samchain/econo-pairs-v1 huggingface dataset:
Joseph Yam: The case for an Asian Bond Market Opening address by Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority, at the Asia-Pacific Bond Market Congress: A New Maturity, Hong Kong, 8-9 July 2004. *  *  *  I am honoured to be invited to give the opening address at this congress. The strong attendance at this event, and the quality of the sessions lined up, are, I think, an indication of the growing recognition of the importance of bond market development in this region. I am delighted that Hong Kong has been chosen for the venue. The congress is well timed, since only yesterday the Hong Kong SAR Government launched its $ billion bond issue. I extend a warm welcome to those of you who are visiting Hong Kong: I hope you will be able to stay on for a few days and enjoy the city over the weekend. The title of the congress “A New Maturity”, apart from the mild and allowable pun, makes a useful comment on the state of the bond market in Asia. Whether “maturity” is quite the right word is a matter of debate, and I note that the title of the panel discussion later this morning adds a question mark to the word. However we might describe it, there is no doubt about the progress that has been made in the growth of domestic bond markets in the region over the past few years.

The disadvantages of not having a developed bond market were brought home to us during the Asian financial crisis of 1997-8. An efficient and mature bond market can play an important role during times when the other channels of financial intermediation - the banks and the equity markets - falter or fail. In particular, through developing an alternative source of funding, the corporate sector can reduce its over-reliance on short-term foreign currency loans. A sound and healthy corporate sector contributes directly to macroeconomic and financial stability. Improved financial intermediation also brings such microeconomic benefits as efficiency gains and diversification of tools for both borrowers and savers. The absence of a developed bond market in the region was one of the main factors behind the extreme volatility that precipitated the Asian financial crisis. The crisis itself spurred governments in the region to focus on bond market development. This has been one of the positive, constructive outcomes of the crisis, and this is the area in which most progress has been made. It is heartening that the lasting response to the crisis has been to develop rather than to restrict markets. Since the crisis, other important reasons for a stronger, deeper and broader debt market in the region have come to the fore. The strong current account performance of economies in the region has led to a very sizeable accumulation of reserves by the public sector.
That won’t be easy. Transitions between global reserve currencies are rare events given the strong complementarities between the international functions of money, which serve to reinforce the position of the dominant currency. And the most likely candidate for true reserve currency status, the Renminbi (RMB), has a long way to go before it is ready to assume the mantle. The initial building blocks are there. Already, China is the world’s leading trading nation, overtaking the US at the start of this decade.34 And the Renminbi is now more common than sterling in oil future benchmarks, despite having no share in the market prior to 2018.35 The greater use of the Renminbi in international trade is also leading to its growing use in international finance. This has been enabled by reforms to China’s monetary, foreign exchange, and financial systems that have liberalised and improve its financial market infrastructure, making the Renminbi a more reliable store of value.36 The Belt and Road Initiative could foster further take up of the Renminbi in both trade and finance. However, for the Renminbi to become a truly global currency, much more is required. Moreover, history teaches that the transition to a new global reserve currency may not proceed smoothly.

Countries were forced to raise policy rates in an attempt to attract scarce gold reserves, dampening domestic spending – a position that ultimately proved unsustainable. These coordination problems led to lower issuance of safe assets in total and meant the potential benefits from competition between alternative providers of reserve currencies were not realised. In retrospect, a more cooperative solution would have allowed countries to cut policy rates in a coordinated manner, providing support to domestic demand without affecting pressures on gold flows. 40 Farhi, E, and Maggiori, M (2018), ‘A Model of the International Monetary System’, Quarterly Journal of Economics 133 (1): 295-355. 38  14  All speeches are available online at www.bankofengland.co.uk/news/speeches  14  History shows that the rise of a reserve currency is founded on its usefulness as a medium of exchange, by reducing the cost and increasing the convenience of international payments. The additional functions of money – as a unit of account and store of wealth – come later, and reinforce the payments motive. Technology has the potential to disrupt the network externalities that prevent the incumbent global reserve currency from being displaced. Retail transactions are taking place increasingly online rather than on the high street, and through electronic payments over cash. And the relatively high costs of domestic and cross border electronic payments are encouraging innovation, with new entrants applying new technologies to offer lower cost, more convenient retail payment services.
Part of the puzzle of the crisis of 2007–09 was that the excessive leverage and private money creation took place outside of commercial banks, and outside of firms that were subject to broad consolidated supervision – in the “shadows” as some have put it. It is important that we recognize that in the modern era the conditions for a financial crisis can be created by nonbanks. A lesson of the crisis of 2007–09 was that financial crises, modern ones, do not have to be characterized by lines from bank teller windows in which depositors are withdrawing cash, or even be centered in banks. Instead, in a more market-oriented, in contrast to bank-oriented financial system, different sources of stress come to the fore. While employing a different recipe, the flavors of the crises are the same: financial intermediaries, through having overextended credit or engaged in an over-reliance on the issuance of short-term debt, or in the midst of a general panic, have difficulty in raising funds and are forced to sell off positions abruptly, putting further downward pressure on prices, worsening the situation systematically. Preparing for (unwanted) guests In response to the 2007–09 crisis, the policies of the Federal Reserve were focused primarily on liquidity injections, which can be thought of as replacing the privately created money that was being withdrawn from circulation as intermediaries delevered.

