samchain/econo-pairs-v1 huggingface dataset:
The inflation expectations are taken from Prospera's survey of market participants Sources: Statistics Sweden and TNS SIFO Prospera  BIS central bankers’ speeches  15  Figure 3. GDP growth Annual percentage change, seasonally-adjusted data 10  10  GDP GDP 1995Mean 2.7  Mean  8  8  6  6  4  4  2  2  0  0  -2  -2 GDP 1971-1994 Mean 1.8  -4  -4  -6  -6  -8  -8 70  75  80  85  90  95  00  05  10  Source: Statistics Sweden  Figure 4. CPI and CPIF Annual percentage change 5  5  CPIF Mean CPI Mean  4  4 CPIF 1995-2012 Mean 1.80  3  3  2  2  1  1  0  0  CPI 1995-2012 Mean 1.44  -1  -1  -2  -2 95  97  99  01  03  05  07  09  11  13  Note: Monthly real-time data, January 1995 – April 2013. Sources: Statistics Sweden and the Riksbank  16  BIS central bankers’ speeches  Figure 5.

Such a chart does speak to the whole distribution, and it facilitates easy comparison with the previous forecast round [Slide 17]. But it still has the problem that it assigns a precise probability to a given outcome. A solitary Bayesian policymaker may be comfortable with that. But in reality there is no unique answer that encapsulates the collective judgement of the MPC. In the Bank’s experience, MPC members find it more important to focus on distinguishing between the different broad orders of magnitude of future events, and are less interested in debating whether something will happen 49 times out of 100 or 52 times. One answer to this tension is to describe the problem in words. But that carries its own difficulties. An alternative is to design a graphical device which prevents the illusion of spurious precision. Simple graphical changes to the chart such as [Slide 18] emphasise that the MPC’s view is not best expressed by a precise numerical for the probability. But a downside of this sort of representation is that it does not readily permit comparisons between successive forecasts. Instead, a further alternative that the MPC is considering is to present this as a “probability ribbon” [Slide 19]. This shows a range estimate of the probability that inflation will exceed target, defined by the edges of the relevant band of the fan chart. In doing so it preserves the broad impression of the Committee’s overall view, yet filters out the artificial accuracy.
[18]  Chart 3 Returns correlations of bitcoin vis-à-vis selected financial assets (yearly rolling correlation)  Sources: Bloomberg, S&P Global iBoxx, CryptoCompare and ECB calculations. Notes: The data are for the period from 1 January 2016 to 16 June 2023. Cryptos as a means of gambling and circumvention But the very instability of unbacked cryptos does make them appealing as a means of gambling. And their use as such has been facilitated by the establishment of a centralised market structure that supports the broader use of crypto-assets. [19] Crypto exchanges have become gateways into the crypto ecosystem, often providing user access to crypto markets in conjunction with other services like wallets, custody, staking[20] or lending. Off-chain grids or third-party platforms have offered users easy and cost-effective ways to engage in trading and  speculation, while stablecoins are being used to bridge the gap between fiat and crypto by promising a stable value relative to fiat currency. [21] Besides gambling, crypto assets are also being used for bypassing capital controls, sanctions and traditional financial regulation. A prime example is bitcoin, which is used to circumvent taxes and regulations, in particular to evade restrictions on international capital flows and foreign exchange transactions, including on remittances. [22] These practices may have destabilising macroeconomic implications in some jurisdictions, notably in developing and emerging markets.

