samchain/econo-pairs-v1 huggingface dataset:
What would happen, for instance, if several credit events were to occur simultaneously? Perhaps there would suddenly be only sellers and no buyers in the market. Then prices will plummet. This was the case during the Russian debt crisis in 1998, for instance, when the LTCM hedge fund suffered problems. A crisis of  4  BIS Review 24/2007  this nature risks spreading rapidly to other financial markets and possibly threatening the lending banks. Such situations do not last particularly long, as buyers always appear when prices fall. This was also the case after the LTCM crisis. Remember also that the credit derivatives market and the market for the underlying bonds are tightly interwoven. If the premiums on credit derivatives increase substantially, this will mean that at the same time the return on the underlying bonds increases. Unless something important has happened that affects the credit rating of the company that has issued the bonds, it will sooner or later become profitable to buy them – or to buy the credit derivatives. Several large-scale credit events in recent years, such as the downgrading of Ford’s and GM’s credit ratings last spring, have also shown that more or less serious problems could be solved without liquidity in the market being affected to any great extent. 4. Risk of mispricing  Finally, I would like to bring up the risk of mispricing, a risk that in many respects is closely related to the liquidity risk.

Many countries, especially in advanced economies have spent substantial amount of public funds to boost aggregate demand and to revitalize the financial system. Most of these countries have no fiscal resources left to put forward a similar stimulus package, if the world economy experiences another setback. Therefore it is of utmost importance to keep the recovery intact, which is already too fragile. Debt sustainability and fiscal imbalances stand out as the main challenges for many years to come. As the recent developments in the financial markets revealed, deterioration of sovereign creditworthiness can hamper macroeconomic and financial stability. Therefore, ongoing problems especially in some advanced economies, particularly in Europe should be resolved in a quick, effective and credible manner. However, we should also keep in mind that supporting global demand is a global responsibility. It is questionable whether emerging market economies would be able to fulfill the gap in global demand, while advanced countries stay on the sideline to clean up their balance sheets. Neither their share on global economy nor their economic and financial structure would be adequate to play that role. Especially emerging economies that are in deficit, still being in convergence stage, need to raise their production capacity to pay off their external debt accumulated during their catch-up. Therefore, I strongly believe that a holistic approach is a must. While developing any kind of policies, including fiscal tightening or restructuring, one should pay great attention to negative externalities these policies may cause on other economies. In particular, we should avoid beggar-thy-neighbor type of policies.
So much so, that their journey towards an open capital market has seemed, at times, a nightmare. The core of the problems faced by a number of emerging markets has been the sharp reversal of capital flows. Between 1996 and 1998, the reversal of capital flows to the five Asian countries primarily affected (Korea, Thailand, Indonesia, Malaysia and the Philippines) was of the order of $ billion, equivalent to 12% of the pre-crisis level of GDP. These reversals imply equal and opposite swings in the current account. To turn a large current account deficit into a substantial surplus within two years almost certainly requires a recession. In 1998 real GDP fell by 6% in Korea, by 9% in Thailand, by 14% in Indonesia, by 7% in Malaysia and by 1% in the Philippines. Moreover, the reversal of capital flows to emerging markets means that the industrialised countries must in aggregate run a larger trade deficit. The distribution of that increase in the collective deficit has already led to a debate about domestic policy, making it harder to resist the ever present protectionist pressures, especially in election years. So rapid reversals of capital flows bring substantial economic costs. Capital flows also bring real economic benefits. They enable savings in one country to finance more profitable investment in another. That was a key feature of the world economy in the nineteenth century. Such flows also facilitate the transfer of knowledge and expertise.