The U.S. Treasury and the Federal Deposit Insurance Corporation extended guarantees for money market mutual fund shares, issuance of certain types of debt by bank holding companies and unlimited amounts of deposits in transactions accounts of commercial banks. Later, with the passage of the TARP legislation, the federal government addressed the excessive leverage and shortages of lossbearing capacity through the injections of capital in October 2008 and in April 2009 in conjunction with the Supervisory Capital Assessment Program, or stress test of the major U.S. bank holding companies. Ultimately, the 2007–09 crisis was about both leverage and liquidity in the financial system as a whole, and not only in the tightly supervised sector of banking firms. This suggests that official sector efforts should aim at forward-looking monitoring of financial vulnerability that take both leverage and maturity transformation into account, and to broaden supervision to include broader coverage of the financial sector. In addition to many other efforts, the Federal Reserve is conducting tests of exactly that sort through its capital and liquidity assessments, the Comprehensive Capital Analysis and Review, or CCAR, and the Comprehensive Liquidity Analysis and Review, or CLAR. CCAR is the Federal Reserve’s annual process for evaluating capital adequacy of large and complex financial firms under normal and stressed conditions. CLAR is the Federal Reserve’s annual, horizontal exam to evaluate the liquidity position and liquidity risk management practices of those firms.
For emerging market economies in particular, the efforts have to be extended beyond this to building the financial infrastructure, raising the level of financial literacy and providing the enabling environment for a more inclusive financial system. 2  BIS Review 54/2009  This forum will provide us an opportunity to deliberate on the many issues that are before us, particularly in the context of the unstable times and the manner in which we can strengthen our capacity to enhance the financial inclusion agenda. On that note, I wish you a very productive and successful meeting. Thank you. BIS Review 54/2009  3

The Federal Reserve Bank of New York has also been deeply involved in efforts to reduce foreign exchange settlement risk -- efforts that should further serve to improve market efficiency and overall financial stability. In October 1994, the New York Fed-sponsored Foreign Exchange Committee issued a major report on “Reducing Foreign Exchange Settlement Risk.” The Bank has also been working actively in this area with other central banks through the G-10 central bank Committee on Payment and Settlement Systems, or CPSS, which I have had the pleasure to chair in recent years. Building upon the work of the New York Foreign Exchange Committee, the CPSS published a document in March of last year, often referred to as the Allsopp report, that contains a comprehensive strategy outlining how the public and private sectors can work together to reduce foreign exchange settlement risk. The strategy was endorsed by the G-10 central bank governors and calls for specific action on the part of individual banks and industry groups. A survey conducted by the CPSS last autumn indicates that individual banks are answering the G-10 governors’ call for action. Many banks have made a good start in improving their ability to measure, manage, control, and net their bilateral settlement exposures, and they plan to push these efforts even further over the next year. While this is a very encouraging beginning, we can’t ignore the fact that more work must be done by individual banks.
Moreover, credit growth to the private sector remains subdued, and the necessary adjustment of balance sheets in the public and private sectors will probably continue to dampen the pace of recovery. The risks surrounding the economic outlook remain on the downside. Geopolitical risks, as well as developments in both emerging market economies and global financial markets, may have a negative effect on economic conditions in the euro area, through their impact on energy prices and global demand for euro area products. Further downside risks include an  BIS central bankers’ speeches  1  inadequate implementation of structural reforms in the Member States and weaker than expected domestic demand. Looking at price developments, we see that euro area HICP inflation declined sharply from late 2011 to October last year, and has since been fluctuating around very low levels below 1%. According to the latest data (Eurostat’s flash estimate), euro area annual HICP inflation stood at 0.5% in June 2014, unchanged from May. Annual HICP inflation is expected to remain at low levels over coming months, before increasing gradually in 2015 and 2016. At the same time, medium to long-term inflation expectations remain firmly anchored in line with price stability. Upside and downside risks to the outlook for price developments are both seen as limited and broadly balanced over the medium term. We will monitor the possible repercussions of geopolitical risks and exchange rate developments closely in this context. The exchange rate is not a policy target for the ECB.

