samchain/econo-pairs-v1 huggingface dataset:
Resilience is about getting back up again even after being knocked down … and to keep moving forward. Today, I would like to talk about resilience along four dimensions: resilient supply chains; a resilient industry; a resilient workforce; and a resilient planet. Resilient Supply Chains First, how to build resilience in supply chains. There is a view in some quarters that resilience means onshoring and retreating from global value chains. With the border restrictions in the wake of COVID-19, there has indeed been some onshoring of supply chains to secure essential goods and services. But it is not practical for most activities to be onshored and it will be costly and inefficient to 1/7  BIS central bankers' speeches  do so. There’s got to be a better way to increase supply chain resilience. Let me offer three suggestions: make supply chains more diverse, more flexible, and more integrated. Diversified supply chains are more resilient – with multiple sources of raw materials, multiple production locations, and multiple warehouse hubs and distribution channels. The desire to mitigate China concentration risk has led to some diversification of production locations in Asia. Even before COVID-19, firms had started to adopt a “China plus one” sourcing and production strategy as wage costs rose in China and US-China trade tensions intensified. New production locations and value chains have emerged in Vietnam, Taiwan, and to some extent Malaysia. The pandemic has added some impetus to this trend.

But we do not expect extensive relocation of production out from China in the near term. The bigger force diversifying supply chains is the continued rise of Asia’s middle class. Middle class consumption patterns are boosting and reshaping intra-Asian trade in goods and services Supply chains that used to focus on Asian exports to Europe and America are increasingly diversifying to also meet final demand in Asian markets. This means more regional trade routes and regional ports growing in importance. Last year, 12 of the top 15 container ports in the world were in Asia. As sailors navigating choppy waters would put it: “we cannot direct the wind, but we can adjust the sails." And the wind is blowing towards Asia. Flexible supply chains are more resilient – where production can ramp up or down in line with changing demand and where alternative routes can be used quickly. In the wake of the COVID-19 pandemic, there is no doubt a rebalancing from just-in-time to just-in-case operations. But while inventories are likely to be somewhat larger going forward, maintaining huge stockpiles is expensive. Smart firms are recognising the value of flexible supply chains and exploring alternative production possibilities from the stocks on hand. A good example of flexible production lines was seen in France earlier this year, where luxury goods manufacturer LVMH shifted its perfume factories to produce hand sanitisers within 72 hours of the government’s call for support.
At many banks around the world, although not at Swedish banks to the same extent, it became common to "securitise" different types of credit. Previously, the banks has specialised in developing long-term customer relations and in continuously evaluating and monitoring credit risk. Now the banks simply lifted some of their loans out of their balance sheets, repackaged them to form various securities and sold them. These securities could then be bought and sold by different investors on a secondary market. Many banks thus changed their business model. One might think that the banks used securitisation to get rid of a large proportion of their credit risks. Unfortunately, this was largely an illusion. The banks set up special intermediaries – SIVs and conduits and so on – off their balance sheets to hold and structure the loans that they removed from their balance sheets and then converted into different types of security. This made it possible for the banks to increase indebtedness both on and off their balance sheets and thus to circumvent part of the authorities' capital adequacy requirements. However, the banks' explicit and implicit guarantees to these special companies meant in practice that the risks led directly back to the banks' balance sheets. Almost impenetrable structures arose The result of all these new instruments and artificial intermediaries was a structure that it was extremely difficult to oversee.

