samchain/econo-pairs-v1 huggingface dataset:
Zeti Akhtar Aziz: The transformation of the international financial system and the role of the Islamic financial system Keynote address by Mrs Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 6th World Islamic Economic Forum, “The Transformation of the International Financial System and the Role of the Islamic Financial System”, Kuala Lumpur, 20 May 2010. *  *  *  This is a time of extraordinary global economic challenge and uncertainty. The recent unprecedented global financial and economic crisis has resulted in tremendous damage across the world. The meltdown in the global financial system resulted in several setbacks including bank failures, a credit crunch, a collapse of asset markets, massive wealth destruction, a sharp decline in trade and financial flows and widespread unemployment in many parts of the world. To contain the effects of the financial crisis on the economy, extraordinary and exceptional measures were taken by policymakers around the world. With the global economy now on the road to recovery, attention has turned towards securing a more permanent solution in shaping the global economy of tomorrow that would avoid such crisis of such proportions in the future. Significant steps are being taken by the international community to intensify efforts to reform and strengthen the international financial system. The aim is to build the foundations for a stronger and more inclusive global economy – built on the premise of sustainable growth and a greater shared prosperity.

Most importantly, European economies and their financial systems, among which the Austrian financial system enjoys a significant share of the market, define the globalization for the region and are, to a large extent, important determinants for the success or failure of these economies. Given the large share of the European financial groups, they have and will play an important role in the transmission of global shocks in the region. What is more important, they have a significant role in the transmission of legislative and regulative shocks carried over by European monetary and supervisory authorities. The size is such that even a simple change in the future business plans of a single European financial institution can transform into real shocks for the economies of the region. It became evident during the crisis and afterwards that an increase in risk and uncertainty, led to increased incentives for banks to withdraw from the Emerging Europe economies. Though this was mostly prevented due to increased cooperation through institutions such as the Vienna Initiative, the concerns from our perspective have not completely dissipated. In this respect the business plan of EU based groups can play a potentially important role in the nature and outcomes of this cooperation.
It’s become standard practice, too, to assume that decision-makers are hyper-rational in how they form their expectations of future policy and future events; they are assumed to fully understand how the economy works. To be sure, the economy is subject to shocks, so that its course is unpredictable. But that uncertainty, according to this school of theory, is of no real consequence for households’ decisions about how much to save and consume, or businesses’ decisions about how much to hire and invest. The technical term is “certainty  BIS central bankers’ speeches  1  equivalence”: In standard models, choices depend on what you expect will happen and not on the degree to which you are confident in your predictions. Such thinking is far removed from reality and, thankfully, there’s increasing recognition of that fact. A variety of uncertainty indexes have been developed and their importance in theory and in practice examined.1 Pretty uniformly, these studies suggest that changes in uncertainty have significant economic effects and that uncertainty has been elevated in recent years. In theoretical analyses, the impact of uncertainty is especially great when realistic financial and informational frictions prevent risk from being spread optimally. Because of such frictions, for example, debt contracts often require that borrowers post collateral. When uncertainty increases, so do collateral requirements, tightening credit and increasing the value of “safe” assets relative to other assets.2 There’s more than one type of uncertainty.

This is dictated by the need to strengthen growth potential. Achieving the non-hydrocarbon growth potential will rely on productive investment, notably in the private sector, in a context of continued public investment programme implementation at  4  BIS central bankers’ speeches  an appropriate pace, given the constraints imposed by the acuity and persistence of the external shock. The development and dissemination of economic information for the benefit of economic agents, particularly SMEs, is key to better investment orientation. In particular, appropriate ministerial departments should focus on promoting advisory structures to improve the provision of accurate information on investment sectors and markets. Sustained improvement in the business environment is crucial to boost the private sector’s contribution to high and inclusive non-hydrocarbon growth. In this regard, improving investment effectiveness and increasing its impact on employment should be a strategic objective. BIS central bankers’ speeches  5
We have already seen some EME countries with idiosyncratic factors such as Argentina and Turkey experiencing these pressures. The second source of risk is headlined almost daily in the news: the escalating trade protectionism and especially trade tension between the US and China. The back-andforth between the two countries and the unpredictability of the outcome have driven much of the macroeconomic as well as financial volatility in the past few months. Up until now, the impact of the announced tariffs between the two countries on global trade has been limited since it takes time for the effect to be fully passed through. Nonetheless, the full impact of the ongoing trade war is expected to come next year, and the series of trade disputes could be far from over. If further tariffs were carried out, supply chain and production networks across the region could be disrupted. While the trade volume would certainly be directly affected, perhaps the more serious casualty is private investment, which—as we have seen in our recent past— decline under uncertainty. To the extent that uncertainty brings about reduced investment, prolonged trade war will reduce the productive capacity for future growth and delay technological upgrading for firms. Along with the growing trade disputes, the escalation of geopolitical risks—the third source of risk that we are facing—is one of the most pronounced trends of the past few years.

