samchain/econo-pairs-v1 huggingface dataset:
Michael C Bonello: Malta’s journey to the euro and beyond Speech by Mr Michael C Bonello, Governor of the Central Bank of Malta, at the European Economics and Financial Centre, London, 1 February 2008. *  *  *  A month has passed since the euro became Malta’s new currency. Euro area membership is a major milestone for any country for there are clearly long-term benefits associated with participation in the world’s second most important currency area. There is indeed much evidence that the macroeconomic framework which supports the euro has delivered price stability, job creation and economic growth. For a small, open economy like Malta’s with a heightened vulnerability to external and sector specific shocks, the benefits of the single currency can be expected to be even more valuable. From a central banker’s perspective, moreover, euro area membership means replacing the manifold risks inherent in managing a small, vulnerable currency such as the Maltese lira by the greater security afforded of major reserve unit. Where have we come from? Although the Maltese economy had responded fairly well to the closure of the British military base in1979, it still suffered from considerable structural weaknesses when the authorities applied for EU membership in 1990. These were reflected in the dominant role of the public sector – which at the time provided 40% of all jobs – and in the extensive use of protective trade barriers that only served to entrench inefficient and uncompetitive practices.

As Paul Romer, a Stanford Economist, once said, ‘A crisis is a terrible thing to waste’. Thankfully, lessons from the GFC were not wasted. Central banks and financial regulators made great strides in building a more stable and resilient financial system. The regulatory reforms by the BCBS under Basel III regime not only refined the existing rules but also introduced wideranging measures which were earlier missing or inadequate. Thanks to these efforts, the old fault lines have been largely fixed. Capital adequacy regime has been enhanced, with higher and better quality capital. Additional capital conservation buffer and countercyclical capital buffer requirements have also been put in place to help banks maintain additional cushion and limit the buildup of systemic risk. Likewise, leverage ratio has been phased in as a backstop to CAR. On the liquidity front, Liquidity Coverage Ratio and Net Stable Funding Ratio have further strengthened banks’ capacity to withstand liquidity stress and to make their funding structure more stable. To address structural dimension of systemic risk, capital charge for SIFIs has been added, recovery and resolution regimes have been strengthened and safety nets have been improved. Of course, this list is not exhaustive. While the world has not seen a crisis similar to GFC to determine if these reforms have made the financial system resilient enough, there is sufficient evidence to suggest that our banks are considerably more stable than a decade ago.
Or could a particular government be tempted to use its SWF as a financial instrument in pursuit of a particular political objective? The mere fact that such questions arise could serve as a trigger for protectionist policies in recipient countries, thus again undermining the proper functioning of free markets. Third, as a general rule, capital has historically tended to flow from the core of an economic system to its periphery. 15 Most recently, global capital flows from the periphery to the core are clearly on the rise. SWFs play a potentially important role in what appears to be a reversal of global capital flows. The economics students here will recognise that this apparent reversal in capital flows is not really a new phenomenon, but a new and unexpected variant of the Lucas Paradox which Bob Lucas described in a seminal paper in 1990. 16 Nonetheless, the sense that capital increasingly flows from the periphery to the core is raising a variety of political sensitivities in the core countries. I fear that many of these sensitivities will likely be protectionist in nature. As you can see, in all three cases, the real or perceived activities of SWFs play a role in challenging these deeply held assumptions about the world economy. In my view, the most important challenge associated with the rise of SWFs is therefore to ensure that the policy reactions in the recipient countries of potential and actual SWF investments do not degenerate into what ultimately amounts to financial protectionism.