SPEECH  Paradise lost? How crypto failed to deliver on its promises and what to do about it Speech by Fabio Panetta, Member of the Executive Board of the ECB, at a panel on the future of crypto at the 22nd BIS Annual Conference, 23 June 2023 Basel, 23 June 2023  Introduction Some 15 years ago, software developers using the pseudonym Satoshi Nakamoto created the source code of what they thought could be decentralised digital cash. [1] Since then, crypto has relied on constantly creating new narratives to attract new investors, revealing incompatible views of what cryptoassets are or ought to be. The vision of digital cash – of a decentralised payment infrastructure based on cryptography – went awry when blockchain networks became congested in 2017, resulting in soaring transaction fees. [2] Subsequently, the narrative of digital gold gained momentum, sparking a “crypto rush” that led to one in five adults in the United States and one in ten in Europe speculating on crypto, with a peak market capitalisation of € trillion. [3] However, this illusion of crypto-assets serving as easy money and a robust store of value dissipated with the onset of the crypto winter in November 2021. The fall in the price of cryptos (Chart 1) led to a decrease of around € trillion worth of crypto assets within less than a year. This caught millions of investors unprepared. [4] An estimated three-quarters of bitcoin users suffered losses on their initial investments at this time.
And I see it as my responsibility, as the ECB President, to report back to you, and engage in further discussion, once the Governing Council moved forward on the content and timeline of our exercise. The two way street communication principle will apply. Shaping the future of money The other topic you have asked me to discuss today is the future of money. Indeed, as central banks navigate a complex and changing landscape, we should not only aim to anticipate future trends, but also seek to shape them. In doing so, we should be particularly attentive to risks and perform a thorough analysis of their costs and benefits. The financial services environment is evolving as new entrants shake up the market. So are the public’s needs and demands. The ongoing discussion around so-called stablecoins offers a glimpse of the changes that might come. This phenomenon could disrupt the current payments landscape, with spillover effects for monetary policy transmission, financial stability and the international monetary system more 3/5  BIS central bankers' speeches  broadly. But the ECB is not standing still in the face of these challenges. Last year, the ECB launched TARGET Instant Payment Settlement (TIPS), an instant payment service that allows money to reach the recipient within seconds, 24 hours a day, 365 days a year. TIPS responds to the growing user demand for instant payments and helps ensure that any bank account holder in Europe can be reached.

However, in addition to imperfect rules and policy actions, the crisis has revealed a series of institutional deficiencies which need to be eliminated in order to restore economic and financial stability. The clearest example in this regard is probably the European institutional framework. Over the last three years we have witnessed how the perception of country risks has climbed to very high levels as a consequence of both sovereign credit risk as well as the so-called redenomination risk. This development has impeded the adequate functioning of monetary union by leading to sizeable differences in the financing conditions for agents located in different States within the monetary union and by instigating the renationalisation of financial markets. There can be no doubt that much of what has happened is directly linked to the significant macroeconomic and financial imbalances accumulated by several euro area countries, as well as to the emergence of vulnerabilities within the financial sector. It is also clear that the main remedy for those destabilising developments lies in effective adjustment of domestic policies, which is currently being implemented in those countries suffering the most significant stress. But, at the same time, the elimination of any perception of redenomination risks can only be fully accomplished if – in addition to the required domestic policy action – the central bank is fully and credibly committed to intervening in sovereign markets as far as is necessary to avoid the pricing of sovereign risk becoming self-fulfilling.
But a key challenge is to ensure that maturity transformation does not simply migrate outside of the regulated perimeter, and end up benefiting from an implicit public subsidy (Tucker, 2010b). That is difficult because it is the nature of the services – not the institutions – that is the concern. Ultimately, we need a system whereby the suppliers of funds to risky activities, whether intermediated via banks or any other entity, must understand that they will not be protected from loss by taxpayer bailouts. Creditors should know that they will bear losses in the event of failure. We certainly cannot rely on being able to expand the scope of regulation without limit to prevent the migration of maturity mismatch. Regulators will never be able to keep up with the pace and scale of financial innovation. Nor should we want to restrict innovation. But it should be undertaken by investors using their own money not by intermediaries who also provide crucial services to the economy, allowing them to reap an implicit public subsidy. It will not be possible to regulate all parts of the financial system as if they were banks. As Jeffrey Lacker, President of the Federal Reserve Bank of Richmond, has argued, “merely expanding the scope of regulation to chase those firms that extract implicit guarantees by engaging in maturity transformation would be an interminable journey with yet more financial instability in its wake” (Lacker, 2010).