Overall, both of the big banks must thus have total loss-absorbing capacity (TLAC) of 28.6% of their RWA and 10.0% of their total assets. Page 7/8  uncertainty. The SNB therefore considers that the most effective approach is to make our banking centre more crisis resilient using the measures I set out before. It is now incumbent on us to complete the implementation of the new regulations rigorously. A large part of this has already been done. The authorities will of course have to review the effectiveness of the regulations going forward, and in so doing must also consider the costs of such regulation for the banks and the economy. The goal here has to be to keep costs as low as possible without diluting the fundamental elements of financial stability. Concluding remarks Ladies and Gentlemen, in my speech I have painted a positive picture of regulatory efforts and of our banks’ ability to withstand a crisis. The resilience of our banking system has increased significantly, and will be improved yet further once all of the regulations have been implemented in full. Nonetheless, we would be wise to keep our feet on the ground. The new banking regulations will not be able to prevent all crises – indeed, it is not claimed that they can. Their purpose is to substantially reduce the likelihood and severity of any future financial crisis. At the same time, the Swiss regulations will resolve the ‘too big to fail’ issue.
The far-reaching transformation of the banking system and the enhanced position of Spanish banks will enable them to meet the foreseeable increase in the demand for credit as our economy picks up. Outlook for the Spanish economy To conclude, I wish to refer to our economic outlook within Monetary Union. On the information available for the first quarter of the year, Spanish GDP is expected to have increased at a quarter-on-quarter rate of 0.8%, making for a year-on-year rate of 2.5%, above the forecasts at the start of the year. This improved growth should be viewed as part of the overall picture for the euro area, which saw growth of 0.9% in 2014 compared with 0.4% in 2013. Both in the Spanish economy and in the euro area as a whole, this improvement in growth is being driven by consumption, the contribution of exports and the improvement in gross capital formation due, above all, to the pick-up in construction, although the decline in oil prices and the depreciation of the euro are also playing their part. Allow me to focus on two key elements here: employment and the change of tempo in the construction sector. The employment figures confirm this recovery in activity. In March, 1.4 million contracts were registered, 18.5% more than in March 2014, with significant growth in permanent and, in particular, in full-time contracts.

The quality of mortgage lending is crucial for the quality of our banks’ assets and, ultimately, for their solvency and stability. A deterioration in the quality of mortgage assets would affect the conditions on which financial institutions themselves are funded, since it might lead to a downgrading of mortgage market securities and that, in turn, might ultimately worsen borrowing conditions for households and firms. That said, Spanish banks are better placed today than one or two years ago to cope with the increase in the demand for credit that our economy will see with the recovery in activity and higher growth. This is due to three interrelated factors. First, the improvement in financial markets, in particular in the euro area. The monetary policy measures adopted by the European Central Bank and the reforms to the institutional framework of the euro have made a decisive contribution here. Second, the recovery in the Spanish economy, one component of which has been underpinned by the reforms already pushed through, which are contributing to correcting the imbalances built up during the upswing that ended in 2008. However, and this is the third factor, the favourable developments in the Spanish banking sector cannot be understood without considering the transformation it has undergone.
In addition to the use of CCPs, triparty repo 9 has become more important. Triparty repo accounted for 11% of all repo transactions in 2012 (up from 9% in 2010). I will come back to CCPs and triparty repo later on, but would first like to say some words on collateral and haircuts. Collateral of course is intended to hedge default risk, while haircuts are usually seen as being intended to hedge the risk on that collateral. In times of market stress however, large and sudden margin increases can create self-reinforcing, pro-cyclical spirals of increasing weakness, exacerbate market swings and oblige market dealers to provide collateral to  7  See ECB Money Market Survey: http://www.ecb.int/pub/pdf/other/euromoneymarketstudy201212en.pdf? 4261e943bbcfec98572319740bda877b  8  A CCP is an entity that interposes itself between the buyer and the seller of a repo, thereby reducing counterparty risk for both seller and buyer as long as the CCP itself is well diversified and well governed. 9  Under triparty repo, a central securities depository (CSD), an international CSD or a custodian bank, for example, acts as a facilitator between the buyer and the seller of a repo. The triparty agent handles the related collateral management, including valuation and substitution as well as re-use of the collateral with a central bank where possible. BIS central bankers’ speeches  3  support secured transactions just when it is most costly to do so. Two examples come to mind.