Lucas, Jr., Robert E., 1990, Why Doesn't Capital Flow from Rich to Poor Countries? The American Economic Review, Vol. 80, No. 2, Papers and Proceedings of the Hundred and Second Annual Meeting of the American Economic Association. (May, 1990), pp. 92-96. Obstfeld, Maurice and Alan M. Taylor, 2003, "Globalization and Capital Markets". In Michael Bordo, Alan M. Taylor and Jeffrey G. Williamson, Globalization in Historical Perspective, Chicago, The University of Chicago Press. Summers, Lawrence, 2006, Reflections on Global Account Imbalances and Emerging Market Reserve Accumulation, Speech delivered at the Reserve Bank of India, March 24, 2007. Summers, Lawrence, 2007, Opportunities in a era of large and growing official wealth, in Johnston-Calari, Jennifer and Malan Riedveld (eds. ), Sovereign Wealth Management, Blackrock and Central Banking Publications, London. Truman, Edwin M. 2007a, Sovereign Wealth Funds: The Need for Greater Transparency and Accountability, Peterson Institute for International Economics, Policy Brief 07-6. Truman, Edwin M., 2007b, The Management of China's International Reserves: China and a SWF Scoreboard, Paper prepared for the Conference on China's Exchange Rate Policy, Peterson Institute for International Economics, October 19tt, 2007. BIS Review 150/2007  9  Appendix Table 1.
Also, early in the year we witnessed a substantial increase in issues of corporate bonds, which can be interpreted as the response to less favorable financing conditions in both the domestic and the external banking market, a situation that has lost momentum in recent months. Conclusions Monetary policy has acted aggressively to soften the impact of the global financial crisis. Although it is impossible to fully offset all the repercussions that such a severe crisis has on a small, open economy like Chile, especially with the lags that monetary policy operates, we have succeeded as a country in mitigating them substantially. We have preserved the macroeconomic stability framework, even providing room for an extraordinarily stimulating mix of macroeconomic policies. Therefore, we can now state without a doubt that, had we not adopted the stimulus actions you have seen in recent months, our country’s economy would be in considerably weaker shape and we would not be able to envision any prospects of recovery for the second half of this year. Conditions are ripe for the Chilean economy to experience a healthy recovery of output and expenditure during the second half of this year. For the economy to pick up, however, it will still require that the global uncertainty, regarding both the financial dimensions of the crisis and its effects on world activity, fades. We have seen promising signs allowing us to be hopeful, but it is premature to think that the bad news are over.

Therefore, we still hold the view that the return to global equilibrium will be slower and more uncertain than is usually the case at the end of a recession. Swiss economic outlook The Swiss economy is also on the road to recovery: Swiss GDP growth turned positive in the third quarter. However, value added continued to contract in the manufacturing industry. Overall, demand for labour is still falling and unemployment numbers are on the rise. We are projecting a moderate recovery for 2010. Private consumption growth will be held back by weak household income growth. Exports will benefit from a gradual return to strength of external demand. This should allow manufacturing production to recover, albeit unevenly across the different segments. In particular, new orders in the equipment goods segment will probably continue to suffer from the excess capacity at the international level. In Switzerland, too, the increase in manufacturing production will not be enough to allow excess production capacity to be reabsorbed. Consequently, equipment investment is unlikely to see any improvement for several quarters, and there could be a fall in the number of manufacturing jobs. In the construction industry, on the other hand, where the degree of resource utilisation is more than satisfactory, demand should stabilise. For 2010 as a whole, the SNB expects real GDP growth of between 0.5% and 1%, following a decline of around 1.5% in 2009.
They also enable countries to maintain a fixed exchange rate while retaining some flexibility in domestic interest rates. And they might limit the movement of capital to lower taxed jurisdictions, thus slowing the inexorable decline of capital income taxation resulting from the development of a world capital market. But it is difficult to distinguish between controls on capital flows and flows related to trade. The growth of trade in services has highlighted the difficulty of separating currency trade-related flows from those representing investment. Thus, to be effective, capital controls are likely to impede trade flows. This would be a heavy price to pay and few countries have chosen to pay it. Permanent capital controls have other disadvantages. They forsake all the economic benefits of a free capital market. And controls are never implemented by wise, or even merely clever, economists. They attract rent-seeking and corrupt behaviour in both official and private sectors. And they undermine the cause of market liberalisation. There is no shortage of protectionist tendencies that seek to limit trade and investment. We should not add to them. So neither purist solution is likely to appeal – the one because there is insufficient political and financial support for an ILOLR, and the other because permanent controls go against the grain of promoting market reforms and good governance. But the present system is not sustainable. The danger is that we have the worst of both worlds.

