samchain/econo-pairs-v1 huggingface dataset:
Another natural reason for the presence of low interest rates is our history of low and stable inflation rates, at least in comparison with other countries. As a result, international investors view Switzerland as a kind of safe haven, which gives rise to an interest rate advantage in nominal as well as in real terms. If Switzerland were to give up its monetary independence by pegging the franc to the euro or by joining the euro area, it would lose its privileged status and, consequently, Swiss interest rates would increase to European levels. Since higher interest rates mean lower asset prices and lower levels of investment, and also higher mortgage rates, the Swiss are understandably not keen on giving up their national currency. Since any major decision in Switzerland has to be approved in a public referendum, the prospect of euro membership in the near future is thus highly unlikely. The final point I would like to make is that going for a currency peg instead of adopting the euro outright is not an option for Switzerland either. It could even be a dangerous solution. Currency peg not an option It is no secret that the majority of Swiss are against EU membership, at least at the moment. But you may ask: Even if Switzerland isn't an EU member, couldn't it peg the Swiss franc unilaterally to the single currency? Wouldn't this help eliminate the exchange rate risk, without giving up monetary flexibility entirely? There is no such thing as a free lunch in monetary affairs!

In the field of blockchain technology, the world has also considerably changed over the past year, with the rise of decentralised finance, the success of non-fungible tokens (NFT), not to mention the first, sometimes spectacular, "clashes” between these new ecosystems and regulatory authorities, in countries as different as China and the United States. 1/4  BIS central bankers' speeches  2. Faced with this changing world, how should we, as central banks and financial sector supervisors, position ourselves? First of all, to be relevant in a changing world, we need to be able to distinguish what does not change. And fundamentally, what does not change in the financial sector is the need for confidence. Consumers of financial services need to have confidence: in the security of transactions, in the protection of their assets and in their freedom of choice. The players in the sector also need to have confidence: in each other, because they remain interdependent, in the rules of the game, i.e. in the regulatory conditions under which they can carry out their activity. Central banks and supervisors clearly have a role to play in maintaining this confidence, in all the forms I have just mentioned. In this respect, I would like to share with you three convictions: Firstly, the mechanisms of confidence cannot be replaced by “algorithmic” confidence, i.e.
In principle, that should promote greater and more efficient sharing and spreading of risk across the financial system. In essence, the recession which followed the financial crisis demonstrated how much the real economy depends on an efficient, functioning financial system. Financial innovation is a continuous process, and there are many examples of either new products or rapid growth in fashionable markets during the past few years. For example during 2010, there were significant developments in bank funding instruments such as putable CDs and evergreen repos.11 These products offer higher returns to investors compared with more conventional instruments, and also improve banks’ ability to meet new regulatory rules. There has also been an increase in the prevalence of long-term collateral upgrade trades where, for example, a real money investor lends a bank gilts against less liquid but higher yielding assets. Those repo transactions help the real money investor achieve a higher return, while banks build up their liquid asset buffers and fund their less liquid collateral. In that regard, these repo transactions look quite similar to a private sector version of the SLS. Where appropriate, such transactions can both improve the returns to pension funds and support lending to the real economy. Of course, the authorities need to monitor the extent to which these transactions strengthen the links between the banking and insurance sectors.

