samchain/econo-pairs-v1 huggingface dataset:
The aim of these unconventional measures is to restore the functioning of market forces as quickly as possible and ultimately to restore market confidence in the financial system. Two main lessons can be learnt from the vigorous response by central banks. It showed that zero interest rates on no account mean that central banks have exhausted their set of monetary policy instruments. Through quantitative and credit easing measures, the central banks have effective instruments that can be used to reduce risk premia, alleviate liquidity bottlenecks and prevent deflation. Moreover, their role as lender of last resort has taken on a new dimension. Previously, this role was confined to providing funds to bridge temporary liquidity bottlenecks at a particular bank. At the height of the crisis, however, the priority was to secure the liquidity of entire markets. The central banks demonstrated that they can fulfil this function to a previously unforeseen extent. In short, they demonstrated their ability to respond to a systemic crisis. Nevertheless, we need to be cautious when considering whether such measures should be included in a central bank’s conventional set of instruments in the future. These unconventional measures proved useful for direct crisis management. However, so far we have little practical experience of monetary policy management at zero interest rates, especially over a prolonged period of time. It is clear that the instruments used come at a price. In the longer term, for instance, they could create new instabilities and distortions on the financial markets.

The first relates to the shift in focus to the single mandate of price stability as being the core function of Central Banks. This has been frequently accompanied by the adoption of the inflation targeting framework. The second relates to the establishment of a separate entity to undertake the supervisory function of banks, although more than half of the Central Banks around the world still have the responsibility of the supervisory function. In the aftermath of the recent global financial crisis, the search for the appropriate framework for monetary stability and for the optimal institutional structure for financial sector regulation and supervision continues, perhaps now with greater earnest. Prior to the recent financial crisis, the predominant view was that Central Banks should pursue “one tool and one target” policy strategy. Based on this view, the best role for the Central Bank in pursuing macroeconomic stability and prosperity was to ensure that inflation remains low. This recent crisis has changed this perception. Maintaining price stability and financial stability is a means to an end. The ultimate goal is surely to achieve sustainable economic growth and prosperity. Maintaining orderly financial markets has also now become an important role for Central Banks given the implications it has on the functioning and performance of the real economy. For the emerging economies in Asia, ensuring orderly financial markets has always been an important role for the Central Banks in the region.
An important issue in the analysis of stability is therefore whether there is a risk of house prices falling sharply and thereby eroding the security value underlying loans to households. Security value is of no consequence as long as borrowers can service and repay their loans but if a household becomes unable to pay, it is important that the value of the pledge covers the loan. While one cannot be absolutely sure about the appropriate long-term price level for houses and tenant-owned apartments, the estimates the Riksbank has made in various contexts do suggest that fundamentals such as incomes, interest rates and residential construction provide a fairly good explanation of both house prices and loans in the past decade. This reduces the risk of house prices falling sharply. Moreover, the speculative elements in the housing market are probably small. One reason for this is that Swedish households, unlike households in a number of other countries, buy housing to live in rather than to make a profit. They do not buy a house merely to be able to sell it a little later and make a capital gain. This means that prices are not forced up in the same way as in a financial bubble like the one we saw on the stock market not so long ago. Neither is it remarkable that households have enlarged their debts so much since the mid 1990s. Debt ratios were low after the crisis in the early 1990s.