In other words, the variable cost is negligible today and the fixed cost is reasonable. Today, therefore, we can find powerful computers and the Internet at most workplaces and in many homes. The costs are so low that many have the financial scope to utilise computers and the Internet, at least in industrial nations. This spread also means that the time and cost involved in the telegraph boy’s running around is eliminated. In other words, it is this spread that means that today’s IT most probably has much greater significance than telegraphy had a hundred years ago. Speculation and technology So far during the ongoing technological revolution, we have seen both a powerful rise and a considerable decline in the value at the stock exchange. If we compare this with earlier periods when major technological changes had a breakthrough or became more widely used, we can conclude that the sequence of events has varied greatly. We have had several periods of extensive speculation in connection with breakthroughs for new technologies that have resulted in financial and real shocks. We have also had periods when these changes have occurred more gradually, without any major shocks. One example of the former is the speculation during the early 1920s that resulted in an economic decline. A further example is the international shock we had following the wave of speculation in the then ‘new economy share’ - the railways - in the 1870s. This led to a very weak international development over a period of almost 20 years.
A European safe asset would become a common benchmark for investors, allowing equity and bond prices across the euro area to reflect their fundamental risk more clearly. It would also facilitate the development and integration of the euro area’s financial markets, while flight-to-quality movements would no longer imply cross-border flows to countries considered to be safer. And it would boost international investors’ confidence in the European project, helping to strengthen the international role of the euro. All of which is especially relevant against a backdrop of geopolitical stress and asymmetric shocks. Such resolute progress in completing the monetary union would structurally reduce the risks of financial fragmentation and ensure the smooth transmission of monetary policy, which in turn would support our monetary policy action. 5  For instance, public and supranational investment (NGEU funds) will only be able to meet a small proportion of the investment required in the energy transition, estimated by the European Commission as more than € billion per year over the next decade. 8

Financial waters, already extremely chilly, then froze solid. Banks found it almost impossible to finance themselves because no-one knew which banks were safe and which weren’t. From the start of the crisis, central banks provided emergency loans but these amounted to little more than holding a sheet in front of the emperor to conceal the nakedness of the banks. They didn’t solve the underlying problem – banks needed not loans but injections of shareholders’ capital in order to be able to absorb losses from the risky investments they had made. From the beginning of 2008, we at the Bank of England began to argue that UK banks needed extra capital – a lot of extra capital, possibly £ billion or more. It wasn’t a popular message. But nine months later, market pressure forced banks to raise new capital or accept 2  BIS central bankers’ speeches  it from the state. UK tax payers ended up owning large portions of two of our four biggest banks, Royal Bank of Scotland and Lloyds TSB, but almost all banks would have failed had not taxpayer support been extended. That bold action in October 2008 could have happened sooner. But the most important thing is that it was done. And the policy of recapitalising the banks was soon copied by other countries. Bailing out the banks came too late though to prevent the financial crisis from spilling over into the world economy.
On top of that, there were contagion effects on public and private sector holdings of sovereign debt at a time when public finances in many countries were themselves deteriorating independently. I think it is important to appreciate that the existing framework governing sovereign debt workouts in emerging market economies (EMEs) evolved in a world where official financing dominated and private financing was provided by a relatively small number of developed country banks. But private claims now outweigh official claims on the major EMEs – by a ratio of 70:30 in recent years. And these private claims are increasingly to bond investors rather than banks – direct and portfolio investment flows now dwarf bank lending as a source of finance for EMEs. Bondholders are dispersed and often anonymous, so there are potentially greater creditor co-ordination problems. To contain the potential systemic consequences of future crises, both the public and private sectors have an incentive to devise a new framework that can deal more effectively with sovereign debt workouts, and most especially with the role of PSI, when private claims, particularly bondholdings, are substantial. This is very similar in kind to the challenge of adapting the London Approach, whose original principles were most relevant where the creditor group largely consisted of a fairly small group of relatively  BIS Review 67/2001  5  homogeneous banks, to a world where creditor groups had become much more disparate and international, involving large numbers of bondholders and other financial creditors.