In OECD countries, population growth averaged over 1 percent back in the 1950s and 1960s, but it is now running at half a percent per year, and is expected to gradually fall before dipping into negative figures by 2070.1 Slowing birth rates mean fewer consumers and fewer workers. People planning on longer retirements will tend to save more. And while this is undoubtedly good news in many respects, an abundance in the supply of savings also has a big effect on the global economic picture. When it comes to productivity, there has also been a stark step-down in growth. Rapid changes in the kinds of technology we use in our daily lives—robotic vacuum cleaners, self-driving cars, and facial recognition technology in our phones—may make this seem counterintuitive or plain wrong.2 But the data are clear. In OECD economies, growth in labor productivity—the amount produced per worker hour—has averaged a little over 1 percent per year since 2005, about half the pace seen over the prior decade. Falling R-star So what does all this mean for the future? Two things: First, slower population and productivity growth translate directly into slower trend economic growth. Second, an abundance of savings, and a decline in demand for savings resulting from slower trend growth, together lead to lower interest rates. All of these factors combined have contributed to dramatic declines in the longer-term neutral rate of interest, or rstar. While a central bank like the Fed sets short-term interest rates, r-star is a result of longer-term economic factors.
The effectiveness of monetary policy in the euro area has unfortunately been hindered during the crisis by financial fragmentation – and in the countries where low interest rates are most needed. But we are now seeing signs that monetary policy is once more gaining traction across the euro area, in particular via the bank lending channel. On the funding side, bank funding conditions have eased considerably since mid-2012. Interbank counterparty risk has fallen, as evidenced in the sharp decline in the spread between secured and unsecured money market lending. And benchmark interest rates, notably sovereign yields, have been responding much more homogenously to our rate reductions. On the lending side, the transmission of our interest rate decisions to bank lending rates is still uneven across euro area countries, but the dispersion has narrowed considerably. Our latest Bank Lending Survey also confirmed a stabilisation in lending conditions, with improvements highly concentrated in stressed countries. In short, we have reason to be optimistic that our accommodative monetary policy is feeding through to the real economy and, as such, can help prevent damage to potential growth caused by a prolonged period of economic weakness. Yet it is also clear that low interest rates cannot raise growth on a structural basis. What is crucial to actually lift productivity is credit being allocated where it is most productive. Let me therefore turn to the issue of financial sector repair.

Here the key issue is to avoid that rising long-term unemployment and structurally low investment create hysteresis effects. The second challenge is how to raise potential growth in a durable way. In line with my broad definition of potential growth, recent research has suggested that pre-crisis estimates may have been overstated by effects linked to the financial cycle.2 In other words, after incorporating information on the unsustainable developments in real interest rates, credit growth and property prices that characterised the 2003–08 period, potential output may have been lower than we thought. A return to the status quo ante may not therefore be enough to restore high levels of sustainable employment. These challenges are interrelated because, to the extent that we can achieve an upward shift in the future growth potential, it will affect growth expectations today. This might induce firms and households to frontload consumption and investment decisions, thus helping lower the risk of hysteresis effects. And vice versa, if there is no prospect of higher growth in the future, we could fall victim to self-fulfilling negative expectations. For this reason, I see policy action on both fronts as urgent. And there are three policy areas that I see as relevant: monetary policy; financial sector repair; and, most importantly, structural reforms. How can we raise potential growth? Monetary policy We know that monetary policy can help buy time for necessary structural measures to be implemented. Going beyond that, it may seem strange to include monetary policy in a discussion of potential growth.
As the study team has found out, emigrants in Italy have a high banking utilization rate – more than 50 percent have bank accounts. On the Albanian side, this figure drops to less than 20 percent. Emigrant families’ access to banks is suboptimal despite the considerable geographical expansion of commercial banks in recent years. In contrast with other remittance-receiving countries, banks in Albania still have only a small market share in remittance services. However, there are encouraging signs of demand for new technologies, innovative partnerships and entry points to reach disadvantaged groups. The high fees of the money transfer applied by the banks are often brought up as a motive why individuals do not prefer this service. Nevertheless, there is already an Albanian commercial bank, which offers transfers from Italy to Albania without charging any fee for amounts up to 250 euros a day, when the average monthly delivery of emigrants usually ranges from 100 to 150 euros. In the meantime, there are several other banks that provide the same service for transfers from Greece. Actually, we are examining the possibilities to lower the transfer costs through broader bilateral agreements between the two countries. Even though, money transfer companies provide transfer services at reasonable rates with a good geographical coverage, we still observe a lot of cash entering the country in bags. I retain, this is more a regulatory problem rather than the preference of emigrants to go informal.

