samchain/econo-pairs-v1 huggingface dataset:
José Manuel González-Páramo: Reform of the architecture of the financial system Speech by Mr José Manuel González-Páramo, Member of the Executive Board of the European Central Bank, at the Universidad del País Vasco, Campus de Leioa, Bilbao, 21 June 2010. *  *  *  I am very grateful to Frank Dierick for his contributions to this speech and to Inês Cabral and Balázs Zsamboki for inputs. Ladies and Gentlemen, I. Introduction  It is a pleasure to be in the city of Bilbao, which hosts one of the finest modern art museums in Spain and Europe: the Guggenheim museum. With its very distinct architecture, this museum is the city’s world-famous hallmark. Much as I love the design of the building, however, I will talk today about another type of architecture, namely that of the financial system. And just like the Guggenheim building, the current reforms of the financial system stir a lot of emotions. We are dealing here with a very broad topic but I will approach it like a tourist visiting the Guggenheim museum. I will start by giving you a broad overview, describing the landscape as it were. I will briefly review the causes of the financial crisis and will run through the main initiatives that are on the plate of policy makers to prevent a crisis of such magnitude and severity ever recurring again.

Climate risk is a real threat: financial institutions should have the conviction to want to understand the environmental risks in their portfolios and to mitigate these risks. It is imperative that financial institutions step up efforts to collect the data that are necessary to mitigate their physical and transition risks as soon as possible. Second, financial institutions need greater clarity on the ESG data they need. The Network for Greening the Financial System (NGFS) has recently published a progress report on bridging data gaps. MAS agrees with the recommended approach, which is to first identify the stakeholders and 2/3  BIS central bankers' speeches  use cases, and then define the metrics and data requirements. In the absence of a use case driven approach, technology will remain a solution looking for a problem to solve. In Singapore, MAS is working with our financial institutions, solutions and data partners to pilot some use cases so that we can collectively learn, adapt, and grow in our ability to define the right metrics for ESG measurement. MAS has launched, together with the industry, Project Greenprint – a technology platform to support the green finance ecosystem. The project will identify use cases where technology can help to mobilise capital for green projects, monitor commitments to emissions reductions, and quantify the impact of abatement efforts. We look forward to collaborating with more international financial institutions and solution providers in this effort. Third, we need to develop methodologies to translate raw data into quantifiable assessments of climate-related risks.
The first is to share with you selected major developments in the Malaysian Islamic finance industry that signify the vast potential for continued strong growth of Islamic banking and takaful in Malaysia. I will then endeavour to provide some highlights on how Malaysia has strengthen its position as a preferred platform for global takaful and retakaful activities, within a broader aspiration for Malaysia to be one of the key international Islamic financial centres. Finally, I will present some areas in the development of global Islamic finance, including takaful and retakaful, where Malaysia can play a major role. II. Significant developments in Malaysian economy and Islamic financial industry  A decade after the Asian financial crisis, the Malaysian economy including its financial system is at its strongest position. With this growth, Malaysia has greater economic flexibility to shift to new areas of growth and thus sustain the development momentum. Economic growth has been achieved with relative price stability, low unemployment and strong external balances. The level of savings remains high at 37 percent as a percentage to the GDP while the level of external reserves remains strong at nearly USD100 billion. GDP per capita at current prices has increased to about USD 6,000 in 2006. Malaysia has also taken advantage of globalization to strengthen its economic and financial relationships with the major trading blocs across the globe. In 2006, the total value of the external trade exceeded for the first time the RM1 trillion mark. Malaysian investment abroad has also grown in strength.

