samchain/econo-pairs-v1 huggingface dataset:
NCBs can often recruit and retain good staff by offering attractive salaries and other advantages. Second, Federal Reserve Board Chairman Bernanke 2 and others argue that information gathered in the conduct of supervision provides a necessary input for the monetary policy. Having updated knowledge about the financial system is also important if the central bank is requested to provide liquidity support in a crisis situation. Although such information can be summoned from a supervisory authority outside the NCB, the NCB will be in a better position if it is already familiar with the situation through its in-house supervision. A similar argument is that the central bank is often running or overseeing the large value payments system. Thus the central bank will be able to spot potential liquidity problems at an early stage and can take timely remedial action if it has the supervisory powers to do so. Arguments against retaining bank supervision in the NCB But there are also counterarguments to conducting supervision in the NCB. Some would reverse Bernanke’s argument and say that just because the NCB is responsible for monetary policy, payments system oversight and liquidity support in a crisis, it should not be responsible for daily supervision. An NCB with such responsibilities might run into a conflict between the objectives of monetary policy and of supervision. Simply put, the NCB might be tempted to keep interest rates excessively low in order to  2  Held at the Allied Social Science Association Annual Meeting, 9 January http://www.federalreserve.gov/BoardDocs/speeches/2007/20070105/default.htm  BIS Review 49/2007  2007.

Finally, the time has come to answer the question in the title of this presentation “Is there an optimal way to structure supervision”. My answer is “No”. The different supervisory structures reflect the specific situation of their countries, which may change over time, and there is no globally agreed best practice. As former Chinese Chairman Deng Xaioping once said: “The colour of the cat does not matter as long as it catches the mice”. 5  Ferguson, R (2000) Alternative Approaches to Financial Supervision and Regulation, Journal of Financial Services Research, 17(1), 297-303  6  BIS Review 49/2007
Naturally, one cannot ascribe all success to the changeover in stabilisation policy – the general economic developments have also been favourable. But there is no doubt that the new regime with an inflation target for monetary policy has given a steadiness and stability to economic policy that was lacking before. There have also been significant developments in the monetary policy framework during the ten years or so since we have practised inflation targeting. As deputy governor during the years 1994 to 1998, I was involved during the first years when the course was set and the work on building up competence and analysis tools for the bank’s main tasks, monetary policy and financial stability, began. Other important tasks we were facing at that time were improving communications and increasing transparency, both internally and externally. Since my return to the bank at the beginning of this year, I have been able to note that these processes have continued since 1998. In many ways the Riksbank of today is a different bank from the one I left. The most fundamental change is that the Riksbank has gained increased independence in relation to the Swedish parliament since 1999 and it is now managed by an Executive Board consisting of six persons who make all of the strategic decisions. The price stability target has also been stipulated in the law text since 1999. The Riksbank’s monetary policy strategy has been developed and modified.

The gradual shift towards more flexible monetary policy led to a greater need to illustrate the fact that it is the entire expected sequence of events for inflation and the real economy a few years ahead that is important to monetary policy decisions, and not merely the levels we foresee two years ahead. And the focus should be on not only current interest rates, but also expectations of future interest rate changes 6 . Now we instead use an assumption that the policy rate will develop in line with financial market expectations. This means that the monetary policy discussion can now be based on a relatively realistic development of the interest rate throughout the forecast period. This makes it easier to assess our policy, to compare our forecasts with those of other forecasters and it enables clearer communication with regard to future policy. If inflation is expected to be close to target in a two-year perspective, this could indicate that market expectations of interest rate developments are reasonable. However, to determine this we must also take into consideration the expected sequence of events for inflation and the real economy that would result from this interest rate path. In our communications we point out that the assumption that our policy rate will follow implied forward rates is not a commitment from the Riksbank that the repo rate will actually develop in this way.
The Bank of Albania has continued the practice of organising scientific conferences and national and international forums to share opinions with national and international partners and groups of interest. The Bank of Albania is committed in expanding financial literacy, for an informed public understands better and responds more adequately to the decisions of the central bank. Also, a financially literate public manages better its personal finances. This commitment is further concretised with the establishment of the Museum of the Bank of Albania. During 2017, a range of informing and educational activities were organised at the Museum of the Bank of Albania with the participation of academics from various fields to share their knowledge with the public at large. The Bank of Albania has strengthened the cooperation with the national and international institutions, through information sharing, and consultation and joint projects. During 2017, a number of memoranda of cooperation were signed with national and international partners. Good governance in terms of the performance of the work processes, the efficiency in using the resources and risk management, is an element of the Bank of Albania’s accountability. In this light, I would like to mention the main improvements that have taken place in terms of internal audit systems. The internal audit at the Bank of Albania is an independent activity from the management, ensured through the Inspector General, appointed by the Parliament. 8/9  BIS central bankers' speeches  6. Internal audit The Operational Risk Management function was consolidated over 2017.