The government’s aim is not to depress property prices but to promote a stable and 6 / 11  BIS central bankers' speeches  sustainable market. The government does not have a target rate of increase for property prices nor can it manage the cycle too tightly. But the government does have a role to help ensure that price movements are broadly consistent with economic fundamentals. In an economy that is growing in nominal terms at 3-5%, it is not sustainable to have property prices increasing at double-digits. The government will continue to monitor the property market closely and stands ready to help ensure a healthy and sustainable market. MAS’ FINANCIAL OPERATIONS Let me now move on to MAS’ financial operations. I will start with: how MAS has been accumulating Official Foreign Reserves (OFR); and why MAS decided to transfer part of its OFR to the Government; before touching on MAS’ financial performance and return of profit to Government. MAS has been steadily accumulating OFR, especially since the Global Financial Crisis. Most of the period since the Global Financial Crisis was characterised by extremely loose monetary policies in the advanced economies, with interest rates near zero and massive expansion of central banks’ balance sheets. This led to a surfeit of liquidity in the global financial system and large capital flows to many emerging market economies. As an economy with very sound fundamentals, Singapore naturally attracted quite a large portion of these capital flows, which exerted sustained and large appreciating pressures on our exchange rate.
Not only has the UK economy behaved differently from its previous experience, it has also behaved differently from other countries. In the United States for example, the fall in employment relative to output has been larger than in the United Kingdom (Chart 8). Weak downwards pressure on inflation from the recession can only go so far in helping understand recent movements in inflation. It cannot explain why inflation has been rising recently. For that we need to look at a series of shocks to relative prices that have put temporary upwards pressure on CPI inflation. These shocks include the change in the VAT rate; changes in oil (and hence petrol) prices and changes in the prices of imports relative to domestic goods and services. 4  BIS Review 91/2010  Because inflation is measured as a 12-month rate, a change in the level of prices will impact on the inflation rate for a year. When the VAT rate was cut in December 2008, that pushed down the price level and the annual inflation rate. Although the precise timing and impact is uncertain, estimates from the ONS suggest it is likely to have reduced inflation by about ¾pp at that time. That effect would have fallen out of the inflation rate a year later. And when the VAT rate was restored in January 2010, the effect of that is likely to have pushed up on the price level and the inflation rate.

2 Unemployment peaked at nearly 12% in the eighties and over 10% in the early nineties – after smaller falls in output. 2  Labour force data were published after the date of this talk: unemployment has dropped to 7.9% in the three months to April. 2  BIS Review 91/2010  Throughout the recession we have heard many reports from firms about how they and their workforces have responded to recessionary pressures. Those reports are from our Agents or MPC members talking directly to business contacts across the regions and in all sectors – a truly invaluable source of information for the Committee. It has been clear that there has been an unusual response from companies and their employees. Many firms have sought to retain staff wherever possible, rather than shed them as in previous downturns – hours have been shortened and wages frozen or even cut where possible, rather than making people redundant. Large firms with smaller suppliers have tried to work with suppliers to keep their supply chains intact, which has helped smaller firms to survive. Many employees – at least in the private sector – have been willing to forgo income in order to retain their jobs. Tax officials have worked very hard with firms to give them the time for tax bills to be paid.
We know now that there are deep flaws in this framework and that these flaws are important elements in the current euro area crisis, but they also played a significant role in the case of Iceland’s banking crisis. A key issue here is the contradiction between these so-called European Passport rights, on the one hand, and national supervision, national deposit insurance, and national crisis management and resolution regimes, on the other. This is what recent European Union proposals of a banking union are supposed to address. Membership in the EU single market, along with the global conditions of cheap, abundant credit, made it possible for the Icelandic banks to expand phenomenally in the course of only five years, from less than two times GDP to more than 9 times GDP. Earlier in the decade, the banks had been privatised and became managed by relatively young, risk-loving former investment bankers. Much of the expansion was really off Iceland’s border, with both financing and investment taking place abroad. In Iceland’s case, there was a substantial additional risk compared to Ireland and Cyprus, as nearly 70% of the banks’ balance sheets were denominated in foreign currency, with the traditional maturity mismatch that is the bread and butter of banking but without a credible lender of last resort to back it up.

