samchain/econo-pairs-v1 huggingface dataset:
Zeti Akhtar Aziz: Collaboration and challenges of the central bank community Dinner address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Bank for International Settlements Closing Dinner, Shanghai, 29 February 2016. *  *  *  It is my honour to be invited to speak tonight at this distinguished gathering of Governors. In my 35 years as a career Central Banker, it has been my privilege to have been associated with the BIS for 20 of those years. The BIS had in the mid-1990s initiated a move to have a greater interface with the emerging world. This translated into an expansion of the membership of the BIS in 1996 and then again in 1999 and 2003, when several Central Banks in emerging Asia became members of the BIS. Today, almost half the membership of the BIS is from the emerging world. This initiative by the BIS under the leadership of the late Sir Andrew Crockett has proven to be highly prescient given the growth of the emerging world in significance and influence in the global economy. The BIS has evolved to become an international organisation that is truly global. The BIS has not only focussed on the important issues on financial stability emanating from financial systems of the developed world but has also surfaced the issues that are important to the emerging world.

Among the future challenges that are likely to confront Asia is whether our prevailing growth model is sustainable given the consequences from erosion of our demographic advantage, the rising indebtedness, the rising cost of living in an apparent period of low inflation, the need to meet the massive infrastructure requirements and the need to address the rising income disparities and the environmental challenges. What then are the ways economic management can prepare us for the future? This will involve policies and reforms that will reduce leverage that will address the widening income disparities, that will effectively manage infrastructure development and urbanisation, that will accord environmental sustainability and finally that will accord importance to governance, accountability and integrity in the implementation and execution of the many endeavours to achieve a sustainable advancement. For most Central Banks in the emerging world, our mandate is broader. Most certainly we are expected to have a role in contributing to addressing many of these challenges both directly and indirectly. Most of all, not only do we have a voice but we also provide support to addressing many of these issues, whether it is on financial inclusion, financing of infrastructure or putting in place financial and social safety nets or on environmental  2  BIS central bankers’ speeches  sustainability.
Mr Noyer reviews first experiences with the euro Speech delivered by the Vice-President of the European Central Bank, Mr Christian Noyer, at the conference organised by Swedback in Stockholm on 26 May 1999. I should like to start by thanking you for your kind invitation to speak here on the occasion of this conference organised by Swedbank. It is some five months now since the euro was launched. The introduction of the euro has been accomplished successfully and the enormous technical and logistical challenges arising during the early days of monetary union have been overcome. The first months of the euro have been successful in both political and operational terms. With the introduction of the euro, European integration has taken a large step forward as the new millennium approaches. The euro plays an important role in the euro area and beyond. Just after its launch in January, the euro already featured on all major financial markets around the globe. Currency trading is regularly carried out in euro and shares are denominated in euro on most European stock exchanges. Moreover, the euro has attracted new international bond issues as the currency of denomination. In some ways, the introduction of the euro may justify expectations of large overall efficiency gains. For citizens living in the euro area, two obvious gains will be the reduction of transaction costs and increased transparency across countries, as price comparisons between goods sold in different countries are made easier.

While this will open up new opportunities for enhanced efficiency and productivity gains in Asia, a better understanding of the risks inherent in networks will better prepare the regional economies to address these risks. This will be a shared responsibility within and among the regional economies. Closer regional cooperation, strategic alliances and smart partnerships will be important key responses for enhancing the prospects for higher growth and development in Asia. Thank you. 2  BIS Review 32/2006
But price controls cannot solve the issue of scarcity, which is often the main cause of high prices. The main disadvantage of capping prices is that price ceilings do not guide consumers to reduce their consumption of the scarce product. This has been the problem with price caps for energy, as it does not encourage consumers to use energy more efficiently, and nor do caps offer producers any incentive to increase supply. The alternative is targeted income support measures, which allow the burden of higher energy costs to be shared within a society. Unlike price controls, these measures preserve price signals and help to steer both demand and supply towards a new equilibrium. The main concern with income support is that it is more difficult to manage. How target groups are selected is a highly political issue and any such measures are an additional fiscal cost, so they need to be temporary and well targeted. In summary Headline inflation is falling in the euro area, but it still remains too far above the ECB's target of two per cent. That measures of underlying inflation are still very high is even more worrisome, as it indicates a presence of more persistent inflationary forces that can be difficult to break. The differences in inflation rates between the member states of the euro area have largely been driven by energy prices and the policy measures taken by governments, and they remain wide.

