samchain/econo-pairs-v1 huggingface dataset:
Shocks are by definition something we cannot foresee. Asymmetric shocks are shocks that affect only selected member(s) of a monetary union. Such events are considered the biggest threat to unions (Mundell 1961), because joining a common currency area substantially reduces the set of policy tools which could be used to mitigate the impact of the shock. Let us assume that a negative demand shock affects the Polish economy (e.g. consumers decide to buy less goods and services). In the short and medium run this brings about a reduction in output and higher unemployment. As long as Poland has its own currency, it can use both monetary and fiscal policy to stimulate demand and reduce the impact of the shock on output and employment. Moreover, the exchange rate might adjust (depreciate) and thus make our exports more price-competitive. Once in the eurozone, two of these channels are closed. First, there is no independent domestic monetary policy which could lower interest rates, and one should not expect the ECB to react to a local shock. Second, after joining the eurozone the exchange rate disappears, so there can be no exchange rate adjustments. Accordingly, the only policy tool left after euro area accession is fiscal policy. For this reason it is of crucial importance to run a balanced budget in the medium run, so that in case of negative shocks, there is room for increasing the deficit and thus buffer the shock. Additionally, there are also economic forces which can bring the economy back to equilibrium.

However, the estimated scale seems to be much exaggerated. One problematic issue is related to the  BIS Review 6/2007  1  fact that before the eurozone, we did not have examples of currency unions between developed countries. So the Rose study was based on data on currency unions involving poor and/ or small countries. As noted by Micco, Stein and Ordonez (2003), “one does not need to be a eurosceptic to wonder whether such findings are directly applicable to Europe’s single currency”. Follow-up studies (e.g. Rose and Wincoop (2001), Kenen (2002), Persson (2001)) attempted to correct the Rose estimates but arrived, rather inconclusively, at anything between a 50% and 150% growth of bilateral trade. Recently, the first studies based on euro area data emerged. These show that the trade creation effect of the euro was substantial, although (until now) by an order of magnitude smaller that the original Rose estimate (e.g. Micco, Stein and Ordonez (2003)). Our knowledge about trade creation effects of the euro is still far from complete and we will probably have to wait another 10+ years to have enough data to draw firm conclusions about its magnitude in the eurozone. Now let me move to the cost side. As already noted in contrast to the benefits, some costs have a contingent character. They are tail-events – rather unlikely but with a possibly high impact if they happen. Let me concentrate on two issues: -  asymmetric shocks,  -  arising micro- and macroeconomic imbalances.
This market power might also lead to high fees for payment transactions that could reduce the revenues – and hence the innovative capabilities – of partner banks. C. Consolidate European integration and sovereignty in the area of payments  The limits of Europe’s integration and sovereignty in the area of payments have been highlighted once again by the entry of tech giants into the field of payments and the emergence of a systemically important project such as the Libra/Diem initiative, which could see non-European participants providing new solutions on the European market. Although implementation of the Single Euro Payments Area (SEPA) project was beneficial in supporting defragmentation for credit transfers and direct debits, non-European participants have been able to leverage regulatory harmonisation in their efforts to conquer the entire European market, whereas domestic participants have struggled to expand beyond their country of origin. Meanwhile, European integration in the area of card payments has failed. The so called international card schemes exclusively manage all cross-border payments within the European Union, not to mention a large share of domestic payments. This situation has created a dependency with multiple consequences. I am talking particularly about the definition and control of technical standards, financial aspects, but also challenges related to payment data, i.e. our capacity to protect these data and enforce compliance with European standards such as the GDPR, if decision-making centres are based outside Europe. II/ What is the Banque de France doing?

