Archive for the ‘Speech / Interviews’ Category

Non-performing loans in the euro area: How they were halved?

June 26, 2019

Nice speech by Andrea Enria, Chair of the Supervisory Board of the ECB:



Twenty Years of the ECB’s monetary policy: Trial by Fire

June 26, 2019

Mario Draghi of ECB summarises the twenty years of monetary policy of ECB:

The euro was introduced twenty years ago in order to insulate the Single Market from exchange-rate crises and competitive devaluations that would threaten the sustainability of open markets. It was also a political project that, relying on the success of the Single Market, would lead to the greater integration of its Member States.

On both counts, the vision of our forefathers has scored relatively well. Imagine where the Single Market would be today, after the global financial crisis and rising protectionism, had all countries in Europe been free to adjust their exchange rates. Instead, our economies integrated, converged and coped with the most severe challenge since the Great Depression.

That leads me to four observations.

First, the integration of our economies and with it the convergence of our Member States has also greatly increased. Misalignments of real effective exchange rates between euro area countries are about a half those between advanced economies with flexible exchange-rates or countries linked by pegged exchange rates and they have fallen by around 20% in the second decade of EMU relative to the first.[20]

Second, the dispersion of growth rates across euro area countries, having fallen considerably since 1999, is since 2014 comparable to the dispersion across US states.

Third, this has been driven in large part by the deepening of European value chains, with EMU countries now significantly more integrated with each other than the United States or China are with the rest of the world.[21] Most EMU countries export more with each other than with the US, China or Russia. Fourth, employment in the euro area has reached record highs and in all euro area countries but one stands above its 1999 level.

But the remaining institutional weaknesses of our monetary union cannot be ignored at the cost of seriously damaging what has been achieved. Logic would suggest that the more integrated our economies become, the faster should be the completion of banking union and capital markets union, and the faster the transition from a rules-based system for fiscal policies to an institution-based fiscal capacity.

The journey towards greater integration that our citizens and firms started twenty years ago has been long, far from finished, and with broad but uneven success. But overall, it has strengthened the conviction of our peoples that it is only through more Europe that the implications of this integration can be managed. For some, that trust may lie in a genuine faith in our common destiny, for others it comes from the appreciation of the greater prosperity so far achieved, for yet others that trust may be forced by the increased and unavoidable closeness of our countries. Be that as it may, that trust it is now the bedrock upon which our leaders can and will build the next steps of our EMU.

Whatever the criticisms, EU polity continues to move ahead with the integration. People had questioned Euro right at inception and believed it would break down soon, but that has not happened.

Mixed reactions over Facebook’s Libra project..

June 21, 2019

Mixed reactions to the FB’s Libra project.

Mark Carney, Governor of Bank of England gives a cautious welcome:


Daniel Defoe, Cooperative Banks and challenges facing German economy..

June 10, 2019

Another fascinating speech by Jens Weidmann of Bundesbank.

He points how Defoe once wrote about need to have savings/cooperative banks in England. But they took shape in Germany:

Three hundred years ago, a book was published that has since gone down in history as one of the most printed publications of all time.[1] It tells the tale of the son of a Bremen merchant who went by the name of Kreutznaer. This young man embarks on a sea voyage, is enslaved, then escapes, then procures a plantation in Brazil, and finally becomes stranded on a desert island. You will all know the protagonist by the name of Robinson Crusoe.

This story by the British writer Daniel Defoe immediately became a resounding success. Indeed, just one year after the original edition was published, as many as four German translations were already on the market, and Defoe lost no time in penning two sequels.

You might not be aware that Daniel Defoe had another bright idea that was also very well received, though it didn’t occur to him until quite some time later. Even as far back as 1697, he was recommending that “that all persons in the time of their health and youth, while they are able to work and spare it, should lay up some small part of their gettings as a deposit in safe hands … to relieve them if by age or accident they come to be disabled”. If an institution were created for this purpose in every county in England, he wrote, poverty might easily be suppressed by helping people to help themselves.