The global and European roots of high inflation The search for the causes of the current high inflation starts in the aftermath of the Covid-19 pandemic. The global economy recovered fast once the pandemic ended and the restrictions on consumption and travel were lifted. Aggregate demand in our economies bounced back, and it was also boosted by the wide-ranging support measures that governments and central banks offered to help companies and households cope with the crisis. It turned out that not all companies could respond quickly enough to this increase in demand, as some restrictions lingered and supply chains remained fractured. This put pressure on input prices that was then passed on to consumers. Then Russia attacked Ukraine, and this caused energy and commodity prices, including food prices, to increase sharply. The energy crisis hit Europe especially hard as the European Union as a whole and many member states were heavily dependent on Russian oil and gas. Russia weaponising energy pushed inflation up to levels not seen since the last great oil shock in the 1970s and 80s. By October last year inflation in the euro area had passed 10%, though inflation rates were very different across the  1/8  BIS - Central bankers' speeches  member states, ranging from 7% in France to above 20% in the Baltics in that month. Inflation in Slovenia was just below the euro area average at 10.3%.
Nevertheless, it is only a first step, and implementation measures have still to be elaborated by European and American competent authorities and, as recalled by a popular saying: as usual “the devil is in the details”. BIS central bankers’ speeches  1  Therefore, it is of the uttermost importance to further encourage cooperation and exchange of information between the European and American competent authorities. I will come back on this issue later on. 1.2 Concerning the recent evolutions of the banking regulation, let me first point out that, to me, the Basel 3 package constitutes a very significant advance that will in the long run strengthen the prudential framework for banks. The main message I would like to emphasize today is that Basel 3 is a balanced reform, in the sense that it is both ambitious and cautious. The scope of risks captured by the Basel framework has been enhanced very significantly. Banks’ capacity to absorb losses has been magnified by more than three times if, beyond the higher level, you account for the improvements in the quality of capital. Some incentives towards excessive risk-taking have been corrected, through higher capital requirements for riskier activities, notably those related to re-securitization, and also through new rules for compensation policies. A leverage ratio will be introduced that will act as a backstop, and not a substitute, to risk-weighted regulation. Besides, I believe that, with Basel 3, some important work of harmonization has already been done.

For instance, we now have a far more stringent and more harmonized definition of regulatory capital. The need for common and internationally harmonized capital and liquidity requirements has been broadly recognized and will be made operational in the near term. Basel 3 represents therefore an ambitious goal. At the same time, it has been set in a cautious way in order not to impact the financing of the economy and the global growth. Those latter points are the reasons for the rather long phasing in, that has been put in place by the Basel Committee. This phasing in period should also enable countries that did not move to Basel 2 – namely the US –, to implement Basel 3 at the same pace than European banks. As a matter of fact, I consider it essential that implementation of this new framework both in Europe and in the US be concomitant – and exhaustive and I am far from being the only one. As a matter of fact, experience shows that if a reform is not implemented globally, weaknesses remain. The American administration is very positive and determined about it, so I trust that can be done. Failure to implement Basel 3 in a globally consistent way would lead to a competitive race to the bottom and may thus plant the seeds for another crisis. 1.3 Last but not least, another area in which significant progress has been made since the crisis is the accounting framework.
But it also meant that financial institutions were able to sell loans or take them off the balance sheet, which weakened lenders’ incentives to conduct prudent screening and constant monitoring of credit  BIS Review 66/2009  1  risk. So underwriting standards and lending oversight declined, and contributed to the excessive credit growth in the second half of the 1990s. In sum, the observer would have concluded that the factors that fuelled the credit and asset price boom of the past decade also created the conditions for a bust. In mid-2007 we started to see the backlash. The start of the financial turmoil was sudden but not unexpected. The financial system as it worked over the past decade – with its flawed incentives and its overly complex products and with global imbalances as its macroeconomic backdrop – was no longer sustainable. The asset cycle turned, the weaknesses were exposed and investors suddenly lost confidence. After years of exceptional risk appetite and high profits, the pendulum swung in the opposite direction, as markets became extremely sensitive to financial risk. In September last year, the crisis escalated sharply. In particular, a major financial player collapsed, which was directly involved in about 30 large payment and settlement systems worldwide and had a balance sheet of USD 600 billion. Its failure turned a large-scale crisis of confidence into a global financial panic. Financial intermediaries restored liquidity buffers, tried to economise on capital and to scale down their balance sheets. They sold assets and tightened lending conditions.

