time. 5 to manage these concerns, the mpc set out a transparent strategy for normalising monetary policy centred on its plan to run down the stock of assets accumulated through qe in a gradual and predictable manner. 6 this plan has governed the quantitative tightening ( qt ) programme over the past year. addressing new inflationary shocks but monetary policy cannot be put on an autopilot. any plan has to be conditional on economic conditions, and responsive to economic shocks and disturbances. 7 the mpc has flagged that it will use bank rate as its active instrument to address new shocks as they emerge, leaving the qt programme to run ‘ in the background ’ as long as market conditions permit. bank of england that naturally brings me to the second rationale for the substantial tightening of the monetary policy stance over the past year : the incidence of new inflationary shocks. two shocks in particular stand out : the very sharp rise in wholesale european gas prices over the past year ; and the decline in participation in the uk labour market ( against a backdrop of sagging market competition in the goods market ). the rise in gas prices has four important characteristics. first, it genuinely was a shock. looking back at the first speech i gave as an mpc member this time last year, 8 gas prices barely featured. rather the focus was on supply chain disruptions and the potential threat of the omicron variant, which had just started to emerge as i spoke in newcastle. second, the shock was large. although it has eased somewhat in recent months, the january european wholesale gas price future – most relevant for next year ’ s household energy bills that enter the cpi basket – rose more than ten times to its august peak. third, these gas price rises passed - through to the cpi inflation that the mpc targets relatively quickly : in a matter of months – certainly at a shorter horizon than the 18 - 24 months typically associated with the lagged pass - through of monetary policy actions to inflation developments. and fourth, higher gas prices exerted an adverse supply - side effect on the uk economy, and thus induced a difficult trade - off for monetary policy : inflationary pressures rose at a time when economic activity weakened. taken together, these characteristics implied that gas price driven volatility in cpi inflation was inevitable. given the famous ‘ long and variable lags ’ in the transmission of monetary policy, an immediate policy response to the gas price shock could not have prevented some rise in headline inflation. 9 in line

tends to be more acute ). since october 2014, 59 % of the nominal principal amount of total issuances has included these enhanced cacs for countries such as mexico, armenia, bulgaria, croatia and egypt. 16 but as the september 2015 g20 communique 17 highlighted, there is a need to further explore market - based ways to speed up the incorporation of such clauses to the outstanding stock of debt. ( iii ) reducing large cross - border exposures a commitment to bail - in rather than bail - out creditors of sovereigns can only be credible if losses can be absorbed safely without significant spillovers across borders. sovereign exposures receive special and in some cases preferential treatment in prudential regulation, with low or even zero capital requirements and exemptions from large exposure limits. it is hardly surprising then that they make up an important part of banks ’ balance sheets. claims on foreign public sectors reported by bis - reporting banks as a share of their total foreign claims have risen from 17 % in 2004 to 25 % at end - 2014. 18 the basel committee has recently started a review of the treatment of sovereign exposures in the basel standards. this is an important part of the resolution agenda – reducing international spillovers from sovereign debt restructurings will make it more feasible to implement them when needed. conclusion promoting cross border capital flows as a means of allowing resources to flow to where they will be best used is a logical extension of the arguments david hume first put forward in favour of free trade more than 250 years ago. however, such flows leave nations exposed to a “ capital stop ”, in much the same way that banks can experience a run on their deposits. the mix of self - and multi - lateral insurance arrangements that have arisen in response to recent events and liquidity pressures appears suboptimal – resembling more of a patchwork than a safety net. we need a better global financial safety net with the imf at its heart and three key additional elements that will make the safety net more effective. • first, a more reliable and flexible source of funding for the imf and greater clarity on coordination with regional financial arrangements. • second, a stronger mandate for imf surveillance and stress testing to reduce the likelihood that countries might need recourse to the safety net, and possible prequalification to reduce stigma when liquidity is needed. see briefing for g20 meeting, september 4, 2015, inclusion of enhanced contractual provisions in international sovereign bond contracts. https : / / g