However, the kind of savings institution which Daniel Defoe had in mind was first established not in England, but in Hamburg. It was here, in the year 1778, that the “Ersparungsclasse der Allgemeinen Versorgungsanstalt” was established – the world’s very first savings bank. So you could say that holding the German Savings Banks Conference here in Hamburg is a kind of homecoming. And if we look a little closer at the philosophy behind the savings banks, we can see a key aspect of the social market economy: the idea of “prosperity for all”. Having unfettered access to markets – in this case, to banking services – promotes this idea, and it is integral to Germany’s economic model.

Nice bit. Indian cooperative movement which started in 1904 (and many other countries) took insights from German savings banks.

He then speaks about challenges facing German economy: High current account surplus, China effect and so on…


Israel Turns 70: Does it Need a Rebrand?

June 6, 2019

Israel turned 70 on May-2018.

HBSWK interviews Prof Elei Ofek who has written a case on Israel as a brand:

Brian Kenny: “Therefore, I believe that a wondrous generation of Jews will spring into existence. The Jews who wished for a state will have it. We shall live at last free freemen on our own soil and die peacefully in our own homes.”

This prescient view of the future was written by Austro-Hungarian journalist and activist Theodor Herzl in February of 1896. 52 years later, his vision became a reality when the state of Israel declared its independence on the South Eastern shore of the Mediterranean Sea in the heart of the ancient holy lands. Their claim was immediately rejected by the Arab leaders, sparking decades of tension and conflict between Israel and its neighbors that continues even today, but if you look beyond the headlines, you can see a different side of Israel. You see a country rich in diversity, a place steeped in history, yet on the cutting edge of innovation and science and technology, a thriving hub of entrepreneurship, arts and culture. Simply put, you see the essence of what Theodor Herzl described so long ago.

Unfortunately, that’s not a version of Israel most people see. Today we’ll hear from Professor Elie Ofek about his case entitled, Israel at 70. Is it Possible to (re)brand a Country? I’m your host, Brian Kenny, and you’re listening to Cold Call, part of the HBR Presents network.

Elie Ofek’s research focuses on new-product strategies and technology driven business environments, as well as in consumer-oriented companies in general. He’s the coauthor of the book, Innovation Equity: Assessing and Managing the Monetary Value of New Products and Services. Elie thanks for joining me today.

Elie Ofek: Oh, it’s my pleasure. Thanks for having me

Brian Kenny: What led you to write the case?

Elie Ofek: You framed the birth of Israel from the vision of Theodor Herzl. Since that founding, the country was celebrating its 70th birthday in 2018. That was a big milestone. There was some buzz around that milestone that was reached the 70th birthday, and as I was talking to people or hearing from people reflect on that, I was hearing different views, different opinions, different perceptions of Israel, namely from Israelis versus non-Israelis … and it got me thinking, how do these perceptions form? And has there ever been a conscious effort to brand the country? I really dug into that and that’s what led me to work on this case… Getting into branding of Israel also opened up this door for me to understand the topic of place branding. By place you can think of either a city, a region or a country, and in fact, you see that there are multiple stakeholders always involved in the branding of a place and that became evident when I was working on Israel rebranding effort in particular.

Brian Kenny: If you think about the science of branding or the practice of branding, it’s always about the promise that you’re making to your stakeholders. That’s relatively easy to do with a product or a service. You can articulate what the promise is. What are we going to give you? What are we delivering to you? A little harder, I guess, when you’re talking about a country filled with people who are all independent thinkers and have their own perceptions of the place.

Elie Ofek: Very well put. When you have that level of pluralistic thinking and diverse thinking of the particular place from the actual people that are there, you will get a lot of opinions about what is the best promise to make or what are the best associations, meanings, thought provocations that we want people to have when they hear the name Israel or when they think about this country.

Branding regions/countries is all the more difficult….


What is behind the recent global slowdown?

May 30, 2019

Hyun Song Shin, Economic Adviser and Head of Research of the BIS in this speech tries to answer the question. He says the main reason is deep interconnections between trade and finance. With financial sector continuing to bleed, this has affected trade and global growth:

Financing of working capital to sustain manufacturing and trade shines a light on the role of the banking sector. Banks are crucial for the provision of trade financing, and a strong banking sector augments the firms’ own financial resources to meet working capital needs.

