economic and financial conditions that followed world war i, many economic historians have credited it with promoting price stability and robust international trade and capital flows during 1870 - 1913, the so - called classical gold standard era. another example of a rule - like monetary policy institution is a currency board, such as the ones currently employed by hong kong and several eastern european nations. on the other side of the debate, advocates of discretion have firmly rejected the use of strict rules for policy, arguing that central bankers must be left free to set monetary policy as they see fit, based on their best judgment and the use of all relevant information. supporters of discretion contend that policy rules of the type advocated by friedman are simply too mechanical and inflexible for use in real world policymaking ; in particular, simple rules cannot fully accommodate special circumstances or unanticipated events. during the past few decades, for example, financial innovation and new transactions technologies have led to large and difficult - to - predict changes in the empirical relationship between money growth and the rates of growth of output and prices. if central banks had slavishly followed friedman ’ s k - percent rule for money growth during this period, critics point out, substantial economic instability would have been the likely result ; indeed, most central banks have deemphasized money growth as a policy target or indicator in recent years. more generally, opponents of rules have argued that, as a practical matter, policymakers can never credibly commit to abandoning the bank of england ’ s capable “ management ” of the pre - war gold standard was an important element in its success ; after the war, great britain no longer had the economic and financial power needed to occupy a central position in the world monetary system. proponents of discretion do not necessarily reject the use of “ rules ” or formulas - such as the famous taylor rule ( taylor, 1993 ) - as rough guides to policy, so long as policymakers remain free to deviate from the rule as they see fit. john taylor himself advocates using his eponymous rule in this way. discretion in favor of supposedly “ unbreakable ” rules. the problem, this argument runs, is that the public will understand that the central bank always has the option of abandoning its rule, should the rule happen to dictate a policy action perceived at the time as counterproductive. hence, an announcement by the central bank that it is adopting a strict policy rule would carry little credibility. although a strict rules - based framework for

term funding markets, including some spikes in repo rates in 2019, but overall vulnerabilities stemming from liquidity and maturity mismatches in the financial sector still appeared low — especially so at large banks, which had substantially reduced their reliance on short - term wholesale funding from pre - crisis levels. in late 2019, market participants were telling us that the most salient risks to the u. s. economy were from trade frictions, the challenges facing monetary policy given the proximity of interest rates to their effective lower bound, and market liquidity. 1 then the covid event unfolded. on february 21, while we were with the italian authorities in riyadh for the g20 meetings, italy announced quarantines of the northern towns being hardest hit by the new virus. this was a trigger for what became a rapid change in market sentiment, as investors began to prepare for what was beginning to seem might be a significant slowdown in economic activity. volatility rose ; selling pressure rose. as other european governments began to adopt travel bans, lockdowns, and school closures, there was a surging demand for safe assets. with fears of a widespread economic slowdown proliferating in late february and early march, treasury prices rose and yields fell sharply, as usually happens when the economic outlook worsens. and as often happens when a shock leads to a surging demand for safe assets, some risky assets became very difficult to sell. then on march 11, roughly two weeks after the first italian quarantines, the w ho declared covid - 19 a global pandemic, and several new countries announced lockdowns and border 1 / 5 bis central bankers'speeches closings. this was the trigger that turned what up to then had been a reasonably familiar, if concerning, flight to safety into a historically unprecedented dash for cash. corporates preparing for a potentially extended disruption in revenues began seeking cash reserves en masse, while financial firms uncertain about the value of assets and counterparties began cutting their exposures. as a result of this scissoring, we saw serious strains in several financial markets. some of the most severe strains emerged in short - term funding markets and among institutions engaged in liquidity transformation. i will highlight a few. first, we saw a pullback from commercial paper, or cp, markets. in an effort to contain risk in an abruptly slowing economy, investors shortened the maturities at which they were willing to lend in the