masaaki shirakawa : society, economy and the central bank speech by mr masaaki shirakawa, governor of the bank of japan, at the foreign policy association, new york, 18 april 2012. * * * introduction even as the world is practically getting smaller, with the remarkable advances in transportation and communications technologies, and with all the resulting increases in interaction among peoples and economies, foreign policy is, unfortunately, something that is all too often put on the back burner by people busy with their daily lives. this is why the activities of the foreign policy association are so invaluable. since its foundation in 1918, for nearly a century, the association has served as a catalyst for developing awareness, understanding of, and providing informed opinions on global issues. i am honored, therefore, this evening, to receive the fpa medal, whose past recipients include many people i respect very much. today, i will offer my views on the recent global financial crisis, which, from the viewpoint of central banks, was the most important international development of the past few years. in doing so, i will not comment on the crisis itself, on which a lot of ink has been spilt already, but on the issues that the crisis has raised concerning the role of central banks in relation to the well - being of the society at large. as the crisis is bound to leave indelible marks on the global economy, it would probably affect how central banks would conduct their business in the future. in this crisis, as i will later explain, central banks have succeeded in deflecting the destructive forces in the acute phase, by injecting unprecedented amounts of liquidity into the financial system and by rolling out massive monetary easing. now, the crisis has moved into the chronic phase, characterized by low growth and persistent unemployment. in this regard, many more challenges certainly lie ahead, before we can even take back the lost ground and make further advances from there. one reminder that prosperity is quite fragile can be found in the economic consequences of the peace, by john maynard keynes. 1 i believe it is rather fitting to quote his writing today, considering that fpa was founded to promote the “ just peace, ” advocated by president wilson, who led the u. s. delegation to versailles, and that the collective failure of the international community to achieve that goal at versailles prompted lord keynes to write the book. lord keynes describes the world before the first world war as “ economic eldora

operations, risk management, and crisis resolution. 2 they are designed to ensure see leaders ’ statement released after the g20 pittsburgh summit held on september 24 – 25, 2009. see committee on payment and settlement systems ( cpss ) and technical committee of the international organization of securities commissions ( iosco ), “ principles for financial market infrastructures, assessment bis central bankers ’ speeches that the infrastructure supporting global financial markets is robust and thus well placed to withstand financial shocks. compared with existing recommendations, the new principles introduce new or more demanding requirements. for example, clearing houses that are systemically important and multi - jurisdictional and those that clear complex products will be required, at a minimum, to withstand the simultaneous failure of the two largest participants, instead of the largest participant, as in the current set of recommendations. the principles will apply to all systemically important payment systems, central securities depositories, securities settlement systems, central counterparties, and trade repositories, which collectively clear, settle, and record transactions in financial markets. the bank of japan, in close cooperation with the japanese financial services agency, has participated in the international discussions leading to the agreement on the new principles and is firmly committed to implementing them as soon as practicable. along with this international push for more robust and resilient market infrastructures, there have also been efforts that reflect japanese domestic experiences. while the failure of lehman brothers did not cause much disruption in japan, and hence cross - border spillovers were minimal, it was found that the crisis resolution mechanism at the japan government bond clearing corporation ( jgbcc ) could be further improved. it took herculean efforts at the jgbcc to come up with securities and funds that lehman brothers could not deliver after its bankruptcy filing. it was a close call. much progress has been made to reduce risk and ensure the continuity of operations even in extremely stressful situations, especially in the area of dealing with a large number of fails and raising emergency liquidity. as i have noted at the beginning, these efforts to strengthen market infrastructures in japan are moving forward at a good speed. for example, with respect to the g20 commitment to move otc derivative trading onto centralized clearing by the end of this year, japan has set up the necessary legal and institutional framework, and is probably the first market of any significant size to do so. on this basis, the clearing of cds began from july 2011, and yen interest rate swaps will also be centrally cleared