175 basis points ( that is, about 1 - 3 / 4 percent ) below its average level since 1990. far - forward rates in many other advanced economies have also declined on balance over the past decade, and they are currently around the low end of their historical ranges. 3 low far - forward rates have both a real and a nominal component. i believe that relatively low real forward rates are likely driven at least in part by what some have called a global saving glut. 4 that is, high rates of saving relative to investment in other parts of the world have resulted in a relatively large stock of funds seeking investment outlets around the globe. the resulting strength of demand has kept real long - term interest rates lower than they might otherwise have been in many countries, and particularly in the united states because it is a relatively attractive place to invest. in addition, the lower variability in real macroeconomic variables over the past two decades relative to the previous for more discussion, see alan greenspan ( 2005 ), “ the federal reserve board ’ s monetary policy report to the congress, ” statement before the committee on banking, housing, and urban affairs, u. s. senate, february 16, www. federalreserve. gov / boarddocs / hh /. see also randall s. kroszner ( 2006 ), “ why are yield curves so flat and long rates so low globally? ” speech delivered at a meeting of the institute of international bankers, new york, june 16, www. federalreserve. gov / boarddocs / speeches / 2006 / default. htm. if you could borrow and lend at the same rate as the u. s. treasury, then you could lock in a three - month loan ten years from now by borrowing for ten years and three months and simultaneously lending the same principal for ten years. the difference between the interest you pay and the interest you earn on the transaction determines the implied forward rate ten years from today. far - forward rates in yen are up almost 2 percentage points from their historic lows in the second quarter of 2003, but they are at a level that is obviously still low in a historical context. see ben s. bernanke ( 2005 ), “ the global saving glut and the u. s. current account deficit, ” sandridge lecture delivered at a meeting of the virginia association of economics, richmond, va., march 10, www. federalreserve. gov / boarddo

in part because of experiences of high inflation in many countries in the 1980s. almost everywhere, public opinion eventually turned against allowing inflation to continue. this public pressure has reinforced the trend against inflationary policies. increased competition among currencies, driven by the confluence of factors that i just described, has improved central bank performance by changing the ability and the incentives of governments and central banks to pursue high - inflation policies. in effect, currency competition has raised the costs of poor policy and thus promoted central bank incentives to maintain low inflation. this change has led many governments to be more willing to adopt institutional changes to improve central bank governance that have bolstered central bank credibility for maintaining low inflation. such changes have included greater central bank independence, which has typically been granted in conjunction with a mandate including the achievement of low and stable inflation as one of the goals of monetary policy. that is, policy is credible because the central bank ’ s objectives are clear to the public see randall s. kroszner ( 2006 ), “ the conquest of worldwide inflation : currency competition and its implications for interest rates and the yield curve, ” speech delivered at the cato institute monetary policy conference, washington, november 16, www. federalreserve. gov / boarddocs / speeches / 2006 / default. htm. for emerging - market countries that had experienced high inflations, another aspect of globalization fostering currency competition is the amount of physical dollars now present in these countries that allow citizens to conduct transactions and store liquid wealth without holding the local currency. over one recent period, the fraction of u. s. currency estimated to be held in foreign countries rose dramatically, from less than 20 percent in 1980 to as much as two - thirds in the late 1990s, and today the total nominal amount is in the neighborhood of $ 400 billion. see u. s. department of the treasury, board of governors of the federal reserve system, and u. s. secret service ( 2006 ), the use and counterfeiting of united states currency abroad, part 3, report to the congress ( washington : department of the treasury ), october 25, www. federalreserve. gov / boarddocs / press / other / 2006 / 20061025 / default. htm. and because the central bank can be held accountable for failing to achieve its objectives. when citizens are more aware of the costs of inflation, and when governments are less able to reap benefits from high inflation, institutional reforms that make