From the aggregate demand, it was driven by the growth in consumption, investments and exports. The services, industry and construction sectors mainly benefited from this expansion of aggregate demand. A notable development in 2017 was the positive performance in tourism, which provided a positive impetus to economic growth. Together with the high levels of foreign direct investments, it contributed also to the 2/9  BIS central bankers' speeches  increase in foreign currency inflows in the Albanian economy. Employment increased by 3.3% in 2017, driven largely by the increase in the services sector. In parallel to the increase in employment, the unemployment rate fell, from 14.2% at the end of 2016, to 13.4% at the end of 2017. The decrease in the current account deficit averaged 6.9% of the GDP in 2017, against the 7.6% registered in the previous year. Its improvement reflected the increase in tourism and other services of the business. Fiscal indicators marked consolidation, reflecting a low level of budget deficit and the maintained control over the public debt. From the financial aspect, the Albanian banking system maintained good indicators of liquidity, profitability and capitalisation. The financial situation of enterprises has been improving, as illustrated by their high liquidity levels and the progressive decline in the nonperforming loans ratio. Lastly, inflation has been upward, averaging 2.0% from 1.3% in the previous year.
The reason is that in the new system the risk-averse Clients will be crowded out of the market, allowing the risk-taking individuals to gain the most from a profit-sharing system because they have better access to information. The costs may outweigh the benefits. Let us now analyze the Business and Bank’s perspective and the client’s perspective. Here we are talking about the potentially real issues – the practical aspects that Banks, Entrepreneurs and Clients will face. Firstly, in terms of information asymmetry, banks will need to have perfect information on the Entrepreneur. This cuts both ways – Clients of the Banks will need to have perfect information on the Banks as well. Banks will need to keep detailed records and then reveal such information to their Client and Entrepreneur. Of course we need transparency – but when transparency requirement start to conflict with giving out information to your competitors (perhaps in conventional banking), then this could have a serious impact on competitiveness. Requirement for information will certainly result in an increase in costs – which is then passed on to customers, potentially causing services to be more expensive. This could result in Islamic Banks losing its competitive edge. We should also question what is the expertise of the Bank? Would the Bank possess sufficient expertise to invest in a business venture? If it does not have the expertise or take an active role – then the Bank is merely financing the business venture. That is no different from debt based financing.

Now let’s take a closer look at the Client’s perspective. Firstly, if the Bank is operating on purely equity based financing – return on deposits will be based on the Bank’s performance. Now how many of us here invest our life savings in the stock market? Because that is essentially a rather crude way of presenting an example of what a pure equity based financing system may bring. It is of course possible for the authorities to guarantee your deposit in the Islamic Bank a depositor choose to “invest” – but this would no longer be in the spirit of Musharaka and Mudharaba. But another point that needs to be considered is this. Are banks the best entity to provide equity-based financing. Would it be more suitable for a joint venture company, a partnership or a private equity funds to undertake this venture? Shouldn’t we develop these marketbased institutions to be the conduit for such an endeavour. Since market-based institutions do not have the fiduciary responsibility to depositors. Should we leave the banks which were created to play an intermediary role to continue to perform the function which they are good at. Wouldn’t the financial stability aspect be a consideration on whether banks are allowed to venture into equity-based financing? Shouldn’t we expand an entirely new Islamic finance industry that specialises in equity-based financing?
We remain ready to enforce the minimum exchange rate, if necessary, by purchasing foreign currency in unlimited quantities, and to take further measures as required. I would like to take this opportunity of stressing, once again, that the minimum exchange rate does not represent a peg to the euro. The Swiss franc is able to move freely above CHF 1.20 per euro. As I said, it is high, and should weaken with time. For many years, interest rates have been at a low level due to the overall economic situation. However, the danger of a longer period of low interest rates is that imbalances can build up, and we can indeed observe such a development in the Swiss mortgage and real estate markets. Allow me therefore to give you our assessment of this situation. Mortgage and real estate markets and countercyclical capital buffer The Swiss residential mortgage and real estate markets have been growing strongly for some time, giving rise to imbalances. Some time ago, these reached a level, in the view of the SNB, that poses a risk to the stability of the banking system and hence the Swiss economy. Why does the SNB not simply increase interest rates in order to slow down the mortgage and real estate markets? Although an increase in the interest rate would have a dampening effect, it would, at the same time, intensify upward pressure on the Swiss franc and, given the current situation, threaten price stability. Consequently, an interest rate increase is not an option.

