices are also affected by other factors than purely cyclical.

While consumption certainly provides a large contribution to the strong growth in GDP in coming years, strong increases in real income also make a contribution. Strong increases in the property and share prices area are also assessed, however, to contribute to the high growth figures for consumption. An important issue is whether the current monetary policy regime per se prevents the major imbalances that we saw during the 1980s being built up? During the years monetary policy could not counteract an altogether too high loan-financed increase in demand as the overheating did not seem to threaten the exchange rate target despite the large deficit in the current account and a continued deterioration in competitiveness. In retrospect, it can be noted that too much confidence was placed in the fixed exchange rate policy. It is difficult to conceive that such a high increase in demand and such a high use of resources today would not be considered to threaten the inflation target and thus be counteracted by a more stringent monetary policy. Accordingly, the debt ratio of businesses and households would not either increase in such an unrestricted way as at the end of the 1980s. The banks have also become considerably better at handling risks in their balance sheets at the same time as supervision and monitoring has been improved and adapted to the deregulated financial markets that we now have. Conclusion I have discussed the effects that rising asset prices can have on the real economy.
In particular, banks will have to learn to live with the considerable increase in regulatory demands. These will arise especially from the imminent entry into force of the liquidity and provisioning requirements included in the Basel III Accord, and from the foreseeable introduction of additional measures, such as those that will demand separation in some cases between the investment banking business (proprietary trading, market-making, etc.) and the traditional banking business, or that will require banks to have liabilities available that may be converted into equity in the event of resolution. At the same time, greater restrictions can be expected on the admittance of internal asset risk assessment models when they represent savings in regulatory capital. In turn, within the framework of the SSM, work can be expected to begin to try to harmonise the regulatory differences that persist (for example, in the calendars for application of the capital deductions established in Basel III) as well as supervisory practices (for example, relating to the approval of internal risk assessment models). Insofar as greater harmonisation can be expected to be conducive to stricter supervisory practices, in each area the new supervisory framework will generally tend to raise the bar for all European banks. Hence, in order to adapt to the new regulatory and supervisory environment, many banks will need to make further efforts to strengthen their own funds.

In the present setting of ongoing deleveraging of the non-financial private sector, mounting regulatory pressure and narrow interest margins, re-sizing of the industry was essential. Much of this re-sizing has come on the back of the intense process of rationalising the balance sheets of the banks that received public support, in accordance with the conditions laid down in the restructuring and resolution plans approved by the Banco de España and the European Commission. Moreover, the concentration processes involving the integration of some of these institutions into other bank groups (for example, Caja 3 in Ibercaja, Banco Gallego with Banco de Sabadell, Banco de Valencia with Caixabank, CEISS with Unicaja and, most recently, Catalunya Banc with BBVA), added to those completed previously, have reduced the number of bank groups in Spain by more than 30 in recent years. Accordingly, the reform of the Spanish financial system may be said not only to have restored stability, but also to have placed the banking sector in general back onto a normal footing, through the recapitalisation and consolidation processes undertaken, the clean-up of balance sheets and the reform of the savings banks. Upcoming challenges Nevertheless, however positive this return to normal – which has now been evidenced by the tests conducted in the run-up to the SSM – has been, especially following the turmoil experienced, there is no respite, as there are major challenges ahead for Spain’s banks, as there are for the banks of our European partners.
Further downside risks to the global outlook remain, reflecting the ongoing challenges in China, fragilities in other major emerging market economies, and the potential for financial contagion. Chinese trade has been strikingly weak recently, possibly reflecting rebalancing there, as softer investment reduces demand for imported capital goods. This process has hit advanced economy exports to China, particularly those from the UK which dropped by one third in the year to November. Global difficulties are likely to continue to suppress world demand relative to our expectations in August. In addition, possible spillovers to domestic demand via wealth and cost of capital channels bear close monitoring. BIS central bankers’ speeches  9  As one consideration in setting monetary policy, the MPC must evaluate how much of the moderation in output growth reflects slower supply growth. Slack ultimately matters for inflationary pressures, though sizing it requires careful judgement, particularly after a supply shock.12 A simple read can be taken from the unemployment rate, which has continued its solid downward trend since the autumn of 2013, falling more rapidly than we had expected in August and its historical relationship with GDP growth would have suggested (Chart 8). Short-term unemployment is now below its pre-crisis average rate, though longer-term unemployment has further to go (Chart 9).13 In addition, the vacancy to unemployment ratio – a simple measure of labour market tightness – is at its highest observed level since August 2005.

10  BIS central bankers’ speeches  15  Chart 9: Unemployment on a solid downward trend, and short-term unemployment now below pre-crisis average 5 6 months or less between 6 and 12 months over 12 months  4.5 4  3 2.5 2  Per cent  3.5  1.5 1 0.5 2015  2014  2013  2012  2011  2010  2009  2008  2007  2007  2006  2005  2004  2003  2002  2001  2000  1999  1998  1997  1996  1996  1995  1994  1993  1992  0  Notes: Dotted lines show averages computed over 2000–5. Source: ONS and Bank calculations. In the wake of the crisis, one reason that headline unemployment has not been a sufficient summary statistic for slack in the labour market is because of underemployment of those in work. Employees wanted to work more – perhaps to make up for lost income. This gap between actual and desired hours widened significantly (Chart 10). Since the start of 2013, it has been closing and most recently, rather sharply so. As overall employment growth remains strong (Chart 11), this may reflect a normalisation of working patterns, with desired average hours returning to their pre-crisis level, rather than an unwelcome decline in labour demand. An additional source of labour supply is net migration, which has recently been running above past averages.
We have stressed, also, how Chile’s interest rates have adjusted significantly downward in this scenario. This contrasts sharply with what would occur in other times or today in other emerging economies, where exchange rate pressures would rapidly translate into higher interest rates. External credit conditions, aside from temporary ups and downs, have remained favorable from a historic perspective, although the risk of a reversal is still present. Lately, Chile’s sovereign and corporate risk premiums have increased somewhat, but are still below their year-ago levels. The situation is similar in other emerging economies. Long-term interest rates have receded in the developed world since June, with unprecedented performance in the case of the U.S. given its stronger economy and expectations that the benchmark rate will begin to rise by the middle of next year. The terms of trade have also been favorable since June, and they even increased marginally with respect to June’s forecasts, mainly owing to a higher copper price because of tighter supply. The baseline scenario works with a copper price forecast of 315 dollar cents per pound in 2014 and 305 in 2015. The growth outlook of our trading partners lost some strength since June, and we continue to expect higher growth in 2015 than in 2014. In the developed economies, growth has been slightly revised downward for this year. The worsened figures in Japan combined with a slower recovery in the Eurozone, Germany included, where consumer and business confidence has declined, partly because of the geopolitical conflicts in the region.

