’ speeches “ china boom ” tended to be under - estimated. in forecasts made over a succession of years, people routinely tended to expect that the strong growth then being observed in china would slow. likewise, through most of the period in which australia's terms of trade were rising, forecasters routinely tended to call a near - term peak followed by a decline - and were wrong in most years. 2 even those resource companies that would eventually make massive investments on the back of the rise in commodity prices were initially sceptical. now, as this period of exceptional, and not well forecast, chinese growth has ended and we face less spectacular outcomes, a few have been surprised on the downside. a decade ago, everyone was celebrating the “ great moderation ” – that period of reduced macroeconomic volatility, good average growth and low inflation. this was regarded as a success of macroeconomic policy. it was also thought that the development of modern financial tools, with fairly light regulation, had helped us to understand, unbundle and disperse risk around the system. to be fair, there were some voices questioning compressed risk spreads, leverage and so on. some worried about the complex interactions between the various players and how the system would cope in a stressed environment. some wondered whether apparent stability would lead people to take on leverage to the point where it would threaten that very stability. 3 a few presciently placed financial bets against the prevailing trend. but, overall, very few foresaw either the severity of the crisis that would unfold or the longevity of its adverse economic effects. if we look at what featured in most discussions about risks to global growth at the time, we find that the so - called “ global imbalances ” were prominent. it was not uncommon to hear people worry that markets would at some point decline to “ fund ” the us current account deficit, leading to a crash in the us dollar. yet it wasn't the global imbalances that caused a crisis. it was the implosion of complex financial products, against the backdrop of excessive leverage, that ushered in the crisis. it was the drying up of dollar funding liquidity in the financial systems of several major countries that propagated it. the onset of the crisis saw a shortage of dollars in the market, not a glut. and the “ global imbalances ” continue today, though they have diminished in size. a decade ago, japan was experiencing deflation,

response to this, some of the national working groups have been considering how to develop ‘ term rfrs ’. these forward - looking rates could potentially be constructed from derivatives referencing the overnight rfrs. however, for such term rfrs to be considered robust, there would need to be sufficient liquidity and transparency in the underlying derivatives markets. the arrc is aiming for a term rate based on sofr derivatives to be developed by end 2021, once there is sufficient liquidity to produce a robust rate. https : / / www. rba. gov. au / speeches / 2019 / sp - dg - 2019 - 04 - 11. html 2 / 6 4 / 12 / 2019 progress on benchmark reform | speeches | rba the currency most progressed on developing a term rfr is sterling. but the recent consultation run by the uk working group found that there would need to be a ‘ step change ’ in activity in derivatives markets for a term sonia rate to be sufficiently robust. [ 4 ] at the other end of the spectrum, the swiss working group has found that a term rfr is not feasible given the low level of activity in derivatives referencing the swiss franc rfr. while the development of term rfrs is desirable, it is not yet clear that they will be sufficiently robust. in this context, we encourage market participants preparing for the libor transition to work on using overnight rfrs rather than waiting for the development of term rfrs. furthermore, the fsb has made it clear that derivatives markets will largely need to transition to the overnight rfrs to ensure financial stability. derivatives represent the largest exposure to libor, and only transitioning to the overnight rfrs can address the core weakness of libor, which is the absence of deep and liquid markets to underpin these benchmarks. finalising work on contractual fall - backs another key focus over the past year has been on developing more robust fall - back provisions in contracts referencing libor. this would reduce the risk of financial instability if these benchmarks were to abruptly cease. it is generally agreed that the existing fall - back provisions would be cumbersome to apply and could generate significant market disruption. to address this risk, the fsb encouraged isda to work with market participants to develop a more suitable fall - back methodology, using the rfrs that have been identified. the key challenge has been to agree on a standard methodology for constructing fall - backs for libor using the overnight rfrs. isda conducted a consultation