As affirmed by the Governing Council at its last monetary policy meeting on 7 September, we expect the key ECB interest rates to remain at present levels for an extended period of time, and well past the horizon of the net asset purchases. Our asset purchase programme (APP), at the current monthly pace of € billion, is intended to run until the end of December this year, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases are made alongside reinvestments of the principal payments from maturing securities purchased under the APP. Later this year we will decide on the calibration of our policy instruments beyond the end of 2017, taking into account the expected path of inflation and the financial conditions needed for a sustained return of inflation rates towards our objective. 1/3  BIS central bankers' speeches  The ECB’s monetary policy measures and the favourable effects they are having on borrowing conditions for firms and households, access to financing and credit flows across the euro area are supporting domestic demand and are also facilitating the deleveraging process. In order to reap the full benefits of our monetary policy measures, actions in other economic policy areas remain necessary to strengthen long-term growth and resilience in the euro area. Meanwhile, the condition and resilience of the euro area banking sector has continued to improve.
The unemployment rate fell by around 2 percentage points in the post-independence period. Its standard deviation was cut in half. And fifteen years of sustained economic growth followed. Table 1: Inflation lower and less volatile since MPC independence Annual CPI inflation  Inflation volatility  Four-quarter GDP growth  Four-quarter GDP growth volatility  Unemployment rate  Real wage growth  Pre-inflation targeting (1972-1992)  9.0  5.4  2.2  2.9  7.8  0.8  Start of inflation targeting to MPC independence (1993- 1997Q2)  2.3  0.4  2.9  0.7  9.0  0.3  MPC independence to crisis (1997Q3 - 2007)  1.6  0.5  3.0  0.9  5.4  0.7  2008 - end 2012  3.3  1.0  0.0  2.7  7.4  -0.3  2013 - present  1.7  1.0  2.0  0.5  5.2  0.2  However, with time, the initially healthy focus on price stability became a dangerous distraction. Against this serene backdrop of “the Great Moderation”, a storm was brewing. 3 This is the time-consistent optimal policy in the textbook New-Keynesian model with purely forward-looking IS and  Phillips curves. See Clarida, R, Gali, J and Gertler, M (1999), “The Science of Monetary Policy: A New Keynesian Perspective”, Journal of Economic Literature, December.

I should add that we are seeking new opportunities for discussion with accounting standards-setting bodies and private sector accounting professionals. The Status of the New Accord The Committee is currently reviewing carefully these responses and other issues that the industry raised. In relation to pillar 3, we are evaluating closely what should be reported publicly, versus what can remain confidential. We are refining the rules so that they will help secure a more level playing field without being overly burdensome. We are aligning our reporting requirements with those emerging from accounting standards. In terms of the way forward, as you may know, in mid-October the Committee reached an important agreement on a work plan for taking these and other issues into account, and significant progress was made on major issues. What is most important to the Committee is the quality and consistency of the new Accord. At the same time, we recognised the need to provide banks with as much certainty as possible while they plan and prepare for the adoption of the new rules. In our last meeting in Madrid, the members of the Committee agreed on the importance of finalising the New Accord expeditiously and in a manner that is technically and prudentially sound. We noted in a statement to the press that we expect to address the remaining issues and complete the text of the New Accord in the coming months and no later than mid-year 2004.
•  With these improvements, and generally accommodative external financial conditions, borrowing costs have fallen, capital market access was restored for many countries, and credit growth resumed. Net credit growth to sovereigns has remained moderate, however, as much of the borrowing has gone to refinancing the existing stock of debt on more favorable terms. •  The market for emerging market debt also has matured. There has been more differentiation in the response of spreads, both on the way down as credit fundamentals seemed to improve, and during the recent correction. This progress is indicative of a general increase in the sophistication and skill of economic policy makers in the emerging world, and in the quality of understanding of the benefits of macroeconomic stability and how to achieve it. Many countries benefited from the advice and financial support from the IMF and the multilateral development banks. But the most successful were those with policy makers who were ahead of the Fund and the Bank in diagnosing and addressing their problems, rather than being dragged reluctantly toward a more credible policy stance. These improvements have left the emerging markets as a group less vulnerable to financial crisis than they were in the mid-1990s. The combination of deeper reserve cushions, stronger external positions, improved balance sheets, more flexible exchange rate regimes, and better inflation performance provide a very different setting from what existed the last time we faced a transition after a sustained period of benign financial conditions and low interest rates.