The Malaysian private debt securities market, both conventional and Islamic, is now the second largest market in Asia, the largest being Japan. More than a quarter century of experience in Islamic finance has set the foundation for the Malaysian Islamic finance industry to evolve into a competitive industry, providing efficient platform for innovation. Increased foreign-local collaboration has further accelerated the pace of innovation. It is within the last five years, in fact, that major innovative initiatives have taken place. In 2005, Malaysia became the first jurisdiction in the world to put in place a Shariah-compliant deposit insurance scheme. We do have a comprehensive range of Islamic financing instruments under both fixed and floating rate product structures to meet the demand of consumers. III. MIFC initiatives and Malaysia as takaful & retakaful hub  Malaysia is also well-positioned to provide the linkages through Islamic finance to support the increasing flow of investment between Asia and other parts of the world, particularly the Middle East. While world trade has on average expanded by 10% over the period 20012005, Asia's trade with the Middle East has increased on average by 24%. More than half of the exports from the Gulf States go to Asia and more than one-fifth of its imports are from Asia. Situated centrally in the Asian time zone, Malaysia offers to serve as an investment gateway to the region, specializing in Islamic fund and wealth management, and providing a platform for the issuance of sukuks.
It is important for central banks to strike the right balance in this regard, and for financial risks to be correctly measured, properly understood and sufficiently contained. Moreover, the European Court of Justice, in its judgment on outright monetary transactions, has confirmed the need to provide sufficient risk management measures that are “likely to reduce the risk of losses to which the ECB is exposed”. Speaking in a country with a proud history of maritime exploration let me recall the words of Seneca, the Younger: When a man does not know what harbour he is making for, no wind is the right wind. The “harbour” of a central bank is its mandate. The principles it seeks to adhere to are the “compass” that helps it fulfil this mandate. When a central bank is facing a crisis, it needs to consider whether its monetary policy operations are still proportionate. This need stems from the obligation under primary law (proportionality principle) to properly weigh up all the components of a given measure against one another. The aim is to determine whether the expected benefits of the measure outweigh its costs. As a general rule, a stable risk management approach and a through-the-cycle approach are advisable. However, extraordinary circumstances may require extensions of the framework, such as the acceptance of additional collateral. If this still proves insufficient, unprecedented types of monetary policy measures may call for entirely new operations, accompanied by new risk management measures.

However, you would be mistaken in assuming that managing financial risks has no role in the Eurosystem’s monetary policy implementation – especially in the light of the significant balance sheet expansion over the past few years. On the contrary, we have applied the guiding principles of our financial risk management framework in a stable manner. We established these principles long before we embarked on non-conventional policies, not least because we have a statutory obligation to lend only against adequate collateral. We continue to apply them to standard as well as non-standard policy measures. Broadly speaking, these principles are protection, consistency, simplicity and transparency. This means that – if multiple monetary policy options exist to fulfil our mandate – we should select the measures that minimise our own exposure to financial risks. This idea is sometimes referred to as risk efficiency. These principles also imply that we aim to avoid undue distortions in the markets in which we operate. We trade at market prices and we adopt a risk-equivalent approach in setting our risk control measures. In addition, the principles require risk management to be an integral part of decision-making in the institution. So we are compelled to measure risk in an objective and consistent way across different types of operation. Lastly, our frameworks promote transparency and simplicity, and we champion adherence to these principles by being rules-based ourselves and as predictable as possible in our operations. We have come together here to discuss risk management for central banks and the lessons from the crisis.
BIS Review 51/2002  1  Developments in Iceland from the latter half of 1990s until the present time resemble in many ways the experience of some of the other Nordic Countries a decade earlier but differ also in important respects. Soon after liberalisation, domestic demand picked up, fuelled by rapidly rising credit in the wake of intensified competition in the financial sector and a sharp increase in credit availability. At that time, Iceland was pursuing a fixed exchange rate policy but not as rigidly fixed as the other Nordic Countries had done a decade earlier. The expansion in the economy at the end of last decade led to a very rapid rise in the current account deficit, climaxing in year 2000. Through the effects of a tightening monetary policy, the exchange rate of the króna gradually appreciated. In the spring of the year 2000, expectations in the market shifted for a variety of reasons, one of them being concerns about the current account deficit. Subsequently the króna began to depreciate and continued to do so more or less uninterrupted but on the whole in an orderly fashion over a period of a year and a half until the end of November last year. By that time, it had fallen by about a third against other currencies. This large depreciation is not without precedent in other countries.