Alan Greenspan has suggested that consideration be given to simple rules of thumb such as that countries without a track record of international borrowing should maintain unencumbered foreign exchange reserves sufficient to meet all foreign currency liabilities over the following year, and that the average maturity of external liabilities should exceed three years. Rudiger Dornbusch has proposed the use of value at risk assessments of country balance sheets. Ideas such as these, precisely because they focus on the national balance sheet, are sure to be centre stage. (3)  Encourage inflows of equity rather than debt finance. This is an extension of the need to manage the national balance sheet. The imperative is the old adage: borrow long not short. A credible legal and institutional infrastructure for private investors would go a long way to encourage equity inflows. Reserve requirements on short-term debt inflows, as adopted in Chile, might help to modify the pace of vulnerable capital inflows, but will in themselves do little to help in times of rapid capital outflow. It is also time to reconsider the incentive to the provision of short-term finance provided by the Basel Accord risk weights. (4)  Promote the better design of debt contracts which provide a framework for negotiation between creditors and debtors when financing difficulties arise. The particular proposal – advanced initially by a G10 Deputies’ report in 1996 and subsequently endorsed by the G7 – for the use of collective action clauses in sovereign debt contracts has stalled.
Property-related debt – for residential and commercial real estate purposes – makes up around 60% of private nonfinancial sector debt in the UK. And, of course, the counterpart of that is that domestic property-related loans make up around 55% of the domestic loans of the UK banking sector; 76% when financial sector loans are excluded. 1 Moreover, the evidence is pretty clear from history, and across  1  Non-bank lenders are also an important source of finance, providing 15% of all property-related loans according to Bank staff estimates. BIS central bankers’ speeches  1  countries, that there is a strong and special link between booms in property-related debt and financial crises in a way that is much less true for other assets like equities. 2 I want also to reflect a little today on the health of banks in the UK. Since last summer, and particularly since the turn of the year, investors have written down the value of banks in advanced economies. Does this signal concerns about banks’ resilience and robustness? Or about their returns? The Financial Policy Committee The FPC is charged with identifying risks and taking action to protect the resilience of the UK financial system. In essence this means two things. First, we need to be confident that the regulatory framework in the UK addresses the risks not just of individual financial firms, important though that is, but also the risks inherent in the financial system as a whole.

BIS central bankers’ speeches  3  Lending to owner-occupiers Second, lending to owner-occupiers at high loan-to-income (LTI) ratios remains significant. The FPC took action in 2014 to counter the risks arising from an increase in the tail of overly-indebted households. Its concern was that an increase in the tail of overly-indebted households posed a threat because such households cut back consumption very sharply in a downturn. 5 Transactions, house price inflation and the proportion of high LTI mortgages all cooled down following the FPC’s actions and other factors at the time like the introduction of the Mortgage Market Review. All of these variables have since bounced back. Prices and mortgage approvals for house purchase are growing at an annual rate of 7.5% and 19% respectively. 6 And nearly 15% of new mortgages extended in Q4 had LTI ratios just below the FPC’s threshold of 4.5 – almost double the proportion in 2008/9. Commercial real estate The third property-related area the FPC has been looking at closely is commercial real estate (CRE). Many countries have experienced repeated booms and busts in commercial property and the UK is certainly no exception. Over the past 100 years, the UK has experienced five CRE cycles and similar cycles have been seen in a range of developed economies. At the end of the 1980s CRE boom documented by Alastair, prices fell by over a third and 25 banks failed or were closed down.
Malaysia then embarked on policies to transform the economy towards becoming manufacturing based. Government agencies courted global firms to set up shop in Malaysia. This 1972 photograph from Penang speaks volumes of those days, and how far we have come since then. A night of heavy rain meant that cars would get stuck in the mud. The car you see in this picture belonged to Andy Grove, the CEO of Intel back then. Intel – along with eight other leading E&E companies – had visited Penang to take up the Government’s invitation to plant roots on Malaysian soil. Fast forward to today, Malaysia has established itself as a bustling hub for Malaysia’s E&E manufacturing industry, playing an important role in the global supply chain. The policies and reforms from those years ago proved far-sighted and well-sequenced – leaving Malaysia transformed for the better. This is what we need to do again, in the aftermath of the pandemic – to put in place reforms that reimagine and completely transform the economy. 24. This ability to rise above challenges also enabled us to quickly bounce back from the COVID-19 pandemic. In large part, this is a testament to the strength, resilience and agility of the Malaysian economy. Where we are today is not by luck or an accident. 25. And so, as we look towards the challenges ahead, we must continue to build on and fortify the strong foundation of the economy and once again, transform our economy as we did in the past.