A second approach to DIY LOLR is for emerging markets to create contingent credit facilities with international banks, as Argentina has done with its contingent repo facility, or try to set up collateralised loan facilities along the lines suggested by Martin Feldstein.6 A final approach to the DIY LOLR, in the absence of an effective multilateral ILOLR, is the creation of regional self-insurance funds. All of these approaches are likely to be pursued, to a greater or lesser extent, in the wake of recent financial crises. (2)  Manage the national balance sheet and, as far as possible, avoid maturity and currency mismatches. For a country without a track record of international borrowing, it is important to manage its external liquidity position, especially in foreign currency. The lack of foreign exchange controls means that it will be difficult to observe, let alone manage, the balance sheet of the entire private sector. But the key elements are those relating to the public and banking sectors. Governments already have information on these sectors. As important as anything is the need for self-awareness by the countries concerned of the state of their national balance sheet and the approach of impending liquidity difficulties. When governments and markets alike are informed of the potential for future financing difficulties, both sides have time to take preventive action. Of course, the use of derivative instruments and hedging techniques makes the assessment of risk exposure more difficult. But the effort must be made.
Both are home to world-class corporations, as well as very innovative small and mediumsized enterprises. But there are also some crucial differences. Unlike Belgium, Switzerland is not part of European monetary union – nor indeed of the European Union (figure 1). Switzerland has chosen to preserve its political autonomy and conduct an independent monetary policy. As a result, its economy has at times been subject to major exchange rate shocks. Furthermore, since it is not part of a large internal market, Switzerland is particularly dependent on open international markets. The purpose of my remarks this evening is to show how Switzerland perceives its position on the international economic scene, between the two poles of attraction mentioned in the title of my speech: independence and interdependence. I will, in particular, elaborate on features which, in my view, have been key in allowing the Swiss economy to strengthen its resilience to external shocks and to fully benefit from globalisation. Switzerland is known as a country with one of the highest living standards in the world. Yet this privileged condition should not be taken for granted. Quite the opposite: Achieving and maintaining economic and social progress is an ongoing challenge. The years since the beginning of the global financial and economic crisis have been particularly testing. The events of the last few weeks are a striking example of this. As you certainly know, the Swiss franc has again appreciated rapidly and massively. I will take this event as the starting point for my presentation. 2.

In the euro area, meanwhile, the ECB made it clear that additional monetary stimulus would be required. A tangible sign of these diverging patterns was the substantial weakening of the euro against the dollar. With the clear prospect of a significant QE programme in the euro area, the pressure on the minimum exchange rate intensified hugely at the beginning of 2015 – especially in the last few days leading up to the SNB’s decision on 15 January. Against that backdrop, the minimum exchange rate became unsustainable and the SNB had no choice but to discontinue its policy. By maintaining the minimum exchange rate for longer, the SNB would have run the risk of losing control over its balance sheet. This, in turn, would have hampered its stability-oriented policy in the future. Once you have arrived at such a conclusion, you have to act swiftly. Speculative position-taking against the minimum exchange rate could easily have caused the SNB’s balance sheet to double within a few months. We would subsequently have been compelled to discontinue the exchange rate floor under even greater pressure, with all the consequences for our balance sheet and the Swiss economy that this would have implied. The costs of maintaining the floor would have been out of all proportion to the benefits. As a consequence, the Swiss economy is now dealing with very difficult exchange rate conditions. In an interdependent world with highly integrated and liberalised capital markets, the strengths of an economy like Switzerland can, paradoxically, turn into a major challenge.
Summing up Back in 1983 when the peg was installed, I recall being asked whether it was the government's intention that the arrangement should be permanent, or in what circumstances a change would be contemplated. I said then simply that the peg was for the time being the most appropriate monetary anchor for Hong Kong. I would give very much the same answer today. Our peg is not a fixed rate that is supported by or dependent on discretionary intervention. It is a rulebased currency board system which imposes a particular discipline of adjustment through interest rate channels and domestic prices. It enjoys widespread support from international observers both in official circles and more widely. This is not just people being nice to us and choosing not to say anything which might rock the boat, although there may be one or two of them. Rather it reflects an appreciation of the unique features of a currency board structure and the benefits which it has brought over 18 years, as well as an appreciation of the distinctive characteristics of the Hong Kong economy. The main distinctive characteristics to which I allude are the following: the flexibility in costs and prices, as discussed earlier; the extreme openness of the economy in terms of both trade and capital flows; the constitutional commitment, through the Basic Law, to support the free movement of capital and not to operate exchange controls; and the soundness of the banking sector.