Jean-Pierre Danthine: Does cash have a future? Summary of a speech by Mr Jean-Pierre Danthine, Vice Chairman of the Governing Board of the Swiss National Bank, at the Assemblée Générale de l’Association des Alumni HEC, Lausanne, 8 May 2014. *  *  *  The complete speech can be found in German on the Swiss National Bank’s website: www.snb.ch. One of the traditional tasks of the Swiss National Bank (SNB) is to provide the economy with banknotes and coins. Since the establishment of the SNB, banknotes have constituted the most visible link to the population. As an everyday article of use, but also symbolically, banknotes embody the quality, security and stability of the SNB, and of Switzerland in general, not least of all also for the rest of the world. It is therefore of key importance that the SNB undertake the task of cash supply and distribution conscientiously. The role that banknotes play in the public’s trust in the institution and its decisions is not to be underestimated. In turn, this trust is an important prerequisite for the SNB to be able to fulfil its core monetary policy mandate, and thereby ensure price stability. Due to technological developments in the post-war period, the significance of cash declined, as measured in terms of economic performance. Since the beginning of the 1990s, however, the demand for cash has hovered at a stable level, and since 2008, in the wake of the financial crisis, there has even been a marked increase.
Emerging economies are now sufficiently large for growth in their economies to provide impetus to production in other regions. The question has been raised, why didn’t we – the economists – see the crisis coming? As long as the credit system has existed, crises have struck with irregular intervals. Still, we must strive to keep the intervals as large as possible. A poorly regulated financial sector is partly to blame for this crisis as for many others. In many countries, the capital requirements were reduced year by year before the crisis, to very low levels. The quality was gradually impaired. Many banks issued large quantities of hybrid capital, but the investors were not ready to bear losses. BIS central bankers’ speeches  1  In addition to low capital requirements, few countries had any macroprudential policies to speak of. Spain was an important exception. To avoid the next crisis, or at least dampen the effect, better banking regulation is necessary. First, the financial crisis revealed that banks held insufficient capital, excessive short-term market funding and inadequate liquidity buffers. The new Basel III framework sets out stricter requirements. Higher and better-quality capital will increase banks’ resilience to pronounced fluctuations in the economy without their having to tighten lending abruptly. The new rules aim to moderate growth in banking in periods of expansion. Second, the new framework includes macroprudential tools that can be applied as necessary. Banks may be subject to additional capital requirements if credit growth in the wider economy is excessive.

I have developed a few simple rules for selecting variables to keep an eye on:  2  BIS central bankers’ speeches  Over time, governments cannot run an increasing deficit. To prevent the debt level from exploding, the deficit must be kept in line with nominal GDP growth. That figure is around 4 per cent annually, for most Western countries. A fiscal balance can hide important imbalances. If one sector in the economy is far too large, the taxes from this sector can contribute significantly to the fiscal budget. An example is the construction sector in some European countries in the years leading up to the crisis. In normal times, this sector is around 3–5 per cent of GDP in most countries. In Spain, housing construction was 9 per cent in 2006. In Ireland, the contribution was 11 per cent. When problems arose, construction activity decreased and tax income was reduced significantly. Therefore, one should also look at the current account. Inflation above 4 per cent might indicate that price stability is not firmly anchored. If unemployment is above 4 per cent of the labour force, it might signal a labour market out of order. Finally, the risk of running into a crisis seems to increase if the total assets of the banking sector constitute more than 4 times GDP. This table illustrates the 4 per cent rule. Many countries had negative fiscal balances through the last decade despite moderate to high economic growth.
  systemic risk should be contained via the creation of resolution mechanisms for financial institutions as well as promoting more resilient market infrastructures, such as CCPs for clearing and settlement of derivatives products. The financial crisis also gives us the opportunity to think about Central Banks fundamental task: the making of monetary policy. Amongst the many questions currently asked in academic and policy making circles I will select four: 1/ – the mandate: recent proposals have been made to assign monetary policy additional financial stability objectives, possibly by amending Central Banks mandates. I see those proposals as misguided. First, adding a financial stability objective at the same level as price stability could weaken the latter. Second, if price stability is not a sufficient condition to ensure financial stability, it is certainly a necessary one. And, finally, current mandates seem absolutely appropriate to allow Central Banks to fulfil all their responsibilities. Looking, more specifically at the Eurosystem we have a “hierarchical” mandate, giving clear and unambiguous priority to achieving price stability; and, once this objective has been met, it allows us to pursue other goals. Financial stability easily fits into the set of those “secondary” objectives. This clear priority was understood by the markets. It was most apparent in our decision to raise policy rates in July 2008. It was essential to give us the necessary leeway to act decisively later – when the financial system was in danger of paralysis – without compromising our credibility.

