interbank clearing system as well. this requires that the banks operate clearing accounts with the currency board and that the aggregate of the balances in their clearing accounts forms the crucial part of the monetary base which is subject to the monetary rule of the currency board. this puts the responsibility for the provision of liquidity to the banking system squarely on the currency board. but this arrangement need not involve any significant departure from the discipline of currency board arrangements. the important issue is how liquidity for the purpose of facilitating the clearing of interbank transactions is provided. in hong kong this is provided through the repurchase of debt issued by the currency board and fully backed by foreign reserves. there is therefore no departure from the discipline of currency board arrangements. the fourth accusation is that we were too late in introducing our technical measures to strengthen our currency board arrangements and that had we done so earlier we could have avoided having to intervene in the stock market. frankly, i do not think that we could have turned around the market sentiment with just part of the package of actions. the measures to strengthen our currency board arrangements have been effective. but basically what we have done, amongst other things, was to dampen interest rate volatility by accepting some fluctuation in our foreign reserves. in isolation this would probably not have been effective in deterring market manipulation. the timing for doing anything is of course an easy question to pose, but the reality is much more complex than that. one should realize that the system, before the introduction of the technical modifications, has served hong kong very well for almost fifteen years. furthermore, there is no free lunch. costs are involved. the larger fluctuations in foreign reserves may affect confidence. it may be seen as a sign of weakness, although with foreign reserves in multiples of the monetary base this should not be a cause for concern. tightening the provision of liquidity to the banking system by denying access to the discount window paper other than that issued by the currency board may affect the development of the debt market. and making explicit the passive convertibility of the monetary base into foreign reserves may dampen activity in the foreign exchange market. the pros and cons must be considered carefully before making these significant changes. i think i have spoken long enough. i hope i have made my case convincingly. thank you victor for giving me this opportunity. in closing, may i quote barton biggs again. he said : “ i have come around to agreeing with the hkma that it

stanley fischer : us inflation developments speech by mr stanley fischer, vice chair of the board of governors of the federal reserve system, at the federal reserve bank of kansas city economic symposium, jackson hole, wyoming, 29 august 2015. * * * accompanying charts can be found at the end of the speech. i am delighted to be here in jackson hole in the company of such distinguished panelists and such a distinguished group of participants. i will focus my remarks today on forces – domestic and international – that have been holding down inflation in the united states, 1 and some of the consequences of recent – primarily international – developments. although the economy has continued to recover and the labor market is approaching our maximum employment objective, inflation has been persistently below 2 percent. that has been especially true recently, as the drop in oil prices over the past year, on the order of about 60 percent, has led directly to lower inflation as it feeds through to lower prices of gasoline and other energy items. as a result, 12 - month changes in the overall personal consumption expenditure ( pce ) price index have recently been only a little above zero ( chart 1 ). the past year ’ s energy price declines ought to be largely a one - off event ( chart 2 ). that is, while futures markets suggest that the level of oil prices is expected to remain well below levels seen last summer, markets do not expect oil prices to fall further, so their influence in holding down inflation should be temporary. but measures of core inflation, which are intended to help us look through such transitory price movements, have also been relatively low ( return to chart 1 ). the pce index excluding food and energy is up 1. 2 percent over the past year. the dallas fed ’ s trimmed mean measure of the pce price index is higher, at 1. 6 percent, but still somewhat below our 2 percent objective. moreover, these measures of core inflation have been persistently below 2 percent throughout the economic recovery. that said, as with total inflation, core inflation can be somewhat variable, especially at frequencies higher than 12 - month changes. moreover, note that core inflation does not entirely “ exclude ” food and energy, because changes in energy prices affect firms ’ costs and so can pass into prices of non - energy items. inflation as measured by the consumer price index ( cpi ) generally sends the same broad message as does the pce price index ( chart 3 ). that similarity should not be surprising, because the cpi is