Yet the banking sector has been stuck in low gear since the GFC. While post-crisis reforms have increased the resilience of banks by enhancing their loss-absorbing capacity, banks’ lending growth has been disappointingly weak. Above all, the book equity of the banking sector, which serves as the foundation for banks’ lending, has stalled.

Graph 6 shows that book equity growth has slowed drastically since the GFC, reflecting in part the low profitability of the banking sector, as well as continued dividend payouts and share buybacks. As book equity is the foundation for the lending by banks, the slow pace of book equity growth has gone hand in hand with stagnant lending growth.10The sharp break in trend in equity and asset growth since the GFC is a graphic illustration of how, even a full decade after the crisis, the banking sector has not recovered from it. This is not just a story about Europe. The group of 75 large banks depicted in Graph 6 are drawn from around the world.

The weakness of the banking sector shines a light on the unintended side effects of a prolonged period of monetary accommodation that has weighed on bank profitability through negative interest rates and compressed long-term rates. It is commonplace to say that monetary policy is overburdened in the current economic environment, not least from the BIS. But this is a point that is especially relevant for the impact of monetary policy on GVCs and manufacturing activity. Bank lending and corporate balance sheet strength are key to the financial backing underpinning GVCs. While low interest rates in advanced economies have helped bolster consumption and support strong employment growth, the impact on bank lending that bears more directly on GVCs has been arguably less effective. Nor can we say that the impact of monetary policy on corporate leverage has been unambiguously positive. Companies have taken advantage of low long-term interest rates to borrow long-term through capital markets, and have used the proceeds in financial transactions, either in acquisitions or to buy back their own shares. Real investment unrelated to property is more closely tied to the health of the manufacturing sector and has been subdued. More recently, leveraged loans issued by less creditworthy firms have been receiving increasing attention from policymakers as a potential source of financial stress for firms.

Once the growth of manufacturing and trade through more intensive use of GVCs has run its course, relying excessively on manufacturing and goods trade may be setting the global economy up for disappointment. The experience of 2017 serves as a useful lesson. During 2017, manufacturing and trade grew strongly on the back of accommodative credit conditions and a weaker dollar. However, as we have been seeing in more recent months, some of the expansion of activity was vulnerable to a reversal of credit conditions.

These considerations bring us to the importance of the composition of demand and the role of fiscal policy. When the appropriate opportunities for long-term public investment arise, fiscal stimulus – through such investment projects taking advantage of low long-term interest rates – may be one way to reorient the economy towards domestic activity. The important point here is that such a reorientation would aid the rebalancing of the composition of demand as well as its overall size. The issue of fiscal space and long-run sustainability of public debt will then need to be addressed. These issues are beyond the scope of my presentation today, but I am sure they will figure in the discussions at this forum. I look forward to a lively debate.


Should Central bank issue digital currencies? A perspective from Central Bank of Lithuania

May 29, 2019

Nice speech by Mr Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania.

He discusses the concept of CBDC and points how it is different from physical currency, bank reserves and bitcoin:


Why do central bankers buy and collect art?

May 21, 2019

Jens Weidmann of Bundesbank in this speech:

It gives me great pleasure to join you here today in opening this exhibition of artworks from the collections of the National Bank of Belgium and the Deutsche Bundesbank. I must say, this is an impressive and exceptionally pleasing space for an exhibition of this kind. We jumped at the chance of sending exhibits from our collection on a journey to Brussels, to our friends at the National Bank of Belgium in the capital city of Europe. It’s a premiere for us – never before have we shown our works outside Germany.

Both the National Bank of Belgium and the Bundesbank have been avid collectors of art for many decades now. Over the years, we have each gathered quite sizeable collections which shed some light on how art has evolved in Belgium and Germany. But why do central banks collect art in the first place? There are two reasons for that. First, because we’re looking to engage with society at large. As public institutions, we have a sense of commitment to the arts and culture in our respective countries. Second, we also feel that it is crucial to incorporate art into working life, because that brings our colleagues, and our guests and visitors, too, face to face with artistic expression. So over the years, collecting and exhibiting art has become part of our institutions’ DNA.

Encountering artworks on an everyday basis makes art part of our routine, a commonplace occurrence in our daily lives. Not just that: art also has the ability to surprise, challenge and inspire us. It lets us see things from a different angle and opens up a world beyond our own horizons. And in my experience, it can quite often be a cue for some fascinating conversations.