The second example I would like to mention here is the introduction of the minimum exchange rate in September 2011. This rate was introduced to correct a massive overvaluation of the Swiss franc arising from adverse developments on the foreign exchange market, and thereby avert the threat of a deflationary trend. I have explained to you why this instrument is still needed and is being enforced by us without any restriction. A measure like the minimum exchange rate can only succeed if the central bank is totally credible, in other words, if people believe it will actually defend the rate, if need be. Words can certainly achieve a great deal in the financial markets. But this only holds true if they are followed up with deeds when necessary. In the case of the minimum exchange rate, the deeds in question are unlimited foreign currency market interventions. In 2012, we were required to enforce the minimum exchange rate with extensive foreign currency purchases, and our balance sheet total increased significantly. If there were statutory restrictions on our balance sheet we would be unable to introduce and enforce a measure of this kind. The financial markets would call into question both our resolve and our ability to see the measure through. Concluding remarks Ladies and gentlemen, I come to my concluding remarks. Even seven years after the onset of the financial crisis, the environment remains very challenging for our economy and for Swiss monetary policy.
BIS Review 47/1997  -2-  A new direction in economic policy The 1970s and ’80s illustrate how a period of inflation creates an atmosphere of uncertainty and instability, with a speculative climate and “short-termism” in economic decisions. Slowly but surely, production’s long-term conditions deteriorate. It was partly in the light of such experiences that Swedish economic policy was realigned at the turn of the 1980s. Since then, the focus on price stability has gained broad support in our society, including the political parties. However, in view of the severe economic problems in the early 1990s, with inflation expectations based on our historical record and a massive budget deficit, it took time for the new direction of economic policy to acquire credibility. This has been evident, for instance, in the periods of interest and exchange rate unrest. Financial market trends particularly in the longer run can be regarded as an indicator of the prevailing degree of confidence in the determination and ability to conduct an economic policy that is consistent and oriented towards stability. With the free movement of capital and the globalisation of financial markets, economic policy decision-makers need to be highly disciplined. In the light of our experience since the policy realignment at the turn of the ’80s, this is a fact that is widely recognised today in Sweden. Turning the clock back would not be feasible.

Experience from other countries, where the policy realignment had already been made in the early 1980s, indicates that the creation of confidence in a low inflation regime takes time and a lot of hard work. But it also shows that after a while, such a process does yield its reward in the form of low interest rates, a stable currency and ultimately a favourable economic development. The price stability target Following the move to a flexible exchange rate, monetary policy in Sweden is directed at a quantified inflation target. In this it resembles the situation for monetary policy in Australia, Canada, New Zealand and the United Kingdom, where inflation targets are also used. In Sweden the target is formulated as being to limit the increase in the consumer price index to 2 per cent. This target is to be assessed, not in terms of isolated twelve-month change figures but in a somewhat longer, annual, perspective. As monetary policy obviously cannot control price developments exactly, the target is accompanied by a tolerance interval of ±1 percentage point. This tolerance interval also serves to absorb temporary deviations from trend inflation. Such deviations may arise, for instance, from political decisions to alter indirect taxes and subsidies, changes in interest rates as well as from international price shocks. For March 1997 the consumer price index showed a twelve-month fall of 0.4 per cent. However, this figure was to a large extent influenced by last year’s sharp repo rate cuts.
Finally, in order to be more flexible against the variability of capital flows, a new method for foreign exchange purchase auctions was designed and put into effect on 4 October 2010. To this end, a total of USD 1.76 billion was purchased in the first three weeks, USD 1.2 billion of which was additional purchase. Within the framework of these developments, while the yield curve has shifted down across all maturities during the third quarter, the decline was more significant for longer-term interest. Although surging capital inflows towards emerging markets have been effective, factors specific to Turkey have also contributed to the downward shift in the yield curve, as I  BIS Review 159/2010  5  mentioned at the beginning of my speech. Lower-than-expected core inflation has contributed to the downside movement in the short term, while the drop in longer-term interest rates mostly reflects perceptions that the improvement in the relative creditworthiness of Turkey would become permanent (Figure 15). Dear Guests, Along with decreasing nominal interest rates, real interest rates have continued to hover at historically low levels during the third quarter. Moreover, Turkey’s real interest rates do not differ significantly from those of other emerging markets (Figure 16). 6  BIS Review 159/2010  Meanwhile, with the removal of extra tightness in financial conditions that emerged during the crisis, the effectiveness of the monetary policy on credit market enhanced; thus, the low level of real market rates were better reflected in credit interest rates (Figure 17).

