samchain/econo-pairs-v1 huggingface dataset:
Muhammad bin Ibrahim: Sustainable financial inclusion Closing remarks by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia, at the Alliance for Financial Inclusion (AFI) Data Workshop, Lanai Kijang, Kuala Lumpur, 22 June 2010. *  *  *  Introduction Thank you for giving me this opportunity to deliver the closing remarks for the AFI-BNM Financial Inclusion Data Workshop. Bank Negara Malaysia is honored to co-host this event with the Alliance for Financial Inclusion. The pursuit of sustainable financial inclusion has become a matter of priority as well as urgency in many countries, and is relevant to both the developed and developing economies. The need for financial inclusion, especially for the developing countries, is undeniable. Beyond the potential of being able to uplift the millions of financially underserved poor from the unending cycle of poverty, an inclusive financial system contributes towards greater social, economic, and political stability, a vital ingredient for growth. At the same time, we must also be wary of the increase in situations where access to finance leads to overindebtedness. Over-indebtedness can be the cause of much emotional hardship and stress, and might result in social exclusion. Hence, financial inclusion must take into account sustainability, and in this respect a balanced approach is important. It is this trade off that pose challenge to regulators or oversight authorities. Malaysian experience on the financial inclusion agenda Allow me to reflect on the Malaysian experience for financial inclusion. In Malaysia, financial inclusion is a national agenda.

commercial banks’ claims on the Riksbank, amounts to SEK 435 billion. The liquidity surplus would therefore be about SEK 70 billion even if the entire bond portfolio was sold. 17 Another argument sometimes put forward in favour of large bond holdings is that the central bank’s purchases would increase the supply of safe assets in the economy, and that there is otherwise a shortage of such assets. 18 The Riksbank’s bond purchases result in that government bonds with a specific maturity disappear from the market and are replaced by Riksbank certificates with a maturity of one week. 19 The Riksbank then takes over some of the maturity transformation that the market otherwise tries to achieve on its own, and helps to reduce the interest rate risk in the outstanding portfolio of government securities. This argument isn’t particularly convincing either. If it is considered important to have short maturity on the national debt in normal times, this should be dealt with when the government bonds are issued, and it is then a question for the National Debt Office. Furthermore, the conversion from government securities to Riksbank assets does not seem to increase the supply of safe assets in Sweden; the interest rate on (short-term) government securities is lower than the repo rate which means that the market price of government bonds is higher than the price of Riksbank certificates with the same maturity.
Should they raise interest rates, even if this would not be appropriate from the perspective of price stability and economic activity (cf. slide 22)? There are three reasons for not doing so. First, we have the rule postulated by Tinbergen in the 1950s (cf. slide 23), which states that for each economic policy target there needs to be a separate policy instrument. 22 This reduces potential conflicts of interest when using instruments and contributes to the efficient achievement of each individual target. The Tinbergen rule is also justified in our case. If central banks were to use the interest rate tool for the purposes of financial stability, they might have to accept departures from the objective of price stability. Such an approach, though, would call into question the credibility of the central bank’s avowed pursuit of price stability. In the long term this would have a negative impact on trust in the central bank and limit its ability to ensure the goal of price stability. Second, the crucial question is how effectively interest rate rises actually influence overheating in the credit market. I have already explained how the interest rate environment affects the behaviour of economic agents in the credit market. Higher interest rates, then, should have a dampening effect on credit growth. Yet various analyses indicate that it often takes a very sharp interest rate rise to significantly counteract excesses in the credit market.