For commercial banks, their ability to market additional value-added services, such as savings products, loans or other types of credit to remittance recipients, will require the achievement of a critical mass of customer acquisition, as well as a higher technology delivery mechanism, to bring down the average cost of the investment required to serve that client. Micro credit programs and qualitative improvements of banking infrastructure, concerted with introduction of new financial instruments will also help to attract more remittances. Promoting microfinance organizations as participants in remittances market, could offer certain advantages to the microfinance sector, to the government and to remittance recipients. The costs of this expansion would primarily fall to the regulatory and supervisory authorities. We already took an important step in bringing these institutions under the Bank of Albania supervision which we expect to improve their status in the market by enhancing the confidence of operating with them. Microfinance institutions are already providing small amount loans to the low income class. Their existing programs allow them to leverage their network and geographic reach to assist remittance senders and receivers in gaining access to low cost financial services, as well as access micro-saving and investment products. The third area of our efforts is to channel the workers’ remittances toward country’s development needs. The formalization is a necessary step but does not ensure the role of remittances as a developing instrument.
One important channel is the exchange rate channel. Changes in the krone exchange rate affect economic activity in some business sectors and prices for imported goods and services. The krone exchange rate has acted as a shock absorber, as it did in 2014. A sharp depreciation of the krone dampened the negative effects of the fall in oil prices on the real economy. A low key policy rate contributed to underpinning a weak krone. At the same time, the responsible actions of the social partners restrained domestic cost inflation. The exchange rate and the interest rate differential will continue to be important factors ahead. The key policy rate also has a direct impact on household and corporate demand. The rate reduction in 2014 stimulated consumption and investment. Now that growth has gained a foothold, we can take our foot off the pedal a little. Gradually higher interest rates will reduce the pressure that would otherwise have been generated by higher activity, higher employment and higher wage growth. A third channel is often referred to as the expectations channel. For monetary policy to be effective, changes in the key policy rate must pass through to market rates. Monetary policy effectiveness increases if changes in the key policy rate influence expectations of future interest rate levels. An investment is made to provide a profit over a number of years, and mortgage payments have to be met throughout the term of the loan. So today’s interest rate level is not the only important factor.

Libor is quoted for several currencies, including USD and GBP. Euribor is the reference rate for the euro area. Reference rates are widely used, particularly in the derivatives market. The total value of contracts linked to USD Libor is estimated at close to USD 200 trillion. This is around ten times the size of US GDP (Federal Reserve 2018). [2] In the years following the financial crisis, reference rates have been the focus of considerable criticism, and work is in progress internationally to reform and improve them (Dudley (2018), Duffie and Stein (2015), Lund (2018)). Reference rates deserve critical attention, for a number of reasons. First, the basis for the current rate-setting process has become increasingly inadequate. Libor and Euribor were supposed to reflect the price of unsecured interbank loans. But the calculation of reference rates is only to a limited extent based on actual trades. This is because the volume of unsecured interbank loans is very small for maturities of more than a few days. In the years since the financial crisis, activity in this market has declined considerably. Banks quoting money market 3/7  BIS central bankers' speeches  rates at longer maturities have therefore increasingly had to base their submissions on judgement and information from other markets. [3] Second, some reference rates, in particular Libor, but also Euribor, have been the target of manipulation. Participants that were both active in the market and involved in quoting interest rates were able to make substantial profits by manipulating rate submissions.
I am rather sceptical about the claims that substantially higher capital requirements must mean significantly higher costs of funds for those who borrow to invest and that total investment and output in the economy will be significantly lower. There are two reasons for my scepticism. First, a simple historical point. In the UK and in the USA economic performance was not obviously far worse when banks held very much higher levels of capital. Investment – relative to GDP – was not lower. This is prime facie evidence that much higher levels of bank capital do not cripple development, and the financing of investment. Conversely, there is little evidence that investment or the average (or potential) growth rate of the UK economy picked up as spreads on bank lending narrowed over the past decade, and the volume of bank credit expanded sharply (Chart 5). Chart 5 UK GDP growth GDP Growth  10 Year Rolling Average  % 8 6 4 2 0 -2 -4 -6  1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005  Source: Bank of England, Monetary and Financial Statistics. Second, the most straightforward and logically consistent model of the overall impact of higher equity capital (and less debt) on the total cost of finance of a company implies that the effect is zero. The Modigliani Miller (MM) theorem implies that as more equity capital is  4  See Box 7 in chapter 5 of Bank of England, Financial Stability Report, June 2010.

Reacting to today’s inflation rate (which reflects where the level of prices is now relative to 12 months ago), rather than where inflation will be looking ahead, is not the right thing to do. The inflation rate can move a lot in a short period. Inflation was barely 1% less than a year ago. But this is a difficult situation to have to deal with. I dislike clichés so will resist the temptation to talk about the ship having being blown near to the rocks and now having to steer a difficult course in treacherous waters with rather out of date maps that have not been updated since noone expected we would be in such a place. But it is a temptation since it is not a bad analogy. How we came to be in this difficult situation is something on which many books have already been written. At the heart of the problems has been a banking system which proved catastrophically fragile. That fragility reflected the fact that many banks had come to have very high leverage – a lot of debt relative to capital – which made them vulnerable to concerns about losses on their assets. This poses a big and obvious question: how do we reduce the fragility of the banking system in a way that does not come at too high price – a price may come in the form of a lower level of overall economic activity?