There is a common denominator between Elster, Schelling, Kydland and Prescott: keeping a promise is difficult, because reneging on a promise will often be the tempting or rational  1  See Sevåg, Reidar (1967): Statsråd H. R. Astrup, Oslo, Dreyer. 2  See Elster, Jon (1979): Ulysses and the Sirens. Studies in Rationality and Irrationality. 3  Schelling, Thomas C. (1960): The Strategy of Conflict, Harvard University, Cambridge, Massachusetts, London, England. 4  Kydland, F.E. and E.C.Prescott (1977): “Rules Rather Than Discretion: The Inconsistency of Optimal Plans” in Journal of Political Economy, 85, No. 3, pages 473-491. 5  In macroeconomics, this dilemma is called the time inconsistency problem. BIS Review 136/2008  1  choice in the short-term. If loss of credibility is taken into account, the best solution in the long term will nonetheless often be to keep your word. A key issue is how we can establish mechanisms that also safeguard long-term objectives in the short term. Jon Elster suggested the metaphor of “tying oneself to the mast”. We all know the myth of Ulysses and the sirens, referred to in Elster’s work. Ulysses wanted to hear the sirens sing, but he knew that he and his crew would then come under the sirens’ spell, bringing their voyage to an end. He therefore ordered the crew to tie him to the mast, but before they did so, he filled their ears with wax.
Persistent price increases that have broadened and crept into long-term inflation expectations have led to a more aggressive Federal Reserve’s response and an upward re-pricing of the terminal Federal Funds rate. Recent labour market indicators continue to signal significant tightness. At the same time, economic activity surprise indices, such as those produced by Citibank, have been showing downward forecast misses on the goods side. While it is possible that some of the misses reflect a rotation from durable goods to services as the economy re-opens, the market interpretation has been more tentative. A combination of growth and inflation fears have seen some correction in equity markets, higher bond yields, wider credit spreads, a stronger dollar, and a further tightening in financial conditions. Several factors need to fall in place for a “soft landing”. These can be grouped into determinants of the Aggregate Supply (AS), Philips Curve (PC), and Investment-Saving (IS) schedules. AS Schedule Supply-side factors have featured prominently in the inflation run-up. There are nascent signs of an easing in supply frictions which, if sustained, can take some of the burden of restoring price stability away from demand, and incur a smaller trade-off between inflation and growth. A pick-up in productivity growth, and some rise in the Labour Force Participation Rate (LFPR) would also relieve cost pressures. However, productivity gains of the mid-nineties that allowed the Federal Reserve to hike by 300bps with minimal output loss were exceptional and are unlikely to be replicated.

To better understand the fintech state of play in our economy we conducted the first national Survey and prepared a feasibility study, which clearly underline the opportunities and benefits that Fintech can bring to our country, as well as the barriers that need to be overcome for further development. The main conclusion of the feasibility study that follows the Survey is that digital transformation is high on the agenda for all parties involved in the ecosystem. Traditional players look to gain operational efficiencies, cut costs, and enhance the customer experience. At the same time, alternative finance firms are on the rise, bringing better products and services than traditional players can offer. However, it appears that regulation is a common challenge for Fintech led innovation and the entry of new players. On this front, Survey respondents see a need for changes in the payment services regulation, the regulation for electronic signature, AML/CFT regulation and rules for data protection. In the period ahead, we will focus our energy on activities related to governance arrangements and coordination issues with all stakeholders in the ecosystem. We also plan to devote special attention to developing effective consumer protection regulation in the area of financial services. Setting criteria for licensing process for newcomers is another activity that is on our agenda. Furthermore, we would also explore the feasibility of creating a regulatory sandbox, to enable firms to experiment with new technologies in a safe space.
In Sweden, the latter idea could be realised by allowing a risk-differentiated stability charge to reflect the higher systemic risk that a systemically-important bank entails. Another possibility that is being discussed is to ensure that systemically-important banks have sufficient capital by creating a debt instrument that is automatically converted into capital when capital adequacy falls below a certain level. During the bank crisis of the 1990s, I was in fact involved in designing such an instrument. 1 In this context, the form of the regulations that govern the handling of distressed banks is in fact quite important. If the regulations are ineffective the systemic risk, all else being equal, will be higher. The cost that should be internalised in the banks operations will then be unnecessarily high, which in turn will make financial services unnecessarily expensive. It is, in other words, very important to create an effective regulatory framework that makes it possible to take decisive action to handle distressed banks at an early stage in both Sweden and abroad. 1  The Swedish Bank Support Authority promised Föreningsbanken that the State would acquire preference shares if capital adequacy fell below 9 per cent. At the same time, the State was given the right to acquire shares if the capital fell below 8.5 per cent.