As emphasised in our Financial Stability Report published last May, the first of these risks is that derived from the possibility that asset prices may undergo a downward adjustment as a result of rising risk premia. The potential triggers of this situation are a slowdown in economic activity and geopolitical uncertainty. 13/17  Trade tensions indeed seem to have grown and the risk of a hard Brexit now seems greater. In addition, the economic situation in the euro area has deteriorated more than in other areas, particularly in some countries such as Italy and Germany. Meriting special mention are some emerging economies where Spanish banks operate, which are undergoing difficulties associated with their high net borrowing in foreign currency and lack of a substantial cushion of international reserves. Thus, Turkey, which went through a recession in the second half of 2018 and has shown weak momentum in recent months, is moreover facing a complicated political situation which has given rise to significant depreciation of the lira in the past year. Meanwhile, the economic plan implemented in Argentina as part of the financial support programme agreed with the International Monetary Fund is helping to reduce its fiscal and external imbalances at the cost of a sharp recession, but has not altered the deterioration on the inflation front. Additionally, much uncertainty persists mainly in relation to the results of the presidential elections to be held at the end of the year and which will define the economic model for the coming years.
In addition to a high level of activity in the construction industry and strong growth in retail trade, the upturn is now also being driven by higher exports and increased activity in the petroleum industry. Optimism seems to be holding up, and the market outlook for the next six months is bright for all sectors, although brightest for retail trade and construction. So far, optimism has only resulted in a moderate willingness to invest. In general, investment remains at a normal, average level. The exception is housing investment and investment within retail trade. In contrast to earlier periods, several sectors, such as petroleum-related manufacturing, retail trade and services for the business sector, are now reporting rising employment. Growth in the Norwegian economy is probably somewhat stronger than projected in Inflation Report 1/04. On the other hand, capacity utilisation at the end of 2003 may have been somewhat lower than projected earlier. Consumer prices have moved approximately in line with projections in Inflation Report 1/2004. The aim of monetary policy is higher inflation. With the current low level of inflation, it is appropriate to be particularly vigilant with regard to developments in consumer prices. However, consumer prices may show random variations from one month to the next. We now have several monthly observations showing a rise in prices that is consistent with the most recent forecasts. Later this year, we will receive further confirmation of whether consumer prices are rising in line with our projections. We also place emphasis on avoiding imbalances in the real economy.

When inflation in Norway is expected to be broadly in line with that of other countries, the exchange rate will usually also return to its normal range following periods when the krone has been particularly strong or particularly weak. The advantage of a flexible exchange rate is perhaps most evident when the economy is sluggish. If the krone were to remain at a level that is too strong, nominal wages would have to remain unchanged over a longer period or fall in order to bolster companies and jobs. This only occurs when unemployment is very high. With a flexible exchange rate, a depreciation of the krone can also boost competitiveness. A flexible exchange rate can reduce fluctuations in employment and output. 4  BIS Review 34/2004  Empirical studies2 have also suggested that economic growth in industrialised countries with floating exchange rates has been as strong as, and often stronger than, growth in countries with a stable exchange rate. A precondition is that there is an economic policy framework so that inflation does not spin out of control. The real exchange rate The chart shows developments in two measures of the real krone exchange rate, i.e. consumer prices and relative labour costs in Norway relative to trading partners, measured in a common currency. The real exchange rate measured by relative labour costs in a common currency is an expression of the cost competitiveness of Norwegian companies.
Conditions for long-term sustainable growth The recent history of the UK life sector has shown us conditions that were not supportive of sustainable growth – or indeed policyholder protection. We need only cast our minds back a couple of decades to the existential challenges faced by some with-profits firms and the impact this had on benefits paid to policyholders. These challenges resulted from the inadequate capital resources supporting the promises they had made (or were deemed to have made) to their policyholders. Whilst BPA balance sheets look very different, this nonetheless underlines our strong motivation for and expectations of effective governance, risk management and resilience, underpinned by a robust, transparent and risk-sensitive solvency system for long-term business. We see these elements as necessary conditions for success and for the purposes of today, I’ve boiled them down to four Rs: Responsibility of the Board  Page 4  Risk management Resilience; and Regulation Fundamentally, the PRA and BPA firms should be aligned in their interest in the growth of the sector happening in a sustainable way. And there is more agreement than not on the conditions needed for success. As we move from the fundamentals and start delving into the detail, differences of views emerge between BPA firms and the PRA on the extent, nature and relative importance of these conditions; not unexpected given our respective objectives.