•  International reserves have increased substantially, providing a larger cushion against adversity. Among the largest borrowers, half now hold reserves greater than 150 percent of maturing short- and long-term debt; less than one-sixth had such coverage heading into 1997. •  There have been improvements in fiscal performance, with some notable cases of governments achieving and sustaining large primary surpluses. BIS Review 37/2004  1  •  External balances have improved, with current accounts in most of the emerging world in surplus or modest deficit. Only 2 of the 20 largest borrowers now are running deficits in excess of 3 percent. •  Exchange rate regimes are more resilient and less fragile, as a substantial majority of the largest borrowing countries have moved to flexible regimes, and away from the fixed-butadjustable pegs that proved so dangerous in the crises of the last decade. •  Important progress has been made in building credibility for new monetary policy regimes, and inflation is generally moderate. •  Governments have made major investments in recapitalizing and restructuring their troubled financial systems. For example, in Asia, where some of the most severe problems were encountered, governments have spent over $ billion carving out problem loans and bolstering capital. •  Growth rates have improved with the restoration of domestic stability and recovery in external demand. Indeed, aggregate growth currently is running at its highest rate since the onset of the crisis in 1997.
The potential for money to play a role as ‘nominal anchor’ to the economy, outside the standard forecasting framework – as it often has in the face of elevated levels of inflation, such as during the experiments with monetary targetry from the late 1970s – remains an open and challenging question. Monetarism revisited Before addressing these questions, it is worth recalling the central tenets of the monetarist approach to monetary policy. Foremost among these are: First, a focus on price stability as the objective of monetary policy, reflecting the ‘classical dichotomy’ at the heart of most macroeconomic models. In the long run, money and monetary policy are neutral: they have no influence over real variables, such as output and employment, but pin down the evolution of the price level. Second, a preference for using rules rather than discretion to direct monetary policy. Policy decisions need to be credible and consistent if they are to be effective. Assigning responsibility for monetary policy to an independent central bank, largely insulated from short-term political pressures and given the freedom to employ judgment flexibly as necessary, supports this systematic approach to policymaking. Third, a medium-term orientation of monetary policy, recognising the famous long, variable and less-than-fully predictable lags in the transmission of monetary policy to price developments. Owing to these lags, monetary policy cannot control high frequency inflation developments on (say) a month-to-month basis.

And if the bank does fail and needs to be resolved, there is the bail-in. The bail-in is one of the SRB’s resolution tools, and it ensures that the burden of failure is indeed borne by the owners and creditors of a bank. The bail-in establishes what you might call a hierarchy of loss-bearers. 5/9  BIS central bankers' speeches  First in line are shareholders, followed by holders of subordinated debt, followed by other creditors. The question is, of course: how much can be bailed in? And the answer is: everything! Well, in theory. In practice, there is a safeguard: the Single Resolution Fund, or SRF. The SRF is financed by banks from all 19 euro area countries. It was set up in 2016, and by 2023, it should amount to about € billion. In a resolution, the SRF can contribute up to 5% of the bank’s balance sheet. But it can only do so after shareholders and creditors have borne losses amounting to at least 8% of the bank’s total balance sheet. So, shareholders and creditors have to bear a large part of the losses first, and then the banking industry as a whole can step in through the SRF. The basic idea of bail-in is quite clear. But, as is so often the case, the devil is in the detail. However, I will spare you that particular discussion and turn to three more general questions related to bail-ins.