Only a further sharp rise in sterling, and further falls in commodity prices, could maintain these rates of decline of import prices and their benign effect on retail price inflation. And we see that these effects are now coming to an end. Import prices are beginning to rise, partly because of the recent rise in oil prices, but also because the rate of decline in other prices is slowing with sterling no longer appreciating as fast as it was. BIS Review 111/1999  2  It was possible to allow domestic spending in the economy to grow rapidly in recent years because the appreciation of sterling led to weak net trade. In real terms, the deficit in trade of goods and services has deteriorated sharply. But just as the one-off effects of lower import prices will not continue to hold down retail price inflation, so the rapid growth of domestic spending is itself unsustainable. In 1998 the increasing trade deficit reduced output growth by more than 2%. So modest output growth in the economy as a whole was consistent with rapid final domestic demand – that is spending by households, governments and business on consumption and investment. But the pace at which the trade position is deteriorating is itself now moderating, and final domestic demand grew at 4½% in the first half of 1999.
The final brushstrokes entail developing tools that will, if applied, restrict the benefits accruing to nonresidents as a result of our having higher interest rates than our trading partners. The precise structure of this will come clear in the next few months, but possibilities include some form of taxation or a special reserve requirement. 2  Central Bank of Iceland Special Publication no. 4: Monetary policy after capital controls, December 2010 and Central Bank of Iceland Special Publication no. 6: Prudential rules following capital controls, August 2012. http://www.cb.is/publications/publications/special-publications/  BIS central bankers’ speeches  5  I have now reviewed the multiple crossroads that I mentioned at the outset. Each one of them poses a challenge for monetary policy. But it is not least the interactions among them and the timing that make monetary policy so unusually complicated at present. For instance, it would be much easier to cope with capital inflows if domestic economic developments did not call for a tighter monetary stance at this juncture. The oft-quoted Chinese blessing – or curse – “May you live in interesting times” – continues to follow us. Thank you. 6  BIS central bankers’ speeches

Other important events that affected Zambia’s economic development in her early stages of nationhood included: (i)  The pronouncement of the Unilateral Declaration of Independence (UDI) by the Ian Smith regime in the then Southern Rhodesia (now Zimbabwe). The declaration of UDI had both positive and negative impacts on the Zambian economy, although the negative effects outweighed the positive gains. The positive gains relate, mainly, to the relocation of industries from Southern Rhodesia (now Zimbabwe) to Zambia to avoid being affected by the sanctions imposed by the International Community, as a result of the declaration of UDI in 1965. This contributed to the growth of the Zambian manufacturing sector and the increase in employment levels. However, the declaration of UDI had serious adverse effects on the blossoming Zambian economy. As you may recall, at independence, the economies of Southern Rhodesia (now  BIS Review 5/2005  1  Zimbabwe) and our economy were intertwined. Southern Rhodesia was Zambia’s biggest trading partner as well as the main supply route to the sea. The severing of trading, commercial and transportation relations with Southern Rhodesia on account of UDI therefore, meant that Zambia had to invest heavily in her own transportation infrastructure, which finally led to the construction of the TAZAMA oil pipeline, Indeni refinery, TAZARA, the Great North Road (which used to be known as the Hell Run), etc., in order to transport her essential imports and exports. These were huge projects whose construction required enormous borrowing from countries like China, Italy, France, etc.