When you know it’s there, it’s obvious. But when, as instructed , people are engrossed in the highs and lows of the basketball game, many fail to notice the bear. The risk of adjustment in the stretched prices (and compressed yields) in corporate debt markets are my moonwalking bear, hidden in plain sight. The icebergs can lurk beneath the surface of the system. They make navigation of markets uncertain and hazardous. Assessment of them requires diving into the cold, murky depths of the financial system. Excessive leverage and liquidity mismatches were the bergs of the financial crisis. They forced investors into firesales of assets, magnifying market adjustments, and sometimes even disrupting market functioning. In other words, they compromised market resilience. Those risks have been addressed. But we must stay alert to any possible new bergs of the future. To spot them emerging we need to dive into the detail of the system, to look at the incentives and constraints facing the participants. 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  We’ll don our diving equipment later. Before we do, it’s worth asking who should care about hidden risk? Any manager focussed on risk and return will be interested in these bears and bergs. Failure to acknowledge them can damage performance. But while the risks mean some investors can have a bad day and others a good one, the ups and downs of asset markets don’t necessarily concern policymakers.
On the top of it some prices, like housing rents and energy price, are still under the control of the government and the process of deregulation cannot be perfectly anticipated due to the political implications. To specify the transmission mechanism and to open the “black box” means both to describe and analyse the ways in which money is created and how it influences real variables. These ways change through the evolution of new institutions in transforming economies. Besides money supply targeting, operative targets have been used. As the operative target the monetary base (currency plus minimum reserves plus free reserves) was replaced in the second half of 1994 by bank reserves and a system was implemented for the daily prediction of liquidity management on the money market. Since then the monetary base has been used as an indicator. In order to reduce the fluctuation of free reserves in the banking system and the volatility of interbank deposit market interest rates, the CNB shortened their maintenance cycle to 14 days commencing March 1st, 1994. Since then refinancing credits have been provided only when fully covered by securities (repo operations). This CNB shift to daily operational monetary policy management based on repo operations and the gradual strengthening of the role of these operations in the sterilisation of foreign capital inflows, particularly in the second half of 1995, led to the repo market’s gradual development.

A more detailed answer to the causes of changes in the degree of impact of individual factors on money supply growth can be found when studying their development in different periods of the transformation. In Czechoslovakia, during the first transformation years (1990-1992) money supply growth was based primarily on the relatively quickly increasing volume of credits granted to enterprises due to growing credit demand, which was very closely connected with the BIS Review 25/1997  -9-  liberalisation of entrepreneurial activities in a newly created market environment (an increasing number of businesses in need of initial capital). Gradually, foreign money creation also expanded, affected by the development of an improving balance of payments, particularly the current account. The gradual stabilisation of the macroeconomic and political environment (apparent mainly after the dissolution of the Czechoslovak Federation in January, 1993, and the relatively rapid calming of price developments following the introduction of a new tax system based on value added tax), the commencement of the activities of capital market institutions and the stability of the exchange rate which significantly decreased the risks for foreign investors, led in the second half of 1993 to a significant strengthening of the influence of the inflow of foreign funds into the Czech Republic on money supply growth. The strong foreign capital inflows continued to influence money supply growth in 1994 and 1995 when capital inflows reached 18 per cent of GDP. This growth was particularly generated by increasing foreign direct investments, portfolio investments and relatively cheaper foreign credits drawn by domestic enterprises.
The experience has shown that periods during which many of the countries in the region had experienced significant declines in their exchange rates, it was difficult to find clear evidence of a relationship between the degree of depreciation of the exchange rate and the growth in exports. The exchange rate has not been a dominant influence in determining export performance. More important, it is the overall competitiveness of the economy that will ensure sustained export performance. Current conditions favour monetary policy in 2002 to remain accommodative, reinforcing the continuing counter-cyclical policies. Monetary policy will build on the gains from the cumulative monetary easing initiated since 1998, to ensure that the economic recovery process becomes well entrenched. Emphasis will be placed on creating an environment of stability and predictability to  4  BIS Review 21/2002  facilitate investment decisions. With low inflation and stronger economic fundamentals, Malaysia has the ability to exercise greater policy flexibility to preserve longer-term sustainability and stability. In strengthening the resilience and competitive position of banking institutions, BNM will continue to further strengthen the regulatory and supervisory framework. The objective is to provide a conducive environment for banking institutions to be more efficient through innovation and competition amongst players in the financial market. The challenge is to manage the trade-offs between encouraging innovation in the financial system and preserving overall financial stability. Towards this end, a total of 14 recommendations under the FSMP, involving 36 projects, are targeted to be fully implemented in 2002.