This exhibition now marks our own attempt to spark a special type of dialogue. Not just between visitors and the artworks, but also between two art collections which have evolved at two similar institutions in neighbouring countries. And that’s what makes the title of this exhibition – “Building a Dialogue” – so apt.

In this day and age, it’s certainly not a question of finding out what aspects of the collections are “typically Belgian” or “typically German”. Not least because artists in Europe, as we know, have been seeking to build a dialogue across national borders for centuries now. And yet for all that, it’s interesting to observe how well the works from the respective collections complement each other, and how the individual artistic statements interact.

Well, central banks also have the money!

RBI’s once used multiple indicator approach is becoming preferred approach for EME monetary policy…

May 15, 2019

BIS chief Agustin Carstens in this speech reviews monetary policy framework in emerging markets.

He says it was thought that have an inflation target and allow the currency to float and find its own level.  However, this approach is not what emerging markets have strictly followed:


What differentiates central bank approach of monetary policy from financial stability policy?

May 14, 2019

Sir Jon Cunliffe in this speech speaks about Brexit risks to UK.

In the speech he serves this useful reminder on what differentiates mon policy from financial stability policy:

It cannot be repeated too often that the Bank’s approach to its financial stability objective is, in one key respect, very different to its approach to its monetary
stability objective. For the latter, the Monetary Policy Committee makes the best forecast we can of the path of the economy and the path of inflation – the central case. We set out clearly and graphically the risks around those forecast, but it is the central case – what we think most likely to happen – that informs our policy decisions.

For financial stability, the focus of the Financial Policy Committee (FPC) is not on the central case – on what is most likely to happen; rather it is on the risks – on what could happen even if it is not the most likely scenario. It is the risks, what could happen, that inform our policy decisions.

A colleague of mine recently asked me why the financial stability side of the Bank was so gloomy, always pointing to risks on the horizon and seeing the glass as half empty at best? My answer was that it was our job to worry about what could plausibly happen – and to ensure that if it did happen, the glass did not
suddenly empty entirely.

This is important. Monetary Policy looks at the mean while addressing risks. Financial stability while looking at the mean has to look at risks. Clarifies a lot on how we think about the two sets of policies…

Models, Markets, and Monetary Policy: From Friedman to Taylor to Data dependent policy

May 14, 2019

Nice speech by Richard Clarida.

Let me set the scene with a very brief—and certainly selective—review of the evolution over the past several decades of professional thinking about monetary policy. I will begin with Milton Friedman’s landmark 1967 American Economic Association presidential address, “The Role of Monetary Policy.”2 This article is, of course, most famous for its message that there is no long-run, exploitable tradeoff between inflation and unemployment. And in this paper, Friedman introduced the concept of the “natural rate of unemployment,” which today we call u*.3 What is less widely appreciated is that Friedman’s article also contains a concise but insightful discussion of Wicksell’s “natural rate of interest”—r* in today’s terminology—the real interest rate consistent with price stability.

But while u* and r* provide key reference points in Friedman’s framework for assessing how far an economy may be from its long-run equilibrium in labor and financial markets, they play absolutely no role in the monetary policy rule he advocates: his well-known k-percent rule that central banks should aim for and deliver a constant rate of growth of a monetary aggregate. This simple rule, he believed, could deliver long-run price stability without requiring the central bank to take a stand on, model, or estimate either r* or u*. Although he acknowledged that shocks would push u away from u* (and, implicitly, r away from r*), Friedman felt the role of monetary policy was to operate with a simple quantity rule that did not itself introduce potential instability into the process by which an economy on its own would converge to u* and r*.4In Friedman’s policy framework, u* and r* are economic destinations, not policy rule inputs.

Of course, I do not need to elaborate for this audience that the history of k-percent rules is that they were rarely tried, and when they were tried in the 1970s and the 1980s, they were found to work much better in theory than in practice.