Last year, the Shenzhen Municipal People's Government issued offshore RMB municipal government bonds in Hong Kong for the first time, testifying to our strength as a platform for issuing RMB bonds, including green bonds, enriching the product range of the local dim sum market and paving the way for other municipal or provincial governments to follow. We will actively promote Hong Kong’s bond market to markets that are looking to strengthen their ties with China, and attract sovereigns and other issuers from these regions to arrange and issue bonds in Hong Kong. The third way we can expand our offshore RMB market is by enhancing our own financial infrastructure. At the core of this effort is the HKMA’s programme to develop the Central Moneymarkets Unit (CMU) into a major international central securities depository (ICSD) in Asia, to better support the connectivity between the Mainland and international  financial markets in cross-border clearing, settlement and custodian operations.
6  All speeches are available online at www.bankofengland.co.uk/speeches  6  Chart 1: G4 non-residential investment weak since the crisis Percentage changes since 2007 15 United Kingdom  United States  Euro area  Japan  10 5 0 -5 -10 -15  2007  2008  2009  2010  2011  2012  2013  2014  2015  -20 2016  Sources: Eurostat, ONS, OECD and Bank of England calculations. Notes: The data for the UK, the US and Japan are for private non-residential investment; the data for the euro area include public nonresidential investment. Chart 2: Weakest UK business investment in half a century Indices, peak in GDP = 100 160 Range of previous recessions  150 140  2008 Average of previous recessions  130 120 110 100 90 80 70 60  -20  -16  -12  -8  -4 0 4 8 12 16 20 24 Quarters relative to date when GDP peaked  28  32  36  Sources: ONS and Bank calculations. Notes: The chart plots real business investment. The range includes the recessions of 1973, 1979 and 1990. 7  All speeches are available online at www.bankofengland.co.uk/speeches  7  Chart 3: UK real business investment to GDP ratio is falling Percent of GDP 12 10 8 6 4 2  1997  1999  2001  2003  2005  2007  2009  2011  2013  2015  0 2017  Source: ONS.

Allow me to use the current situation in the UK to illustrate these points. UK output is now in sight of potential, and the capital overhang looks set to be eliminated over the next few years. In order to expand, companies will increasingly need to invest. A strengthening global economy should tempt UK companies to do so, particularly since UK companies are generally competitive given the recent fall in sterling. Indeed, the broad-based global recovery is creating the possibility of a self-reinforcing revival in investment. The Bank of England estimates that more than 80% of the world economy is now growing above potential. Global measures of industrial production and capital goods orders, as well as world trade, have strengthened markedly over the past year, suggesting some rotation in the composition of global demand towards investment. With that more favourable outlook, investment intentions are now rising around the world (Chart 11). If these intentions are realised, the global equilibrium interest rate could rise somewhat, making a given policy setting more accommodative. The extent to which it does will depend on other secular factors that have been holding it down, including demographics, debt overhangs and the capital intensity of production. 10  In this generally constructive environment, the main issues facing UK companies are uncertainties – about how consumers will adjust to a period of weaker real income growth; about market access post-Brexit; about the potential risks in the transition to new arrangements with the EU and the rest of the world.
One of the criteria was that solutions should solve Iceland’s balance of payments problem in a manner that allowed Iceland to lift capital controls without taking undue risk with economic and financial stability; preserved stability in both the short and the long run; limited risk to Government finances, reserve adequacy, and credit ratings; avoided socialisation of private debt or risk; allowed the exchange rate to reflect economic fundamentals, unaffected by nongovernmental legacy issues; honoured international obligations concerning equal treatment under the Icelandic Constitution; and gave preference to measures offering simplicity over complexity, minimal legal risk, and as much finality as possible. The guiding principle and the criteria were used to design the solution for the estates of the old banks. The solution allowed the estates to choose between two options. Under the first option, they would receive exemptions from the capital controls in order to go into composition and make distributions to creditors while offering to fulfil stability criteria that fully mitigate the negative effect on the exchange rate and/or the FX reserves. According to the stability criteria, the estates would pay sufficient stability contributions (through the transfer of króna assets) to mitigate the negative effect, lengthen the maturity of their FX financing of domestic banks, and repay Government and Central Bank support and debt. Under the second option, a tax would have been levied on the estates that fully mitigated the negative balance of payments effect of the resolution.

These instruments will initially bear an interest rate of 0.5%, which will be reviewed annually. This mapping into the Central Bank is part of the mechanism that is intended to keep the remaining offshore krónur segregated in the face of domestic liberalisation. But why 0.5%, you might ask? You see this if you look at the Central Bank balance sheet and take into account that we are accumulating reserves. Basically, this rate reflects the rate at which the Bank is, at the margin, investing these funds, and no one can expect us to incur a significant cost of carry because of these positions. And this rate should not be confused with our key Central Bank rate, which is 5.75% on seven-day deposits. This rate is as high as it is for monetary policy reasons; it is intended to affect the spending and saving decisions of domestic residents and has nothing to do with these positions. I know that there are more questions, and Sturla Pálsson, Director of Market Operations and Treasury at the Central Bank of Iceland, and I are willing to answer them during the Q&A session. But let me take two before I conclude. First, why 220–190 krónur per euro? Why not the onshore rate? First of all, this is a different asset class from onshore krónur and has been trading at very different exchange rates.
The internationalization of the Chilean peso can enhance financial stability, by alleviating liquidity concerns during stress episodes and reducing counterparty risks, among other effects. All of these changes must be accompanied with more robust and developed financial infrastructures. Also, the wider cross-border usage of the Chilean peso improves our position as a financial center. Regarding concrete measures towards accomplishing these goals, the CBC is reviewing its FX regulation, in order to modernize and simplify it. In addition, a larger and more developed FX market should benefit from having access to more robust financial market infrastructures. Page 12 of 20  Central Bank of Chile September 2019  In order to do so, the CBC issued regulation and is implementing a Trade Repository for OTC derivatives, relying on its current faculties and in coordination with the Financial Market Commission. Additionally, the CBC is working on an initiative that will allow its Real Time Gross Settlement (RTGS) payment system to settle US dollars large-value interbank transactions. These measures add to the future inclusion of the Chilean Peso as the first CLS-eligible currency in South America. This is a priority for the CBC, therefore we are working closely with the CLS Bank to materialize this in the next three years.