More than half of total financing in 2020 will be raised through financial markets, while Islamic finance will continue to increase in prominence, growing at a faster pace to account for 40% of total financing. 2  BIS central bankers’ speeches  The Blueprint has adopted an integrated approach that reflects a financial sector that has increasing linkages between the various sub-sectors in the financial system. The recommendations, in the Blueprint are thus centred on achieving nine major areas: (i) effective intermediation for a high value-added, high-income economy; (ii) the development of deep and dynamic financial markets; (iii) greater shared prosperity through financial inclusion; (iv) strengthening regional and international financial integration; (v) internationalisation of Islamic finance; (vi) safeguarding the stability of the financial system; (vii) achieving greater economic efficiency through electronic payments; (viii) empowered consumers; and (ix) talent development for the financial sector. A strong focus in the Blueprint is on developing the financial ecosystem to enhance funding for innovation which represents a key transformative agenda in our new economic model. Ten initiatives in the Blueprint are devoted directly to nurturing sources of financing for innovative enterprises in all sectors and at various stages of development. Over the next ten years, steps will be taken to achieve a wider range of funding sources for new ideas, including new conduits for financing and investments in innovative industries. With the foundations now in place for greater liberalisation, the Blueprint extends this path by assuming a more regional and international complexion.
Some of the deviations may thus be due to the fact that we have not succeeded in adjusting the forward rates for various types of premium. In addition to this, there are a number of other possible explanations for the deviations. In one sense it may be natural that market expectations deviate from the Riksbank’s repo rate forecast. Market agents may have a different picture of future inflation and economic developments as a whole, which would motivate a different repo rate in the future. Even if market agents share the Riksbank’s view of economic developments, there may well be a deviation with regard to future interest rates. This can be due to different views regarding the transmission mechanism, that is, the effects of the repo rate on the economy. Are the deviations a problem? As I mentioned earlier, one reason for publishing repo rate paths is the opportunity to effectively steer market expectations. We have seen that market expectations sometimes deviate from the Riksbank’s published path. One reason for this is that the uncertainty over future economic developments has been unusually great during the financial crisis. However, I would like to tone down the importance of the deviation between market expectations and the Riksbank’s repo rate path. There has not been any systematic deviation in either direction, if one looks as the average of the repo rate paths and market expectations over three years.

The repo rate path also has significance for developments in long-term rates, although other factors than expected repo rates, such as international events, may have significance in the development of long-term interest rates. Figure 1 Interest rates at different maturities in Sweden Per cent  Note. The interest rates refer to treasury bills and government bonds. Sources: Reuters EcoWin and the Riksbank. Greater openness and clarity from the Riksbank creates better conditions to govern expectations in the corporate and household sectors. The publication of a repo rate path can be regarded as a contribution to this. Any forecast for the Swedish economy made by any reasonable type of model also generates a forecast for the repo rate. So why should one  2  See, for example, Michael Woodford (2005): “Central Bank Communication and Policy Effectiveness”, paper presented at the conference Inflation Targeting: Implementation, Communication and Effectiveness, Sveriges Riksbank. 2  BIS Review 85/2010  then “hide the most central forecasting variable”, as my Executive Board colleague Lars Svensson put it. 3 A particular advantage in publishing one’s own repo rate path is the opportunity to describe alternative scenarios for future economic developments and the consequences they would have for monetary policy. This has made it easier for market participants and households to judge how we Executive Board members will act with regard to the repo rate depending on the different alternative paths for growth and inflation. The Monetary Policy Report shows alternative scenarios, not merely for economic developments, but also for the repo rate.
The Central Bank is thus able to gain valuable insights that contribute towards a more informed financial supervision, including in the design and implementation of macroprudential policy measures. The Central Bank is also best positioned to evaluate the tradeoffs should conflicting objectives arise. In such situations, a fragmented institutional arrangement frequently results in delays and compromises in policy responses. In addition, there would also be a lack of clarity of the accountability for the decisions. Finally, the Central Bank also performs a critical role in crisis containment and management, in particular, to provide liquidity, to prevent disruptions to the functioning of the financial system and to restore stability and confidence to the financial system. To avoid a piecemeal approach by any individual agency in the system and to ensure a comprehensive response to the financial crisis, the institutional arrangements for greater coordination across agencies is essential to allow for prompt action that may include a range of measures such as capital injections, debt guarantees and asset purchases in the effort to contain and manage the crisis. Regional roles At the regional level, the role of the Central Banks in East Asia has in this decade, transitioned to a new level of collaboration and cooperation.