We consider that our work has been both interesting and rewarding and we hope that it has also helped some of our colleagues to make their own institutions stronger. 2  BIS Review 123/2006
The Committee has established a working group of supervisors, called the Accord Implementation Group, or “AIG,” that shares information on implementation efforts among Basel Committee member countries. The AIG works with other supervisors as well, including through the Core Principles Liaison Group, a group of supervisors from many other countries that shares views and exchanges information. By promoting the sharing of information on practical issues, the AIG’s discussions will help to foster greater consistency in the implementation and application of the new framework across countries. For example, thanks to the work of the AIG, the Committee has been able to publish its thinking on the implementation of the supervisory review process – Pillar 2 – and on home-host co-operation in implementation of the framework. Let me just come back to this latter point. Given the internationalisation of banking groups and their increased reliance on group-wide risk management, it is clear that the cross-border implementation of the framework is more complex than it was in 1988. The AIG has been actively discussing this issue, and in August 2003 the Committee published a set of principles to promote closer practical cooperation and information exchange among supervisors. The principles re-emphasise the traditional responsibilities of home and host supervisors, but also how those responsibilities will continue under the new framework on the basis of enhanced co-operation. More recently, at the beginning of May, the Committee published an elaboration of the principles.

That is an appropriate metaphor for us today. We must evaluate the environment we and our banks are entering and choose a way forward that enhances supervision and that contributes to the safety and soundness of our banks. At the same time, we should not invent new roads. There are already ‘roads’ of good practices used by leading banks that we can follow and support. We might discover a second relevant metaphor if we allow ourselves to be inspired by the beauty of the Federal Reserve’s Eccles Building and its architectural references to antiquity. In classical times, scholars divided the liberal arts into seven subjects. The first three related to language and formed the “Trivium,” which in Latin means “three roads.” In contrast, the “Quadrivium” – which is the Latin term for “four roads,” but also for “crossroads” – represented the study of four subjects related to numbers – namely, arithmetic and geometry, but also music and astronomy. The classical metaphor of the Quadrivium, or of the “crossroads” of subjects related to numbers, seems equally well suited to a discussion of contemporary banking and supervision. Leading banks in recent years have sought to augment subjective assessments of risk with more objective and formalised, more rigorous, and more numerically oriented analytical techniques. After all, good numbers are the best friend of good judgement.
One of the benefits from low inflation is that firms can concentrate on real relativities rather than decisions being dominated by the general rise in prices. Whatever the reason, the downwards pressure which normally arises from a fall in output, has not been sufficient to push inflation negative. The explanations for these changes in behaviour and their inflationary consequences are likely to be many and varied. And it may be some time before we can be sure which of many hypotheses are correct. But one factor we know is that interest rates have been at an all-time historic low during this recession (Chart 7). And Bank Rate started to fall well before the trough in output. The effect of this on, for example, firms’ cash flow, has been very significant and was reinforced by the effects of the asset purchase programme reducing corporate borrowing costs. It seems a reasonable starting assumption that behaviour during the recession should be broadly symmetric during the recovery. When demand growth strengthens, output could be flexibly ratcheted up, reversing the processes seen during the downturn. If so, then it is unlikely that substantial inflationary pressure would be generated as the result of a recovery in demand: there will be plenty of capacity within firms and a ready supply of labour, both of which should help to keep costs subdued. But this is clearly a major uncertainty and hence a risk in our projections of future inflation.

So, just from the mathematics of the calculation, that’s likely to have generated a substantial swing in the measured inflation rate of the order of 1 ½ percentage points between the end of 2009 and early 2010. It will also imply a boost to the measured inflation rate through 2010. 3 Chart 9 sets out an illustration of how this might have affected the inflation rate. Changes in the relative price of oil, and hence petrol and other fuel-related transport costs, similarly have a big impact on the price level and the annual inflation rate. The difference is that we have seen several erratic swings in the price of oil – sometimes up and sometimes down. Recent inflation outturns have reflected a big rise in petrol prices worth perhaps nearly 1 percentage point on the April rate (Chart 10). That reflects higher sterling oil prices, which rose by some 60% in the year to April. Some other energy prices – such as gas and electricity – have generally been falling recently and thus subtracting from the inflation rate, albeit at a declining rate (Chart 10). 3  In addition, since the date of this talk, the Government has announced an increase in the VAT rate to 20% from January 2011. BIS Review 91/2010  5  Finally, the most complicated relative price shock has been that from the depreciation of the sterling exchange rate (Chart 11). The effect of any exchange rate change depends crucially on why it has itself moved.