The effects of the high demand for certain commodities from rapidly-growing economies are something that central banks around the world must manage in the future. Another example is the imbalances in the global economy. Access to credit was too high for a long time in many countries and contributed to an unsustainable development. The imbalances that were built up are being corrected, but it is still uncertain how long the adjustment will take. What we see now is a world less stable than we have been seeing in recent years. Sweden is a small open economy and the Riksbank conducts an independent monetary policy. We have an inflation target which we endeavour to attain. An inflation target becomes an even more important anchor for monetary policy in a situation like the present one. If financial imbalances and large fluctuations in commodity prices create global shocks over a long period of time, the inflation target can in itself have a calming effect on our own economy. It therefore feels particularly important to maintain our focus on the inflation target right now. The interest rate decision In connection with the Executive Board’s monetary policy meeting on 3 September, we saw signs that inflation is falling in various parts of the world. But this fall in inflation is from a very high level and as yet no clear decline is visible in the statistics. Swedish inflation is still at its highest level since the mid-1990s. At the same time, growth has been weaker than anticipated.
The MPC sees a 50% chance of inflation exceeding its target two years hence. Outside professional forecasters put that probability at just over 40%. Only around a third of companies and a quarter of households expect inflation to be above the target at that point. 9 The balance of risks, as perceived by those setting and receiving wages, is skewed squarely to the downside. That leads naturally to questions of monetary policy strategy. There is clearly a tightrope to walk here: lean too much in an expansionary direction and the inflationary cat is let out of the bag (assuming it isn’t already stuck in the tree with that kite); lean too much in a contractionary direction and the recessionary gorilla is unleashed (ditto). The asymmetric risks posed by the effective lower bound have led some to suggest that the optimal strategy is to leave rates “lower for longer” (Evans et al (2014)). The argument here is that it is better to err on the side of over-stimulating, then course-correcting if need be, than  9  The professional forecasters’ probability is taken from the Bank’s Survey of External Forecasters for 2015 Q2. The company data are from the Deloitte CFO survey for 2015 Q1, and are based on an assumption that half of those companies that report that their two year ahead CPI inflation expectation is in the 1.5–2.5% bucket expect inflation to be above 2%. The household data are derived from the Bank/GfK inflation attitudes survey for 2015 Q2.

Prominent examples of “dread risks” with these characteristics are plane crashes and terrorist attacks, such as 9/11 in the US. This exaggerated sense of risk is stronger, the more recent the event. In other words, the over-estimation of risk is subject to time decay. This is known as disaster myopia (Guttentag and Herring (1986)). Rates of time decay from dread events are, however, typically slow. While the psychological scars from dread events fade, they do so only gradually and never fully disappear. Although the over-estimation of risk is, in one sense, “irrational”, its anthropological roots are deep. They are found in the hunter-gatherer communities that existed thousands of years ago, typically involving groups of 50–100 people. Simultaneous loss of 100 people would, in this setting, have threatened these communities’ very existence. And this “dread” appears to have hard-wired itself into our psyche to this day (Gigerenzer (2014)). The consequences of dread risk may not, however, be benign. It generates risk-averse behaviour which, while instinctive, may be counter-productive even from a risk perspective. The dread risk associated with 9/11 led to an exaggerated fear of flying and a sharp rise in car use. The loss of life from this increased car use may have been greater than the loss of life from 9/11 itself (Gigerenzer (2014)). This is the paradox of precaution. The self-same logic applies when moving from catastrophic losses of life to catastrophic losses of livelihood. Financial crises are the classic example of such catastrophic events.
Second, our decisions are based on the inflation path over the medium run, not on the latest observed inflation. This requires projecting inflation via different approaches. Recent ECB staff forecasts see inflation averaging 2.3% in 2024. Given this, earlier this month we decided to front-load the normalisation path of our key interest rates, and to announce further rate hikes down the road, in order to ensure the return of medium-term inflation to our 2% target. Third, it is very difficult to know how much further our key rates will need to rise eventually in this hiking cycle, given the huge uncertainty that we face in the current context. But for this very reason, economic models are helpful in providing us central bankers with some guidance. I have provided in this speech some estimates based on models developed by Banco de España staff. Crucially, this is a data-dependent forecast which may change as time goes by and new information comes in. Also, it will depend on our future decisions regarding our asset purchase programmes. I hope that my words have reassured you about our determination to rein in inflation without causing unnecessary suffering to our fellow euro area citizens. We live in difficult times, but we expect to rise to the challenge. Thank you for your attention. 8