Rising importance of this topic is clearly demonstrated by the adoption of the Bali Fintech Agenda of the IMF that provides guidance for national authorities on how to cope with new and evolving financial landscape, and underlines the need for stronger international cooperation as financial services are blurring boundaries, both institutionally and geographically. In what follows, I would like to briefly focus on the challenges of fintech developments for the banking industry and policy makers. We do have to take into account that digitalization of banking is not a new phenomenon; it has been present for more than 3 decades (in the form of automated teller machines, electronic payments, e-banking). The emergence of fintech is only the latest wave of innovation to affect the banking industry. Still, in the last decade, a significant change has occurred in the way of using technology, thus creating environment in which disruption can happen more quickly, and urging traditional banks to adjust faster to maintain market share. Besides the advancement in technology, a few other factors have also contributed to proliferation of financial innovation. The fact that banking industry was dealing with the legacy issues of the global financial crisis-impaired balance sheets, perhaps was important factor that provided space for non-banks to penetrate in financial business. Also, banks’ resources to a great extent were tilted towards implementation of the new Basel 3 requirements aimed at increasing the resilience of the banking system.
The conference is remembered, among other things, for the statement made by the UK diplomat who left the proceedings stating: “The future treaty you are discussing has no chance of being agreed; if it was agreed, it would have no chance of being ratified; and if it was ratified, it would have no chance of being applied.” This remark seems to encapsulate Britain’s political ambivalence towards Europe and has permeated the country’s attitude to the EU ever since. 1  See the European Commission’s EMU@10 report. BIS Review 20/2009  3  The second episode is more recent and more personal: I was a young sherpa in the Italian delegation to the European Council in Rome on 27-28 October 1990 which called for intergovernmental conferences on Political Union and on Economic and Monetary Union. The Council decided on the start of the second phase of EMU, 1 January 1994, and the creation of an institution in charge of developing “the instruments and procedures needed for the future conduct of monetary policy”. It was also decisive for one of the Heads of Government who, by insisting on having a dissenting voice, inserted in a footnote to the commonly agreed Conclusions, was unable to convince back home that such a footnote was in the country’s best interest. Lady Thatcher had in fact fully understood what the founding fathers had known for years, i.e.

that monetary union was a political endeavour, and that the final goal was political union, albeit a different union from those we are used to studying in textbooks. Creating the euro, adopting it or not adopting it, are not mere technical decisions but key political choices, and have profound political implications, which are quite different from being a member of the European Union. This might not have been fully realised by all. Let me give an example. No opt-out clause was offered to the Member States which joined in 2004, even though some of them might have been less enthusiastic about joining the euro area than joining the EU itself. A formalistic reading of the Treaty reveals that all countries except the UK and Denmark are committed to converging as soon as possible to the single currency, even in those countries where popular support for it seems to be still limited. A strict interpretation of the Treaty indicates that Sweden should not have had a referendum on the euro in 2003. Indeed, by ratifying the Maastricht Treaty, Sweden committed itself to joining the euro as soon as possible. In practice, nobody complains that the letter of the Treaty is being ignored, because a country cannot be forced into the euro if it is politically unready to join. Being part of a monetary union binds its members at different political levels, not all of which are easily visible. Take fiscal policy.
When the DI Scheme was started in April 2006, it targeted to fully insure the deposits of 80-90% of individual depositors. In line with this, a limit of $ per individual depositor per institution was set, allowing 87% of individual depositors to be fully insured. This coverage ratio has now come down to 83%, the lower end of our targeted range. MAS is considering raising the DI coverage limit above $ to achieve a better coverage ratio and provide a better level of protection to depositors. We are mindful that this should not substantially increase the cost to the industry and indirectly to customers. We are targeting to conduct our review and consult the industry and public on the proposed changes over the next six to nine months, and will seek to implement the revisions to the deposit insurance scheme in 2010. Strengthening research capabilities Even as we deal with the immediate effects of the global crisis, we also continue to have our eye on building up capabilities in the longer term. The Economic Policy Department in MAS has run a successful visiting scholar programme since 2002. To support and strengthen research in finance and economics on a wider scale, MAS announced today that it will sponsor a professorship in economics and finance at the National University of Singapore (NUS) for the next five years. This Professorship also signifies MAS’ desire to strengthen collaboration between academia, industry and the public sector.

As I stated in my introduction, such an assessment is very useful for us, and we will take the committee's recommendations on board in our work going forward. Thank you for your attention. 3/3  BIS - Central bankers' speeches