This includes the impacts of any reforms to the balance sheet on capital requirements. We will listen and engage with all the information we receive. I don’t expect that we will agree with everything we hear – but the healthy tension and particularly the case study or experience backed arguments are going to help us to a better solution overall. The PRA is keen to see the BPA sector develop in a way that allows it to safely and sustainably deliver on promises made to its long-term policyholders. As my discussion of the four Rs shows – relying on regulation, in isolation, to ensure security of policyholder benefits is not enough. Boards must be responsible for running their businesses prudently, consistent with safety and soundness; firms need to invest in the right risk expertise to take on and manage the assets selected to back their long-term obligations to policyholders; and resilience must be appropriate for the risks being run. We, as regulator, are keen to work with firms to create the conditions necessary for success now, and for the long-term. I am grateful to Craig Turnbull, Jemima Ayton, Miranda Hewkin-Smith, Alan Sheppard, Shamir Patel, Laurienne Sherriff, Giles Woodruff, Philip Grundeu, Anooj Dodhia and Wendy Fu for their assistance in helping me prepare this speech. Thank you.
Even the nonavailability of raw materials or essential inputs or the domestic demand for the output no longer does inhibit industrial growth in view of globalization of trade and services and the advancements in information and communication technology. Although the importance of the agriculture sector in Sri Lanka is reducing, the share of industry has been improving. By end 2007, the share of industry remained at around 30 per cent of GDP compared to 20 per cent in 1950. However, there are still risks and weaknesses in industry sector as well. The higher reliance of imported raw material, increased cost of economic infrastructure, higher wages per unit of output, overall increase in cost structure, intense global competition and possible abolition of various concessions certainly tells us there is an urgent need to improve productivity in the industry sector as well. The demand for the country's industrial goods will always depend on its comparative and competitive advantages. This requires local industries to raise productivity and efficiency in production so as to successfully compete with the rival producers in other parts of the world. Since Sri Lanka does not have an unlimited natural resource base it would be difficult to enhance growth through industry or agriculture alone. As mentioned above, services sector is important for both industry and agriculture sector performance. Hence, we need to focus more on services sector. However, the focus should be placed on a “more productive” services sector.

However, keeping with the global and domestic economic trends, the relative importance of the agriculture sector has been shrinking. Accordingly, the share in agriculture reduced to about 12 per cent of GDP by end 2007. What has been the impact? It has not been able to create sufficient value or wealth with the reduced share of sectoral importance. While recognizing the historic importance of the agriculture sector we should recognize the fact that it has a limitation in the form of low contribution to the national output and low productivity in the current context. Notably, as about one third of the labour force is engaged in agriculture, its total output is distributed among a large number of workers. According to the World Development Report 2006 of the World Bank, the agricultural value added per agricultural worker in Sri Lanka, measured in 2000 US dollars, has been US dollars 696 for the period of 1989-91. This has increased only marginally to US dollars 737 in 2001-03. However, the comparable figures for other countries, even in emerging countries, have been much higher than these figures. What is the result? As a result, the income of agricultural workers in Sri Lanka has been very low, keeping them below the poverty line. At the same time, underemployment has been the natural consequence since employment in agriculture is seasonal and there is a higher concentration of a large farm-based work-force on limited extents of cultivable land.
I believe many of the changes that have been made provide a stronger platform to allow our approach to regulation to recognise the benefits whilst containing the risks of international banking in a balanced way. In terms of “hosting” international financial services, the UK and the US are the two most important markets in the world. So as regulators we both have a major role to play in setting the tone and framework not only for financial stability in our own economies but also for our contribution to global financial stability. Today I will set out how we are taking forward host supervision of international banks in the UK– our “new tricks” designed to address the risks. How do we, at the Bank of England, tame the risks that we face from international banks? What is our approach to taming these lions? The benefits and costs of international banking In absolute terms the UK and the US are by some measure the two largest host jurisdictions for financial services activity in the world. And if you scale activity relative to GDP, the UK is substantially larger than the US. UK banking sector assets have risen from around 100% of GDP to around 450% over the last 40 years – the corresponding figure for the US stands at around 70% 1. Not only that, but overseas banks comprise almost half of those banking assets in the UK 2. In comparison, US overseas banking assets as a share of total banking assets are around a fifth 3.

Residential investment, after experiencing strong gains in 2015 and in the first quarter of 2016, fell during the past two quarters. However, increases in single-family housing starts and permits in October suggest that we are likely to see a reversal of this trend in the fourth quarter and into next year. Business fixed investment has also been weak for some time. Part of this weakness reflects the collapse in oil and gas drilling activity following the plunge in crude oil prices during the second half of 2014. This adjustment now appears to be over, as oil and gas prices have recovered somewhat. But, even outside of this area, business fixed investment has been disappointing. Several factors may be at play here—including earlier uncertainty surrounding the presidential election outcome and the fact that capacity utilization rates remain unusually low at this point in the economic business cycle. While the election uncertainty has been resolved, I would expect business fixed investment to only rise slowly in the year ahead. In contrast, the trade sector has performed surprisingly well in 2016. This sector had to contend with headwinds created by weak growth in final demand by our major foreign trading partners, as well as the impact of earlier dollar strength on the nation’s export competitiveness. However, I’m not sure that I would take much signal from this performance.
Second, even if the objectives sometimes appear to require a contradictory stance for monetary policy, it is possible – even with one instrument only – to successfully pursue several objectives. This is due to the fact that the impact of monetary policy on the different objectives occurs with different lags. To give an example: Monetary policy action aimed at ensuring financial stability in the very short run or aimed at stabilising the business cycle over the medium term does not necessarily endanger price stability in the long run if the stimulus is removed in time and compensated for by a more restrictive monetary policy stance afterwards. In other words, there are several paths for the monetary policy instrument that are consistent with the long-term objective of price stability. 3 Third, and most importantly, monetary policy is not restricted to one instrument alone. Price stability and economic stability do indeed rely on the same instrument. However, the financial market crisis has clearly shown that central banks have a battery of other instruments at hand, with which they can manage liquidity during times of financial market turmoil. This leads me to the second part of my introduction, namely, the central bank’s main monetary policy instrument and the transmission mechanism. For most central banks in developed countries with floating exchange rates, the main monetary policy instrument is a short-term interest rate, referred to generally as the “policy rate”.