The Bank of Zambia is also committed to ensuring the availability of finance to viable businesses including qualified health businesses. Doing so will help create a foundation for greater investment in the health of the nation. We appreciate the partnership and initiatives such as the “Banking on Health” in extending health services in Zambia and look forward to greater investment in the health sector of Zambia. I thank you. 2  BIS Review 73/2009
As far as the decline of cash is concerned, the immediate response is to make sure cash will remain available to any and all that want to use it. The Bank has made clear that we will continue  Page 5  to produce it and the Government is taking powers under the Financial Services and Markets Bill to give the Bank of England and FCA new powers to ensure the future effectiveness, resilience, and sustainability of the cash ecosystem[6]. However, we cannot ignore the fact that the safest form of money, ‘public’ money, that it is to say money issued by the state for general use, will become increasingly less useful and useable and of shrinking relevance to a large part of the population. Nor can we ignore the likelihood that we will see the emergence of new forms of money, offering new possibilities and issued by new as well as established players. This raises, particularly for the Bank of England, the question of how we can continue to ensure that all of the types of money used in the UK are denominated in Sterling, remain safe and that each is interchangeable on demand and to all of the other types of money without loss of value, including publicly issued, Bank of England money. We ensure trust in money at present by regulation of the commercial banks that issue money, by requiring banks to settle amongst themselves in Bank of England money (i.e.

World Bank (2022) – Remittances Prices Worldwide Quarterly. 9. The Illustrative Scenario assumed demand for the digital pound was around 20% of retail and business deposits, which was equivalent to nearly all transactional deposits in the banking system. This assumption is particularly cautious for higher interest rate environments when deposits would be expected to pay holders somewhat more interest than an (unremunerated) digital pound. 10. Specifically, a limit of £ would allow 75% of UK income earners to hold their salary, pre-existing balances as well as an illustrative 10% bonus or overtime payment. 11. See for example the work the Bank of England has done with regard to omnibus accounts. 12. See for example BIS Innovation Hub projects looking at this topic - such as mBridge  , Icebreaker, Dunbar and Jura. Page 12  13. Last year the Bank set out its thinking and approach on many of these elements through a consultation on the roadmap for RTGS beyond 2024. See also The road to enhanced payments - speech by Victoria Cleland | Bank of England. As noted, this effort is complemented by work ongoing at the BIS Innovation Hub London Centre to look at the potential benefits from synchronisation under Project Meridian. 14. See Bank of England: ‘New Forms of Digital Money (2021)’ - Stablecoins are cryptoassets that aim to reduce volatility by pegging their value to government-sponsored – or ‘fiat’ – currencies. 15. For an overview see Gaining momentum – Results of the 2021 BIS survey on central bank digital currencies 16.
I imagine that, while we could no doubt argue about some of the details, all of us would accept that a genuine democratic process - based on universal suffrage and underpinned by transparency and accountability, and supported by freedom of speech, including freedom of the press, is a sine qua non. Within that framework, there is plenty of room for ongoing debate about the role of government, at different levels, in striking a balance between protecting the interests of society as a whole and of particular groups within society, on the one hand, and preserving individual freedoms on the other. In the economic field the debate can become polarised between those who favour free markets, in the interests of economic efficiency and growth, and those who favour government intervention, in the interests of social protection. In fact I don’t think I know many people actually involved in public policy issues who do not see general economic prosperity as the ultimate objective; and I don’t know many people either who do not recognise the need for government intervention to maintain at least the minimum standards necessary for the effective functioning of free markets. So the real debate it seems to me is a narrower one: it is about means rather than ends; and the real issues are typically about matters of degree rather than absolute matters of basic principle. Against that background let me talk first about overall economic policy - and its relevance to the issue of poverty.