This has naturally put us, along with other central banks and supervisors on alert for further signs of strain and the attendant risks of dysfunction. UK financial assets saw significant repricing since the start of this week, particularly affecting long-dated UK government debt. Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy. On 28 September, yesterday, the Bank’s Financial Policy Committee, which I’m a member of, noted the risks to UK financial stability from dysfunction in the gilt market. It recommended that action be taken and welcomed the Bank’s plans for temporary and targeted purchases in the gilt market on financial stability grounds at an urgent pace. These operations have started, with the first one carried out yesterday afternoon. These purchases will be strictly time limited until 14 October. They are intended to tackle a specific problem in the long-dated government bond market. The purchases will be unwound in a smooth and orderly fashion once risks to market functioning are judged to have subsided. The Bank’s MI function has informed these actions by providing the Bank’s policy committees with detailed, real-time information on market functionality and tradeability.
Tough measures are already being adopted – measures that were certainly long overdue. But these are not just nice words. HB: What was agreed? Trichet: The Commission in liaison with the ECB and the IMF will monitor very closely the implementation of the measures. But what is also decisive that all Governments take fully their responsibilities of surveillance. It is true for all the other 15 and of course for Germany amongst them. Germany is the largest economy in the euro area and a country which has a tradition of sound fiscal management. I count on the very active role of all countries including Germany inserting the function of surveillance. HB: Should the ECB not also have been tougher and more vocal in its criticism of European governments in recent years? Trichet: The Governing Council has been public in asking Governments to embark on better and sounder fiscal policies on the occasion of all our monthly meetings. You have heard me being vocal in all my press conferences. I had to counter in the name of the Governing Council, the attempt to destroy the Stability and Growth Pact in 2004 and 2005. This attempt was engineered by the big countries of the euro area, including Germany and France and by the Chancellor of Germany and by the President of France of the time. And in all Euro group meetings since five years I call Ministers to regain control not only of their budget but of all nominal evolutions including unit labour costs.

In order to join euro area, Latvia, like any other potential member, needs to be deemed to have fulfilled the “Maastricht criteria”, and to do so in a sustainable fashion. The recent euro area crisis has clearly revealed what can happen when the agreed rules are not followed, especially how damaging this can be for the country concerned. As a corollary, countries which sustainably adhere to these rules, and which have a clear track record of prudence and adjustment capacity, act as net providers of stability, bringing benefits to other members of the euro area. That additional benefit should be remembered. Also, the sheer signal of countries wanting to join the euro area right now is also another contributor to this confidence that we all need. This morning, I would like to briefly touch on three themes. First, a bit about the reasons for joining the euro area. Second, a bit about the process and making the point that it is more a process than an event. And finally, our experience to date as a member of the euro area. Starting with the motivating factors, in one sense we do not need a motivating factor because when we all joined the European Union in 2004, we made a commitment that the euro would be our currency. Thus, the “if” question has already technically been answered and it is only a question of timing.
Expanding foreign trade and globalisation of the production of goods and services call for the development and internationalisation of the financial system so that the opportunities of greater prosperity can be fully utilised. A well-developed financial system is particularly important, moreover, when advances in tele- and data-communications are beginning to have more far-reaching consequences for production processes. At the same time, the transition to a more global financial system has not been straightforward. Developments have often been so rapid that systems have been “left behind”. But this does not mean that the problems lie in the deregulated financial system or in capital mobility as such. Turning back the clock would be difficult but the notion is worth a thought to indicate the consequences that a return to a highly regulated financial sector would have in terms of growth and employment. BIS Review 127/1999  6  Here I have tried instead to show how the system itself, as well as the authorities around the world, are endeavouring in various ways to contribute to greater financial stability at the same time as the positive characteristics of the new financial system are allowed to contribute to the growth of prosperity in the world. 7  BIS Review 127/1999

In making our streets clean and free from litter, it is not enough to station one health inspector at the corner of every street to catch offenders (there are simply not enough health inspectors to go round anyway), nor is it enough to raise the fines against littering to a draconian level because people will still litter if they think they can avoid being caught. The best way to keep our streets clean or cleaner, in my view, is to nurture the value among our citizens that littering is morally bad and should not be indulged in even when no health inspector is around and there is a low chance of being caught. In the context of the financial-services sector, the best way to uphold the integrity of the markets and trustworthiness of the industry is for the stakeholders to nurture and cherish a culture and values that encourage and support honesty of the practitioners and  4  BIS central bankers’ speeches  restrain the institutions from placing the maximization of profit above the interests of the customers. This may all sound very idealistic and is “easier said than done”. We all understand that it will take a long time, years and even decades, to change people’s mindset and values. However, no IFC is built overnight. It has taken London and New York many, many decades to become what they are today. The race to become among the top IFCs in the world is a long term endeavour.
As Chairman Bernanke noted in his most recent press conference, a strong majority of FOMC participants no longer favor selling agency MBS securities during the monetary policy normalization process. This implies a bigger balance sheet for longer, which provides additional accommodation today and continuing support for mortgage markets going forward. Fourth, even under this scenario, a rise in short-term rates is very likely to be a long way off. Not only will it likely take considerable time to reach the FOMC’s 6.5 percent unemployment rate threshold, but also the FOMC could wait considerably longer before raising short-term rates. The fact that inflation is coming in well below the FOMC’s 2 percent objective is relevant here. Most FOMC participants currently do not expect short-term rates to begin to rise until 2015. To reiterate what I said last week, some commentators have interpreted the recent shift in the market-implied path of short-term interest rates as indicating that market participants now expect the first increases in the federal funds rate target to come much earlier than previously thought. Setting aside whether this is the correct interpretation of recent price moves, let me emphasize that such an expectation would be quite out of sync with both FOMC statements and the expectations of most FOMC participants. Regional economic conditions Turning to the regional economy, my colleagues and I at the New York Fed continually track conditions in our District, and we have a number of tools we use for that purpose.