The underlying long-term growth dynamics in Emerging Asia are good.   The demographics are favourable, with the proportion of the working age population continuing to rise in most Asian economies.   The emergence of a sizeable middle class and ongoing urbanisation will underpin a continued expansion in domestic consumption and investment. These underlying factors alone should support healthy growth in Emerging Asia, barring serious policy mis-steps or crises. But if Emerging Asia also undertakes the necessary structural reforms and achieves greater regional integration, growth could be even higher. For example, successful reforms and further integration could boost ASEAN’s growth from close to 5% currently to 6%. Structural reforms will help unlock the productivity gains that Asia needs for its next phase of growth. This will be increasingly important as countries move up the economic value chain. The structural reforms each economy needs are different. But what is encouraging is that these countries have moved economic restructuring to the top of their agenda.   In China, the goal is to orientate the economy towards domestic consumption and strengthen the role of the market in allocating resources. The Third Plenum reforms offer a comprehensive blueprint to do this.   In India, the critical task is to improve the business environment and build the infrastructure necessary for a strong manufacturing sector that will provide jobs and  BIS central bankers’ speeches  1  raise incomes. The new government has signalled clearly that India is open for business.
In the identification of its policy orientation, the ECB bears in mind that an inflation rate too close to zero restrains the conduct of policy in deep recessions and it also filters out a host of factors that distort the measurement of the policy-relevant drift in prices. 3 Third, the strategy describes and structures a host of economic and monetary variables which can signal risks to price stability before they materialise. This set includes important monetary and financial variables which influence the way monetary policy intentions are transmitted to price-setting decisions in the medium term. As I said, the strategy turns the Treaty assignment into an action plan which, if I may borrow from performance management jargon, I would call S.M.A.R.T. — Specific, Measurable, Attainable, Relevant and Timely. Let me focus on the “M” and “A”. The action plan is measurable, and we can assess the ECB’s progress towards that goal by looking at its record. Prices since the start of the euro have indeed been stable and in line with our definition. The average inflation rate over the past 13 years has been slightly higher than 2%. 4 The goal was attainable and it was attained. Monetary policy and lack of trust in the integrity of the euro area Over the summer the price of bonds issued by some governments in the euro area fell on concerns that investors’ claims could be discharged by the issuer in a currency other than the euro, the currency of denomination.

This implies that Norges Bank maintains the key interest rate at the current level in the period to summer 2005, with a gradual increase thereafter. It is the Executive Board’s assessment that the projections seem to provide a reasonable balance between the objective of increasing inflation and at the same time avoiding excessive growth in output and employment. The projections imply a sight deposit rate in the interval 1¼ - 2¼ per cent in mid-March 2005. Uncertainty as to the effects of previous monetary policy easing and the unusually low interest rate level imply, on the one hand, that we should exercise caution with regard to further interest rate reductions. On the other hand, the prospect of continued low inflation for a period ahead implies that wide deviations from projected economic developments would be required before interest rates should be increased. The prospect of continued low inflation in Norway also implies that we should lag behind other countries in setting interest rates at a more normal level. At its monetary policy meeting on 3 November, the Executive Board decided to leave the sight deposit rate unchanged at 1.75 per cent. At this meeting, the Executive Board did not see any clear alternatives to leaving the interest rate unchanged. In reaching its decision, the Executive Board has weighed the objective of bringing inflation back to target against the risk that output growth may eventually be too high. BIS Review 66/2004  5