Mr Heikensten speaks on the euro and European economic policy Speech by Mr Lars Heikensten, First Deputy Governor of the Sveriges Riksbank, the Swedish central bank, at Merita-Nordbanken in Malmö, Sweden on 16 June 1999. The single European currency, introduced at the beginning of this year, marks a major change for the economic policies of countries in the euro area. The clearest example is, of course, the transition to a single monetary policy. The proper functioning of the monetary union in the long term presupposes that the new European Central Bank succeeds in making its policy and the euro understood and credible. Important factors in this context are how the new central bank chooses to work, how monetary policy is continuously formed and how it is communicated to the general public and to markets. However, a well-constructed monetary policy and a central bank that acts wisely are not sufficient to ensure that the union functions in the longer run. If growth and employment in the euro area are to be as high as possible without jeopardising price stability, all the components of national economic policies will have to pull together. The fiscal, structural and labour market policies of the individual countries influence both the conditions under which the new central bank is operating and, to the highest degree, Europe’s future prosperity. A framework exists for this joint effort.
This familiar fact, demonstrated in numerous studies, can be exemplified with the Riksbank’s alternative estimations of the output gap as presented continuously in the Inflation Report. A Taylor rule relies on a single measurement of resource utilisation. This contrasts with the Riksbank’s conception of the output gap or resource utilisation. We try to combine a number of different measurements and indicators into a weighted overall assessment. Alternative estimations of the output gap are presented in connection with the Inflation Report’s discussion of resource utilisation. Studies of different industries’ assessments of resource utilisation are considered in detail. Other indicators that can add to the picture of resource utilisation and its relationship with inflation are obtained by analysing current wage trends (both negotiated wage increases and wage drift) and data on the labour market situation. We usually also emphasise the need for a flexible approach to and a continuous reassessment of different indicators of resource utilisation. In recent years our views about the level of resource utilisation, the interval within which potential growth lies and the relationship between growth and inflation have been revised continuously. The point I want to make is thus that the analysis stands to gain from decision-makers using a perception of resource utilisation that is broader than a mechanical application of the Taylor rule provides.

We believe it is important that internal information systems are capable of capturing the full range of exposures to individual counterparties across the firm; that potential future credit exposure is measured realistically, including through stress tests at the counterparty level and across the firm’s portfolio, and managed to prudent limits relative to capital; that credit limits and terms reflect the quality of information provided by the counterparty about its risk profile and risk management systems and are not eroded by competitive pressures; and that the risk management process tries to capture the risk to the firm that could result from the rapid unwinding of positions by leveraged counterparties. A second challenge relates to the growth in volume and complexity of new instruments for risk transfer, which has advanced, as it typically does, ahead of improvements in the trade processing infrastructure and risk management and control practices. Although these innovations seem likely to reduce overall risk in the financial system, shortfalls in the infrastructure leave the market more vulnerable than it needs to be to adverse dynamics in conditions of stress. These gaps are evident in the degree of manual processing required for trade capture and settlement; the substantial backlog of undocumented or unconfirmed trades; the prevalence of assignments of trades without the consent of counterparties; and in the slow adoption of market services for automated processing. Shortfalls are also evident in the limits of models and other techniques for measuring potential exposures in conditions of stress.
17 [23]  in the same way as prior to the financial crisis or whether monetary policy should actually take explicit account of the risk of a financial crisis. My view is that financial stability and monetary policy are so closely interlinked that it is difficult to draw a clear boundary between them, which is one reason I think it would be good if the Riksbank were to have main responsibility for macroprudential policy.18  The importance of independent macroprudential policy The Riksdag has given the Riksbank an independent status. This is based on the insight that there may be reasons for economic policy makers to pursue a shortterm policy that is incompatible with long-term goals. This is usually referred to as the ‘time inconsistency problem’ and is commonly found in economic policy. In monetary policy, the fundamental problem is that decision-makers are happy to promise low and stable inflation, at the same time as they also wish – after households have formed expectations of low and stable inflation – to conduct a more expansionary monetary policy to increase employment. However, households realise this and incorporate this knowledge into their inflation expectations, which leads to inflation becoming excessively high. One solution to the time inconsistency problem is to delegate monetary policy to an independent central bank with an inflation target. My assessment is that this is a solution that has worked well in Sweden. Time inconsistency is also a problem in macroprudential policy. One example of this is capital requirements for banks.