More recently, during the pandemic, Malaysia’s financial sector continued to serve as a source of strength, with banks and insurers stepping in to offer important relief to households and businesses. This in turn, cushioned the economic shock from lockdowns. Earlier multi-year reforms to digital financial infrastructures, especially on e-payments, also proved to be useful. Consumers and businesses could transition to low-touch demands with greater ease. 34. In fulfilling the aspirations set out in the Blueprint, all these experiences will continue to be relevant as the financial sector plays its part to secure the future of Malaysia. Conclusion 35. Let me conclude. The future ahead will be challenging, highly uncertain and unpredictable. However, we are not in a crisis, our growth trajectory remains positive and we should remain confident about the future. The next one to two years will present a crucial window for Malaysia to be taking bold steps forward. As a country, we must now focus on strengthening our economic fundamentals, resilience and flexibility. Our neighbours within the region are actively pressing on with reform measures. We run the risk of being left behind if we do not act now. 36. I am confident that we as a nation can achieve this if we put our minds and importantly, act together. History is instructive. We have time and time again, done what is necessary to transform ourselves to reach for greater heights. I am certain that this time is no different. Thank you.
Our forward guidance comprises two elements: it aims to further clarify our views regarding the economic situation and the manner in which we intend to react to it. It is important to note that the United States and the euro area are at completely different stages of the economic cycle. Here in the euro area economy, an imminent change in the direction of monetary policy would certainly come far too early. But how realistic is decoupling from the United States? The markets, at any rate, don’t seem to have all that much faith in that prospect, if you look at the rising money market rates. I think it’s a little early to be judging that. Overall, we believe that we’ve been successful in reducing the volatility of rates. We’ve been moderately successful as regards the actual level of interest rates. Rates have risen on account of positive economic data. It remains to be seen how the situation will develop in the likely presence of further cautiously positive data. And if things do not go according to plan, will the ECB reduce its key interest rates again or conduct new LTROs? We will continue to monitor the situation. We haven’t said any more than that. Sometimes you have to keep calm, rather than coming up with something new every month. Why is the ECB not publishing inflation projections beyond 2014?

In the current geopolitical environment, such risks are, unfortunately, not as remote as they once were and need to be taken seriously by European policymakers. Conclusions We have laid the groundwork by providing safe and efficient market infrastructure, and this should be used as a basis for innovative, user-friendly solutions. The way to protect the integrity of European payment services is not by closing them off to the world, but by making them global players. Building on local or national solutions is anachronistic and will not meet the needs of the market. If we are to succeed at a global level, the issue of domestic governance needs to be addressed. Our reliance on non-European card schemes for domestic payments in Europe is suboptimal. European card schemes should make interoperability and full pan-European reach their main priorities, enabling any card to be used at any terminal. At the same time, governance arrangements need to cater for European needs, given that cards are the single most important electronic payment instrument in Europe. However, protectionism should not be used to artificially promote European innovation in payment services. We should remain open to global players, but should focus more on addressing the reasons for the lack of major European providers in the payment market. It is important that European payment service providers are active at a global level. Rather than establishing national solutions, we should seek to develop global solutions based on European open governance that use European infrastructure.
However, on the basis of the information available at present, it is likely that world economic activity will remain at an acceptable level this year. In addition, it should be borne in mind that the euro area itself is also a large domestic market - it is, in fact, the second largest in the world - accounting for over 15% of world GDP. Exports of goods and services only amount to around 17% of euro area GDP: this implies that the influence of external trade on real economic growth is limited. Instead, euro area economic activity is mainly influenced by domestic factors. Economic growth in the euro area has recovered considerably since the second half of 1999. Real GDP growth is expected to have been around 3 1/2% in 2000, compared with an average real GDP growth of 2% in the 1990s. Real GDP growth in the euro area has slowed down somewhat since the second half of 2000, as demonstrated in recently published GDP data and short-term indicators, such as industrial production and, to some extent, the European Commission's industrial confidence indicator. However, at the same time, this indicator, together with the capacity utilisation rate, have remained at a high level and continue to give a relatively favourable picture. Regarding private consumption, the European Commission's consumer confidence indicator recovered on average in December and January, following a dip in the previous months. In particular, private households were more optimistic about the future economic situation as well as their own financial situation.

It received so much of media attention due to three reasons: sheer magnitude of the amounts defrauded, high-society profile of some of the investors and the glamorous sainthood that had long been afforded to the man responsible for losing people’s money. There are many more such schemes where people willingly invest without properly assessing the risk and the return. They often fail to ask the simple question which anyone with a fortune may have asked before parting with his money: could the schemes continue to generate a high income to pay a high return indefinitely in the future. But the desire to become rich quickly mars their rational mind and they unknowingly fall victim to the promise of high returns. What can microfinance learn from this? A lot. When one analyses the sakvithi episode, by disaggregating its tragic final outcome into sub components of devices employed, each such sub component teaches us a valuable lesson. These lessons, when viewed from a centric point, boil down to two important aspects of microfinance: the governance structure which microfinance institutions have to adopt and the self-discipline which microfinance beneficiaries should cultivate. Both these important elements in microfinance should not be mere eye-washes to satisfy someone who demands of such behaviour by the respective parties. They should be faithfully and vigorously followed in order to prevent the microfinance industry from meeting with an untimely death. What normally happens in Sakvithi-style investment schemes?