discipline ” and the third “ market discipline ”. conceptually, the removal of the external monetary anchor in the form of backing by precious metals must be replaced by these three types of discipline. if any of these three disciplines breaks down, then serious consequences or even a financial crisis may occur. let me address these three disciplines in turn. monetary discipline unlike a fixed rate regime in which a national government can only issue currency if it can provide the backing ( such as gold reserves ), a floating rate regime allows national authorities to issue currency freely to suit their domestic needs. as we know, national central banks play a crucial role in controlling or influencing the supply of money. by changing interest rates or the price of money, central banks indirectly influence the expansion of credit and thus money bis central bankers ’ speeches supply. good monetary discipline is clearly needed to ensure that money or credit expansion does not become out of control. the initial experience in the us with the fiat money regime was not at all successful or pleasant. there was runaway inflation, rising from 5. 8 % in 1970 to 11. 2 % in 1979, and, as a result, paul volcker of the fed had to introduce drastic measures to combat inflation by pushing interest rates to as high as 19 %. it is now widely accepted that the breakdown of monetary discipline will lead to financial chaos with huge shocks to macroeconomic and financial stability. after the recent global financial crisis, we have come to realise how important it is to maintain the appropriate monetary discipline. it has been argued by many economists that one of the contributing factors leading to the crisis was that the us policy interest rate was set too low for a prolonged period, which further fuelled credit growth and the housing bubble in the us. of course financial innovation and the creation of highly opaque and leveraged financial derivative products, such as cdos, also helped amplify the severity of the problem and transmit the shockwaves across the global financial system. the result : the global financial system nearly collapsed. fiscal discipline more often than not monetary discipline breaks down because of the lack of fiscal discipline. one major reason why the us had to abandon the bretton woods system was the huge fiscal burden of financing the war in vietnam, which also led to a sharp deterioration of the current account position of the us. there have been many examples of government spending beyond their means resulting in the piling up of government or public debt. in the case of argentina, the lack of fiscal discipline eventually brought down the

gent sejko : the economy and banks, present and future challenges speech by mr gent sejko, governor of the bank of albania, at the round table on “ the economy and banks, present and future challenges ”, organised by the bank of albania and government of albania with the banking system, tirana, 16 september 2015. * * * your excellency prime minister, honoured representatives of international institutions, dear bank executives and representatives, this meeting seeks to once again draw the attention on non - performing loans, an issue that has been discussed extensively over the recent years. it aims at fostering the shared and concrete commitment to reduce the stock of non - performing loans, increase the financial intermediation by the banking sector and underpin albania ’ s economic growth. following, i would like to list some facts. the high level of non - performing loans has not affected the banking sector ’ s stability. liquidity and capitalisation indicators remain adequate and the financial performance has been positive and improving. but, the still - high percentage of non - performing loans has contributed to a higher perception of risk by banks ; in turn, they have adopted a more conservative approach to lending. our survey data point to tightened lending standards ; meanwhile, the lending volume, albeit positive, is still considered as low. the credit quality has improved during this year. the non - performing loans ratio, after peaking 25 %, fell to around 21 % in july 2015. we believe this improvement reflects the measures taken in the last 2 – 3 years, of which i would like to single out : a ) amendments to the law “ on income tax ” at the end of 2013, to facilitate the loan loss write off from the balance sheet ; b ) amendments to the code of civil procedures in september 2013, to improve the collateral execution process ; c ) entry into force of a regulation of the bank of albania, which renders obligatory the write off of loans classified by banks as “ loss ” for a period longer than 3 years ; d ) the work accomplished in cooperation with the commercial banks to restructure loans when the borrowers are exposed to more than one bank ; albeit the number of non - performing loans subject to the execution process has been significantly up, the improvement of the credit quality reflects mainly the loan loss write offs from banks ’ balance sheet. for the first half of 2015, its value amounted to around all 11 billion. the write off from bank ’ s balance sheet is both healthy for the