The reports issued by the Counterparty Risk Management Policy Groups I and II both make the important observation that the financial system is likely to be more resilient under conditions of stress when counterparties set initial margins at levels that are likely to be sustainable in less benign conditions. When margin levels are set more conservatively, firms are likely to have more flexibility in responding to stress and are less likely to take action that might amplify the market shock and exacerbate the reduction in liquidity. When competitive pressure drives margins down, markets may be less resilient. Third, we believe the major financial institutions need to continue to improve their capacity to measure their exposure to risk in a less benign market and economic environment than we have experienced in recent years. The discipline of stress testing and scenario analysis that is designed to measure tail risk is at the frontier of this challenge. Senior management and the boards of directors need to understand the limitations of the tools we use to assess these risks, to try to better understand the potential scale of losses the firm may face, and to carefully examine how well risk exposures reflect the overall risk appetite of the firm, and the size of the capital and liquidity cushion maintained in relation to those exposures. BIS Review 54/2006  3  I want to conclude with the observation that the requirements of effective risk management and control regimes are likely to become more rather than less demanding over time.
Nevertheless, we should also be aware that the monetary order is the result of a historic development. Since we are not starting from scratch, even well-meaning suggestions for improvement – ones that might in theory appear totally justified – may have grave unintended consequences in the real world. I will use four radical reform proposals to illustrate what I actually mean by this. The proposals in question are, first, private money instead of state money, second, a return to the gold standard, third, the introduction of plain money and, fourth, the adoption of foreign money. Private money instead of state money What would it be like if we could pay with varying currencies offered by private providers, instead of with state currencies? At first glance this idea seems quite appealing. After all, competition between different providers of goods and services is a major principle underlying our economic order. We owe much of our progress and, with it, our prosperity to this factor. Why should we make an exception when it comes to the currency, or to money? When talking about monetary competition, I would like to begin by putting our banknote monopoly into perspective. Since freedom of contract prevails in our country, you are at liberty to agree a currency other than the Swiss franc with your business partner. You may purchase your loaf of bread using euros, US dollars, gold, WIR money or even one of the new virtual currencies such as bitcoins, 8 if the baker is willing to accept them.

The nontradable goods sector will require more domestic resources. 2/6  BIS central bankers' speeches  Graph: Labour market in a three-sector model As a result of higher labour demand from the non-tradable sector, the general wage level will increase, and the non-tradeable sector will expand at the expense of the two tradable sectors. Graph: “Spending effect” But this is only half of the story. The second part is the resource movement effect. Also the oil related-sector will demand more labour. As a result, wages will move up further, and the manufacturing sector will shrink even more. Graph: “Resource movement effect” This crowding-out of manufacturing is unavoidable if the benefits of the oil resources are to be enjoyed. But the process may go too far. The economy may find itself in a difficult situation when resources are exhausted. The structural changes in the economy have to be reversed. Workers who become unemployed must find new jobs in manufacturing. This could be quite challenging. It is at this stage you can really assess whether a resource economy has escaped the “Dutch disease” or not. Gagnon (2018) argues that the necessary adjustment costs will be minimised if spending follows the permanent income principle, i.e. the expected real return of the resource wealth should be spent every year. On this background he claims that Norway has saved too much and that spending should rather have been based on a modified version of the permanent income principle.