Nevertheless, the exchange rate remains an important driver of future inflation in the euro area. Certainly, the appreciation that took place since mid-2012 had an impact on price stability. In the present context, an appreciated exchange rate is a risk to the sustainability of the recovery. Recent monetary policy measures Let me now move to explaining our monetary policy stance. We decided on a number of monetary policy measures in early June. These measures are aimed at providing additional monetary policy accommodation by supporting lending to the real economy. In line with our price stability mandate, these decisions are an essential contribution to bringing inflation rates closer to 2%. They will also contribute to a further strengthening of the recovery. •  Specifically, we lowered all key interest rates further. Our main refinancing rate now stands at 0.15%. Accordingly, our deposit facility rate has been cut to a negative level and now stands at –0.10%. •  We will conduct targeted longer-term refinancing operations (TLTROs) as of September 2014. In these operations, banks will be entitled to borrow from the Eurosystem, conditional on their lending to the private non-financial sector, with loans to households for house purchase being excluded. •  In addition, we are intensifying our work in preparation of possible outright purchases in the market for asset-backed securities (ABSs).
Some countries, such as France and Spain, which have remained more buoyant in this period, have also posted slowdowns – to 0.3% and 0.5%, respectively – in the second quarter of the year. 5 In contrast, the most favourable factor since the onset of the economic recovery in the euro area has been the improvement in the labour market. This has been at the root of household income growth. During the current upturn, employment has responded forcefully to GDP growth. The unemployment rate currently stands at 7.5% of the labour force, very close to the historical low seen in the pre-crisis years. Strong job creation has contributed to reducing labour market slack. This has begun to be mirrored in wage growth and in an increase in labour income, which has enabled consumption to play a key role in euro area growth. That said, labour continues to be underutilised in some economies in the area. Yet in the euro area as a whole, the rise in wages and in unit labour costs has not fed through to prices, which has prompted a contraction in business mark-ups. In fact, the globally prevalent moderate inflation and growing competitive pressures, along with the increased uncertainty over future euro area exports, would account for firms’ heightened caution when passing through labour cost increases to the prices of their products. The upshot is that, excepting the oscillations associated with more volatile items such as energy or certain services (e.g.

These will begin to be implemented in September, under very favourable financing conditions, with the aim of maintaining the current low costs of bank funding and, therefore, of overall borrowing by households and firms. It is perhaps worth reiterating here that the ECB’s monetary policy has had very positive effects on euro area activity and inflation. In fact, by easing financial conditions and reducing financial market fragmentation, the ECB’s expansionary monetary policy has substantially contributed to the improvement in the euro area economy. At the same time, it has prevented the period of negative inflation rates experienced by the European economies further to the crisis-induced recession from turning into a deflationary spiral. Specifically, according to some ECB papers8 and to in-house Banco de España estimates, it is believed the set of monetary policy measures adopted since mid-2014 will have an  7  See M. Draghi (2019), “Twenty Years of the ECB’s monetary policy”, ECB Forum on Central Banking, Sintra, 18 June 2019. 8 Hammermann et al. (2019), “Taking stock of the Eurosystem’s asset purchase programme after the end of net asset purchases”, Economic Bulletin, 2/2019, ECB. 9/16  overall impact on the euro area’s real GDP growth and inflation. In both instances this is expected to be cumulatively of the order of around 2 pp between 2016 and 2020. It should also be underscored that these effects have arisen from the combination of the various instruments used. Beyond their individual impact, these instruments mutually complement and reinforce one another.
It’s notable that later in the same poem I used to open my speech, John Donne writes, “if a clod be washed away by the sea, Europe is the less.” The ongoing uncertainty around Brexit and its eventual outcome is a cause of concern not just for the UK economy, but many of its European trading partners. It’s impossible to predict what the spillover effects will be when Brexit finally reaches a conclusion. 2/4  BIS central bankers' speeches  We face similar uncertainty on our own shores regarding trade tensions. I frequently hear from my business contacts that they’re holding off on making investments until the landscape is clearer. And the ongoing uncertainty in both of these situations, rather than the day to day ups and downs, has become a key driver of business decisions. Trade negotiations and Brexit are top of mind when it comes to uncertainty. But geopolitical risks and political upheaval are affecting regions across the globe. It’s striking that in almost every corner of the world geopolitical tensions are threatening to put the brakes on growth. Even if the outcomes of current negotiations are ultimately positive—be they between the U.S. and China, or the UK and the European Union (EU)—the uncertainty created by current events is no doubt having a lasting effect on the economic conditions we’re experiencing today. Furthermore, the interconnectedness of our economies means that literally, no man is an island. If one economy starts to struggle, the spillover effects onto others can take hold rapidly.