There is still disagreement, however, on how to deal with flows, on who bears the burden of adjustment, and on the scope for global policy cooperation. However, there is perhaps a deeper lesson to be drawn from the global financial crisis. The crisis came largely as a surprise; not because we did not see the bubbles forming, but rather because the central banking community as a whole failed to fully take into account the vulnerabilities resulting from the growth of the shadow banking sector, the opacity of the novel financial instruments that helped fuel the bubble, and the complex domestic and international linkages between different financial sector intermediaries. A fundamental lesson to be drawn from the global financial crisis is the need to develop an integrated, forward-looking approach to central banking that brings together: •  Comprehensive, granular (and perhaps “real time”) financial sector surveillance that focuses on identifying systemic risk and develops adequate market infrastructure and reporting systems;  •  Market intelligence that captures short, medium and long-term trends in the financial system, including, for example, the potential impacts of the rapid evolution of electronic trading platforms and algorithmic investment strategies; and  4  BIS central bankers’ speeches  •  Research and analysis that spans monetary, exchange rate, and macroprudential policies. We have made some progress in this direction here at the Central Bank of Brazil, but we expect to continue to develop this integrated approach to central banking for some years to come.
The Maastricht Treaty includes a general clause that economic policies should be treated as a matter of common concern and coordinated within the EU Council of Ministers. Member States are also required to run their economic policies in accordance with ECB’s primary goal of maintaining price stability. The underlying philosophy was to prevent what economists call “fiscal dominance”: namely, that the misguided policies of governments force the hand of the central bank, and hinder it from pursuing its objective: safeguarding price stability. However, surveillance of economic policies rested chiefly on non-binding guidelines and recommendations. In 1997, this architecture was complemented by the Stability and Growth Pact, which foresaw binding commitments to fiscal rules, backed up by sanctions. These were however not enforced when cases of fiscal slippage arose later on, and not backed by sufficiently strong national fiscal institutions. Outside the realm of fiscal policies, coordination was sought but no specific rules were foreseen. This is another weakness of the Maastricht framework: the absence of a surveillance mechanism for the timely detection of macroeconomic imbalances and their resolution. Those countries with a history of elevated inflation rates and exchange rate devaluations benefited, at the start of EMU, from unprecedented low levels of real interest rates. Over time, these led to wage and price increases that undermined competitiveness. This development showed up in increasingly deteriorating current account positions as well as in bubbles, particularly in the financial and real estate sectors, fuelled by capital flowing from countries with current account surpluses.

However, there is little doubt that Europe’s agenda for the immediate and longer-term future will be full of challenging tasks. I have outlined the three areas in which Europe will have actively to shape its future: the euro area, the enlargement of the EU and its role at the international level. The fact that these areas are interlinked and that progress will have to be achieved simultaneously adds to the challenges we are facing. From a more general point of view, Europe should aim at becoming a stronger partner in international cooperation and, as far as possible, at speaking with one voice. Such an ideal cannot be realised overnight, but every effort possible should be made to move in this direction. A stronger, more integrated and coherent Europe is in the interests of the world at large. In order to be able to play this role on the international scene, Europe should keep an eye on the rest of the world and, in spite of the many challenges it will face internally in the years and even decades ahead, it should avoid adopting an exclusively inward-looking stance. 7  BIS Review 116/1999