compromise was finally struck : the national bank would maintain its commercial activities and cede responsibility for monetary policy – along with all corresponding assets and liabilities – to a new institution, which would simply be called the bank of greece. and so it was. with a league of nations protocol as its birth certificate, the new bank began its operations in the spring of 1928. the product of an unpalatable deal to obtain much needed foreign credit, the bank was greeted with scepticism, if not outright animosity at first. as horace finlayson, the british consultant appointed to monitor the agreement in athens would explain in a letter to sir otto niemeyer, the director of the bank of england : “ the private banks still assume an attitude of sullen hostility [ … ]. this is bound to continue so long as the bank of greece continues to work in a position of semi - complete isolation. for the time being, it is nobody ’ s child and its real activities are little more than those of a rather pretentious exchange - shop. ” 1 those lines were written in october 1928. a year later, stock markets in the city of london and 1 / 3 bis central bankers'speeches wall street would crash, heralding a series of events that would bring inter - war central bank cooperation and the gold standard crashing down with them. greece ’ s stabilisation proved shortlived : by 1932, the country was off gold and back in default. as a newly born orphan, the bank thus took its first steps in the years of the great depression. it spent its early childhood navigating the treacherous waters of the thirties, tangled in the web of barter agreements and foreign exchange controls that had become the norm. interestingly enough, it was these very dire circumstances that helped transform the “ rather pretentious exchange - shop ” into a powerful agent of economic policy. on the one hand, the advent of the crisis forced commercial banks to come knocking to the door of their lender of last resort. on the other, the sudden retreat of the economic liberalism signalled the triumph of discretion over automaticity : as economic policy became more interventionist, the authority of the bank of greece expanded. on the eve of the second world war, the orphan had emerged as a fully - fledged banking institution, albeit one closer to the state than originally envisaged. the war brought further loss of independence, along with crippling hyperinflation, before stability was

. iii. demographics and domestic demand : japan ’ s experience japan is in the midst of dealing with some significant demographic challenges of an ageing population and a decline in the overall size of the population. in asia, china and korea are next in line to phase out of demographic dividend into demographic onus. thailand is not far behind. let me talk about the experience of japan. the transition from demographic dividend to demographic onus brings with it a series of problems. perhaps the most pressing of these problems are a decline in the potential growth rate, a deterioration in the fiscal balance, and intergenerational income transfers. these problems put downward pressure on the growth of domestic demand. in japan, the potential growth rate has been pushed down by a decline in labor input. there are two reasons for this decline. first, the number of workers has declined due to demographic changes. second, working hours have become shorter as the economy has matured. firms ’ slow response to demographic changes has contributed to sluggish growth in aggregate capacity to supply goods and services that reflect the changing environment. the demographic onus has also led to deterioration in fiscal deficits, impairing the pension and health - care insurance systems. delays in reforms to these social security systems have increased the burden on future generations and raised the issue of intergenerational income transfers. there has been a growing consensus in japan that greater efforts are needed to address the adverse effects of demographic changes. these efforts are expected to provide new growth momentum for japan ’ s economy. for example, there has been progress in initiatives to raise the labor participation rate of women and the elderly, to address the decline in the number of workers. there have also been initiatives to attract more highly - skilled foreign workers. firms are also making headway in areas such as retail, tourism, medical and nursing services in an effort to provide goods and services for the elderly and families with small children. while demographic changes can be predicted quite accurately, reversing them is extremely difficult. however, as is often the case when problems seem too serious or difficult, initiatives bis central bankers ’ speeches to address those problems tend to be put off. although japan ’ s working - age population started to decline in the mid - 1990s, concrete action was taken only after the total population started to decline in the latter half of the 2000s. japan ’ s experience thus suggests that it is crucial not only to debate the challenges posed by the demographic onus, but also to