As policymakers, we need to take in how far-reaching those ripples are going to be. Monetary Policy The adjustments to monetary policy we made this year were designed to balance maintaining a strong U.S. economy with slowing global growth, and provide insurance against ongoing and potential future risks. And that’s what they’ve done. The economy is in a good place, and monetary policy is as well. My forecast is for moderate GDP growth, the labor market remaining strong, and inflation moving back to our symmetric 2 percent target. Of course, things can change. Data dependency remains our motto, and if there were a material change to this outlook, we would adjust monetary 3/4  BIS central bankers' speeches  policy in support of our goals of maximum employment and price stability. Conclusion I’ll conclude with this. John Donne’s words are perhaps more relevant in 2019 than they were in 1624. No man is an island, and no economy can insulate itself—for better or worse—from the fortunes of its neighbors. At the same time, all economies are having a common experience as a result of longer-term structural changes. Shifts in demographics and productivity growth point clearly in the direction of low neutral interest rates and slowing growth. We’re seeing the reality of these changes in the form of sluggish inflation and interest rates much lower than in previous decades. Central banks and policymakers around the world need to prepare for economies that are more connected than ever before. I’ll now take your questions.
Figure 10 Companies' financial indicators (percent) 120  9  100  8  80  7  60  6  40  5  20  4 07  08  09  Debt/GDP (1)  10  11  12  13  14.III  Profitability of SVS companies (2)  (1) Based on firm-level information. 2007 and 2008 figures estimated using aggregate data. (2) Profits accumulated in 12 months before financial expenses and taxes on total assets of nonfinancial SVS companies. Source: Central Bank Chile based on Achef, SBIF, SII, and SVS data. BIS central bankers’ speeches  13  Figure 11 New home prices and office-space vacancy rate (Metropolitan region) (index, 2008 average = 100; percent) 150  12  140  10  130  8  120  6  110  4  100  2  90  0 08  09  10  Housing prices CChC  11  12  13  14  Office-space vacancy rate  Source: Central Bank of Chile based on Global Property Solutions and CChC data. Figure 12 Household indebtedness and financial burden (percent of disposable income) 60  18  55  16  50  14  45  12  40  10 06  07  08  09  Debt-to-income  10  11  12  13  14  Financial-burden-to-income  Source: Central Bank of Chile based on SBIF, SuSeSo, and SVS data.

Figure 4 Demand Indicators (*) (annual change, percent) 60  20  40  16  20  12  0  8  -20  4  -40  0 12  13 Imports of consumer goods  14 Retail sales (INE)  Imports of capital goods (*) Quarterly moving average. Sources: Central Bank of Chile and National Statistics Institute (INE). BIS central bankers’ speeches  9  Figure 5 Business and consumer expectations (*) (original series) 70  70  60  60  50  50  40  40  30  30 04  05  06  07  08  09  10  11  12  IMCE** ex mining  13  14  IPEC***  (*) Value above (below) 50 points denotes optimism (pessimism). **Monthly index of business confidence. ***Economic perception index (Consumer Confidence). Sources: Adimark and Icare/Universidad Adolfo Ibáñez.