In line with this thinking, we have come to the conclusion that we need to develop our financial infrastructure to facilitate the use of foreign currencies in international financial transactions in the Asian time zone. We have just started work on building a US dollar payment system and would have a keen interest in doing the same, in due course, for the euro, if demand for such facilities in the Asian time zone was evident. Hong Kong looks forward to and is ready to facilitate the greater use of the euro in Asia. For Hong Kong the emergence of the euro as a major currency alongside the US dollar is also welcomed from a reserve management standpoint, since the options for investment are broadened. There is now a clearer alternative to the US dollar than before monetary union. And it is a time when conservative, long-term investors are looking for such an alternative. As you are aware, there is in the US increasing concern about inflation being rekindled, notwithstanding rapid, IT induced productivity growth. Of course, prospects of tighter monetary policy tend to lend support to the dollar. But there is the possibility that at some point the extent of interest rate hike needed to preempt inflation and the associated fears for its consequences for the real economy are such as to scare investors away from US financial markets. Another reason would be the possibility that productivity gains arising from IT investments may experience diminishing returns.
A respected, self-confident but restrained line supervisor, with the forensic skills to get to the heart of things, can do a very great deal for stability. It is terrific that Adair and Hector are renewing the emphasis on line supervision. (But, by the way, when supervisors do their job, their achievements are invisible and they get no thanks.) Second, it is important to remember that most bank failures have their roots in large or concentrated exposures. This crisis is in some respects no exception. It is, therefore, good news for the future that, ahead of this crisis, the EU was already planning to extend the bar on large credit exposures to interbank deposits. Line supervisors must additionally look for concentrated exposures to sectors or instruments; to give just one of many possible examples, large holdings of super-senior CDO tranches just might have been a pointer to the vulnerabilities at some large internationally active banks. And the possibility of fateful concentrations in bank funding structures should be given similar weight. If all that requires more reporting by banks, it would be worth it. Third, effective prudential supervision is seriously impeded by complex group structures. That was a headline lesson from the failure of BCCI nearly two decades ago; and EU Directives were amended to make unsupervisable structures a ground for withholding or withdrawing authorisation, and so for exercising regulatory powers. But complexity is not just a convenient shield for wickedness.

  Second, resolution frameworks have to be established, to ensure that all banks, however complex or large, can be resolved in an efficient and safe manner. Such frameworks may involve the simplification of firm structures and the design of “bailin” mechanisms, where creditors are forced to absorb losses when a bank is close to failure2.   Third, G-SIFIs will face more intensive supervisory oversight, guided by an enhanced set of core principles for effective banking supervision. Singapore’s regulatory approach Many jurisdictions are now considering their responses to the FSB and Basel Committee recommendations. MAS’ regulatory approach is guided by three principles: (i)  First, we must maintain the high standards of financial regulation which have become associated with Singapore. Maintaining high regulatory standards is completely compatible with fostering a vibrant financial sector. Being a wellregulated, trusted and stable financial centre is a source of advantage for Singapore. It provides confidence for banks to operate in Singapore and for customers to transact with banks here. 2  “Bail-in” is the process where bank debt in failing firms is forcibly converted into equity. This is intended to make it possible to rapidly recapitalise a bank such that it can continue in business without an equity injection from taxpayers. 2  BIS central bankers’ speeches  (ii)  Second, our rules must be risk-appropriate. International standards must sometimes be enhanced to be appropriate for Singapore’s context. They must be targeted to address well-defined risks or concerns that could have systemic implications.
My intention today is to concentrate on the central role played by the Riksbank in the management of liquidity in the financial system. The risks that are generally given prominence as being the greatest where the millennium period is concerned are the risks of technical malfunctions arising, primarily as a result of problems in adapting all computer systems to the year 2000. Such malfunctions have the potential to disrupt the financial infrastructure. Irrespective of how high a degree of probability is assigned to these risks, they have to be treated with the utmost seriousness. The very uncertainty about the possibility of problems arising is in itself enough to lead to disturbances; for this reason, preparations have to do not only with technical adaptations but also to a great extent with instilling confidence that the systems will function in practice. One way to build confidence is to use various types of agreements to attempt to limit the burden on systems around the millennium period, hence reducing the risks. One example of a measure of this kind is that the European Central Bank, the ECB, has decided that the European payment system, Target, is to be closed on 31 December. The reason for this decision is to enable all measures that need to be taken by the end of the day and the year to be carried out in good time before midnight. The closing of Target makes it possible to close down all financial trade within the EU on New Year’s Eve.

Already in April 1998, “The Joint Year 2000 Council” was established;3 its principal task is to ensure coordination between the various actors in the market and to provide a platform for an exchange of information and experience. Everybody is working for a common goal – to ensure that the turn of the year passes by in a smooth fashion. Up to now, the preparations for the millennium shift has, in all essentials, been working according to plans. However, it is of great importance that this issue continues to have top priority. My opinion is that the financial sector and all interested parties can look ahead to the new millennium with confidence. In conclusion, it is worth recalling that the introduction of the euro at the beginning of this year was able to take place without any serious hitches, even though many systems were being taken into use for the first time. 3  Basel Committee on Banking Supervision, the Committee on Payment and Settlement Systems, the International Organization of Securities Commissions and the International Association of Insurance Supervisors. BIS Review 97/1999  4