joseph yam : central bank authority, accountability, transparency and effectiveness closing remarks by mr joseph yam, chief executive of the hong kong monetary authority, at the bis meeting of the central bank governance network, hong kong, 18 - 19 november 2004. * * * braver people than myself have, earlier this morning, attempted to distil the multiple discussions that have taken place over the last day and a half. and they have all had the advantage of actually having attended the discussions. i shall not attempt to imitate them - though i should add that i have been keeping myself closely informed of your deliberations through the enjoyable discussions i have had with many of you in the margins. by all accounts, this has been an extremely fruitful meeting. let me instead try to capture some of the themes and preoccupations which have figured prominently in discussions about central bank governance, and which will, i have no doubt, provide the impetus for further discussions within this network. these discussions tend to revolve around four interlocking and overlapping areas of concern : 1. the sources of authority for central banks ; 2. the process of accountability within central banks, and, beyond them, to the larger body politic ; 3. the role and challenges of transparency ; and 4. the methods for achieving effectiveness in our operations through proper organisation and planning. the issue of authority for central banks begins, in all cases, with the law, and includes the obvious questions of what kind of law is suitable for a particular central bank ; how you change a law that is no longer suitable ; and what is the optimal timing and strategy for changing the law. but, as your discussions have stressed, there is more to this than the mere word of the law. an interesting aspect of the sharing of experience here has been the extent to which central banks have worked with - and sometimes around - laws that have become inadequate to the needs of modern central banking. as i mentioned in my opening remarks, in the case of the hkma it has been a question of working without the law, since hong kong has no formal central bank law, and we rely on just a few lines of a single statute for our authority. a further point that has been made strongly is the need to base the legitimacy, the credibility of a central bank on something more than just statutes and regulations. this brings into play the question of accountability, through both formal and informal channels. i know that a great deal of your discussion has

2008 it came abruptly in the form of a fullblown worldwide banking crisis. those were the days during which in belgium alone two major cross - border banks had to be rescued in two consecutive weekends. very soon the real economy was hit too : euro area output dropped by around 4. 5 % in just two quarters and similar sharp contractions where seen elsewhere. we now refer to this as the “ great recession ”, contrasting sharply with the “ great moderation ” – the qualification many people had given to the two preceding decades. just at the time that the real economy started to recover, the euro area was hit by a second recession which came with the sovereign debt crisis. that showed how much imbalances had been built up in the euro area and how ill prepared it was in weathering a severe economic shock, both at the level of the individual member states and at the level of the – indeed – incomplete monetary union. the consequences of the multiple feedback loops between weak banks, weak sovereigns and weak economies were devastating and eventually threatened the euro itself in 2012. that is when the whole emu deepening agenda was born and since then major progress towards completing the monetary union has been made, particularly in the field of banking union. this process is still unfinished, an aspect which will be discussed in poul thomsen ’ s keynote address at the end of the conference. still, i think that it was essential in bringing about the recovery, together with the actions of the eurosystem, namely the outright monetary transactions, the credit easing policies and, finally, the additional stimulus provided in 1 / 6 bis central bankers'speeches the form of the asset purchase program and the forward guidance on policy rates. early 2015 the governing council of the ecb indeed decided to significantly step up its accommodation. with a large amount of idle resources and with new headwinds stemming from emerging market economies, inflation had dropped to very low levels and inflation expectations started to show signs of downward drift. not only was there a risk that the inflation outlook would no longer be in line with our aim of inflation below, but close to, 2 % over the medium term, there were also increasing indications that the economy could slip into outright deflation. compared to that period, the economic situation in the euro area has improved a lot. the recovery has strengthened and broadened. all euro area countries are now growing. contrary to the previous recovery phase, domestic demand is playing an important role, not in the least because it