These efforts help to keep local practitioners abreast of what is going on in overseas markets, and of product development, as well as codes and standards. This is important in ensuring that the professionalism of market practitioners in Hong Kong can be maintained at internationally accepted levels. 5. In this connection, the MPC has recently been consulted on the draft Model Forex Guidelines prepared by an international private sector task force under the encouragement of a small group of central bank sponsors, including the HKMA. The draft Guidelines are formulated to ensure that the industry will follow the best market practices and avoid potentially problematic trading practices, such as trading at illiquid hours or spreading rumours and false information. The MPC has expressed support for the draft and will consider incorporating the proposed Guidelines into its Code of Conduct for Hong Kong practitioners. This is a very positive move. An abundance of international financial activities take place in Hong Kong. The adoption of the proposed Guidelines in Hong Kong will go a  BIS Review 3/2001  1  long way towards enhancing the integrity of our markets and sustaining the development of Hong Kong as an international financial centre. It will also contribute to greater financial stability in our domestic markets. 6. There are a number of future challenges that the forex and money markets players will have to face, including the changing landscape of the industry.
Given this progress, I propose to talk about what a resolution transaction looks like in practice before turning to some of the preconditions for resolution to be feasible and credible. I will focus in particular on making liability structures compatible with resolution. The FSB was asked by G20 leaders to prepare, by the time of the Brisbane summit, proposals on the adequacy of global systemically important banks’ (G-SIBs) loss absorbing capacity when they fail. Such loss absorbing capacity is sometimes referred to as “gone concern loss absorbing capacity”, or GLAC. The equivalent provision in BRRD is the Minimum Requirement for Own Funds and Eligible Liabilities, or MREL. In both contexts the concept is essentially the same: both GLAC and MREL aim to ensure that banks have in place an adequate stock of liabilities that can be used to cover losses and meet recapitalisation needs in a resolution. I will concentrate my remarks on large international banking groups, or Global Systemically Important Banks (G-SIBs) in the parlance of the FSB. The BRRD applies to all credit institutions and certain investment firms. Member States will therefore need to think through how MREL should apply to other firms. But, crucially, EU G-SIBs are often active in third countries and non-EU firms have extensive EU operations. This explains why the FSB’s proposals on GLAC are a crucial part of ending the problem of Too Big to Fail and in effect internationalise the concept of MREL beyond the EU. Resolution transaction The resolution of a G-SIB is likely to involve bail-in.

But, from experience, we know that some uninsured, unsecured liabilities are not as reliably loss absorbing in resolution as others and, in practice, it has been difficult to break into the senior class. In part this is due to an absence of legal powers to facilitate this – and the BRRD addresses that problem. But in part it is because of the potential adverse consequences of taking resolution action within a class which includes liabilities that it is difficult to bail-in and where, although we have the power to exercise discretion in exceptional circumstances, it is undesirable and legally risky to rely on this discretion. Just as we require G-SIBs to maintain high-quality, long-dated capital instruments that can reliably absorb losses in a going-concern in order to reduce the probability that they fail, so too we should require G-SIBs to maintain high-quality, long-dated liabilities that can reliably absorb losses in a gone-concern, in order to reduce the probability that they fail in a disorderly way. So, which liabilities are sufficiently reliably loss absorbing in resolution to count towards a firm’s GLAC? Well, any liability that meets the following conditions: •  First, it must be sufficiently likely that the liability will actually be there when the firm enters resolution. The BRRD requires that, in order to count toward MREL, liabilities must have a residual maturity of at least 12 months. •  Second, the liability must be within the scope of the relevant authority’s resolution tools.