We eventually learned from that experience that there really is no trade-off between growth and employment and inflation, except possibly in the short term, and that stability, defined as consistently low inflation - and achieved by keeping overall demand continuously broadly in line with the underlying structural, supply-side, capacity of the economy to meet that demand - is a necessary condition for sustainable growth. We learned that governments cannot sensibly seek to achieve their social objectives - however worthy they may be - by simply borrowing, or “printing”, the money to finance their expenditures, but need to balance their current receipts and expenditures over the economic cycle, borrowing only to finance productive investments. And we learned that the task of shorter term economic stabilisation was most appropriately left to the operation of monetary policy. That, very broadly speaking, is today’s macro-economic orthodoxy not just across a broad part of the political spectrum in this country but in most of the rest of the world. Now many people were initially sceptical about this change of emphasis - no doubt some still are. Fiscal responsibility, including tight control over all forms of expenditure, for example, on social security and pension provision, and on health and education - and monetary policy directed specifically at consistent stable, low, inflation - all sounds somewhat austere. What in particular does it mean in terms of its impact on the poorer sectors of our society? Well I don’t for a moment suggest it is the solution to all our problems.
As an early contributor to this industry, I am at least partly to blame. The estimates  of gross job loss span a pretty wide range, but lie anywhere between 10% and 50% of the global workforce, depending on whether it is jobs or tasks that are assumed to be displaced (Table 1 summarises). Even at the lower end of this range, the societal impact would be significant. At the upper end, they would be truly transformative. If the truth lies in between, this could still make the jobs loss from the Fourth Industrial Revolution greater than its predecessors. And if so, then the potential societal costs – such as rising wage inequality and threats to social cohesion – could also be as great as ever previously. 50  Some of the potentially powerful effects of automation on jobs and wages are already apparent. In the US, each industrial robot per thousand workers has been found to reduce the employment rate by 0.2-0.3 percentage points and wages by 0.25-0.5%. 51  52  In Europe, results are more mixed. Research  suggests that technology may have been the largest single contributor to falling labour shares over the recent past. 53  Whether these effects on jobs and pay will be temporary or permanent is far harder to judge. At this stage of the technological cycle, the evidence is more likely to be picking up the shorter-term displacement effects of 48  Haldane (2015b) Haldane (2015b). 50 Schwab (2017). 51 Acemoglu and Restrepo (2017).

We must adapt to new demands from outside and implement changes where we or others find scope for improvement. Evaluation and constructive debate contribute to making us better at what we do. My introduction on monetary policy here today will in a way deal with evaluation and development. I shall talk about the contents of our Monetary Policy Report – our view of inflation prospects, the decision at the end of October to raise the repo rate by 0.25 percentage points and what interest rate policy we believe will be required over the coming years. The report is one of the best tools for examining how well we do our job. But I will also talk about some changes we have made to better meet the requirements made of us, not least in our role as independent authority. Because if I summarise what has happened in monetary policy since I was here in February, it is not merely a question of the forecasts and interest rate decisions we have published. We have also made changes in the way we communicate, to become clearer and more open. There have been fairly lively discussions of this over the past year. It is good that the Riksbank’s strategy is discussed. But I sometimes think that it has been difficult to distinguish whether the criticism concerns our forecasts not being considered good enough or whether it concerns our changes in communication.
But we would, in my view, have had a much better chance of a more orderly, less damaging correction of an overleveraged banking system.” 5 Available here. 3  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  3  The FSB highlighted that greater transparency would support the credibility of reforms already made, and that it would continue to encourage appropriate levels of disclosures on resolvability from authorities. The Bank led the way on efforts to increase transparency in the publication of its Approach to Resolution in 2014.6 A credible and transparent resolution regime is in firms’ interests, further increasing the resilience of the UK banking system by reducing systemic risk and giving the public and investors confidence that any failure, should it occur, will be orderly. To somewhat quantify this benefit: in December 2019 the Financial Policy Committee (FPC), of which I am a member, reaffirmed its 2015 judgement that effective resolution arrangements reduce the appropriate level of Tier 1 capital requirements by about 5 percentage points for the UK banking system.7  The benefit is quantifiable in market pricing too. The hidden subsidies given to the largest banks have been reduced; estimates of the value of these implicit subsidies to UK bank shareholders fell from c. £ in 2010 to less than c. £ at end-2016. This was also corroborated in the FSB Consultation Report, which noted that the funding cost advantages enjoyed by SIBs are negatively correlated with the degree to which resolution reforms have been implemented.

Major firms will need to continue to work to on demonstrating these capabilities in the run up to the 2022 deadline for ending ‘too big to fail’. And they will need to keep their capabilities ‘live’. While 2022 represents a clear milestone, it is not the end of the process of ensuring that the UK has an effective resolution regime which continues to be credible, transparent, flexible and proportionate. 10  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  10