It is clear that the aim of central banks to make monetary policy less exciting and more boring needs to be complemented by a collective effort to bring boredom to the international monetary stage. 1  Over the past year, senior policymakers from within the G-7 are reported to have claimed that “It’s awfully important that the euro zone adopt policies that will allow them to grow faster. Their slow growth is hurting our growth” (John Snow, AFX news 24/03/04), and that “Our American friends need to put in place a determined policy to control their deficits and so that their currency does not distort commercial trade” (Nicolas Sarkozy, AFX news 25/11/04), or indeed that China’s exchange rate policy “has become a destabilizing force in the world economy, has led to major international exchange rate and trade imbalances throughout the world” (Open letter from US senators Schumer, Bunning, Durbin, Graham, Dodd and Bayh to Vice President Richard Cheney, 22/01/04). 2  BIS Review 9/2005
Hervé Hannoun: The Banque de France’s view on gold and comments on the euro  Speech by Mr Hervé Hannoun, First Deputy Governor of the Banque de France, at a dinner organised by Goldman Sachs on the occasion of the Financial Times Gold Conference held on 26 June 2000. * * *  Introduction: silver and gold Ladies and gentlemen, it is a great pleasure and privilege for me to be speaking here in the Hôtel des Invalides in front of such a distinguished audience. The organisers gave you the opportunity to visit Napoléon’s tomb. So let me, as an introduction, highlight some historical facts, which may not be so far away from the topics I intend to discuss later. Two hundred years ago, the First Consul Napoléon Bonaparte created the Banque de France with himself as one of the shareholders. At the same time, Napoléon built a monetary regime based on a bimetal system (a combined gold and silver standard) that prevailed throughout the 19th century. At that time, many currencies in the world were based on a gold standard, while a few had a silver standard. France had defined the Germinal franc - which remained absolutely stable for almost 120 years - with respect to its weight in both silver and gold. One Germinal franc was equivalent to 5 grams of silver and to 322 milligrams of gold; the famous 20 franc coin, called the Napoléon, was issued at that time (with a weight of 6.45 grams).

There is still a rationale for central banks to hold gold. 2. Gold selling  After having listed all the good reasons for holding gold, you will not be surprised if I reiterate that we have no plans to sell gold! The leading official holders of gold have not changed their attitude in this respect. Neither the American Federal Reserve System, nor the German Bundesbank, nor the Bank of Italy, nor the Banque de France have any plan to sell gold. 3. Gold lending  Concerning gold lending, the Banque de France, as most of you probably know, is definitely not among the active players in the market. Quite the contrary, alongside the other major holders, it has refrained from an active management of its gold holdings. The Banque de France has always adopted a very prudent and rather conservative approach, acknowledging the fact that the issue of gold lending is a matter of common interest to the major holders. Two main reasons are traditionally put forward to justify gold lending: –  The first one refers to a question of principle. Foreign currency assets are actively managed. Why not extend this management to gold insofar as gold is considered to be part of a country’s external reserves? –  The second reason is that central banks obviously have to take into account profit and loss account considerations. From this standpoint, gold should provide a return just like other assets.
As much of these efforts will involve interface with other parts of the public sector, it has been my experience that the participation of the Central Bank in many of these agendas will require careful boundary management and a signing off when it is completed so that it does not remain permanently with the Central Bank. New institutional arrangements will need to be developed to render effective coordination across the public sector. Of great importance in this process is also to carefully safeguard the independence of the Central Bank. Conclusion As policy makers in emerging economies, we have the added responsibility of building institutions for the country. Our quest is filled with challenges but we can learn much from each other. Going forward, the transitions that are taking place in the global economy necessitate continuous institutional building at the national, regional and international level. A regional institution such as SEACEN has an important role in enhancing future talents, facilitating the sharing of knowledge, ideas and insights on policy management in the region and from its research on subjects important to the region. In conclusion, allow me to express my deep gratitude and appreciation to my fellow governors and to all my colleagues at the SEACEN member Central Banks and to SEACEN for all the cooperation and support that has been extended to me and to Bank Negara Malaysia throughout my career. For the friendship and for the collaboration, it has truly been enriching and special for me.

Honed by international benchmarks, best practices and the scrutiny of a global audience, Central Banks are institutions that over the years, have built a strong reputation for intellectual rigour, credibility and independence. Given this, Central Banks are often called upon to be the institution that drives important and often challenging financial reforms in an economy. Additionally, in most emerging economies, the largest concentration of talent resides in the Central Bank, providing it with the resources and intellectual capacity to undertake multifaceted developmental roles that extend beyond our core mandates. The fact that Central Banks are often a highly-regarded public institution in a country also lends it to having greater legitimacy in addressing challenging domestic issues. In managing this role effectively, three elements are key: clarity of the outcomes to be achieved, a governance process which gives clarity on the decision making process and accountability, and finally, ensuring the integrity and the independence of the Central Bank is not undermined. Another recent important element of Central Banking in the emerging economies that contributes to the effectiveness of the Central Banks in policy making is the close collaboration amongst Central Banks in the emerging economies – in particular in the Asian region. The formation of formal regional platforms for collaborative initiative facilitates the sharing of information, experience and knowledge which are crucial in driving the national, regional and even international agenda.