That vacuum, of course, was filled by John Taylor in his classic 1993 paper, “Discretion vs. Policy Rules in Practice.” Again, for this audience, I will not need to remind you of the enormous impact this single paper had not only on the field of monetary economics, but also—and more importantly—on the practice of monetary policy. For our purposes today, I will note that the crucial insight of John’s paper was that, whereas a central bank could pick the “k” in a “k-percent” rule on its own, without any reference to the underlying parameters of the economy (including r* and u*), a well-designed rule for setting a short-term interest rate as a policy instrument should, John argued, respect several requirements.



Undermining Central Bank independence, the Cyprus way (reads much like India’s story!)

May 13, 2019

It has been 5 months since RBI Governor resigned from the central bank. A lot was written exploring several reasons which led to his sudden exit from the central bank. But much of it is still speculation and truth is known to either Governor or someone close to the scenes in the Government. However, there is one book which reads much like what could have happened between the RBI and the Government.

The concerned book is written by Dr. Panicos Demetriades, former Governor of Cyprus (May-2012 to Apr-2014) and is titled as ‘A Diary of the Euro Crisis in Cyprus’. It is highly surprising that such an account by a central banker has not got due attention. The book was written in 2017 and should be on top of the charts. There are other central bankers who have written their accounts recently. But neither had they faced experiences as telling as those faced by Demetriades nor wrote as frankly as Demetriades.  One reason for ignorance is Cyprus being a tiny economy. Even then the book is a must read for those interested in political economy of central banking.

I came to know of this book by reading a recent speech by Lesetja Kganyago, Governor of the South African Reserve Bank. Kganyago speaks on how central bank independence is under attack including South Africa (which requires a separate article of its own) and picks insights from this book to reflect on Cyprus experiences. The events which happened in Cyprus during those 2 years read as the events in India during 2016-18. The resemblance is so striking, that it leaves you in splits.

What happened in Cyprus which is so telling?

First some basics. Before 2008, Cypriot banking sector grew enormously to touch 10 times the size of its GDP. The banks had invested heavily in Greek government bonds as they gave higher yields. Further, Cyprus banks not just offered higher deposit rates but also lend aggressively towards real estate sector. One of the real estate developers even became chairman of one of the Bank Boards. The financial transactions were not limited locally but funds flowed from and to Russia, Ukraine and Romania, becoming a deadly cocktail at the end. The banks were also the main advertisers in the media leading to no one really raising fingers.

Though, this was hardly unique to Cypriot banks as we saw banks in Iceland, Ireland, and US etc. following similar strategies only to end up in crises. In Cyprus too, the Greece crisis and European financial crisis engulfed banking system of Cyprus which was anyways built on shaky foundations. What is unique though is what transpired later.

Enter Panicos Demetriades who was appointed Governor of Cyprus Central Bank in May-2012. He had taken over from Athanasios Orphanides, who in in his send-off remarked that though banking system was quite stable under his tenure but wasn’t sure what would happen next.

Talk about prophecy as what followed was complete meltdown of the Cypriot banking system. The blame lies on Orphinades as well, as the fragile banking system took shape under his tenure. Demetriades knew he was sitting on a time bomb and tried to figure a solution but could not succeed. The troika of IMF, ECB and European Commission wanted to implement stricter norms for recapitalization which were not agreeable to politicians. The banks remained highly undercapitalized, politicians continued to underestimate the scale of problem also on account of high cronyism. Gradually losses mounted and the share of non-performing loans as a percentage of total loans in Cyprus was next only to Greece. Even today the share of NPLs are as high as 20% of total assets.

As banking problems worsened, a scape goat had to be identified and who better than a central banker! The media anyways disliked Demetriades right at his appointment as he was seen as an outsider. Soon, the political parties joined this chorus. The politicians wanted Demetriades to be ousted but as Cyprus was part of Eurosystem and under this system the central bank governor could not be fired. The only way was to pressurize the central banker and push him towards resignation.

The Government did two major things (apart from humiliation) in mid-2013 which pushed Demetriades towards his resignation – firing the Deputy Governor who backed the Governor and pushing the governance powers from Governor to the Central Bank Board!  Under the new legislation, the Government expanded the Central Bank Board membership from 5 to 7 with the two new members becoming Executive Directors. Further, the decisions related to licencing of new and old banks were to be made by the Board and not the Governor. The ECB protested against this legislation but to no avail.

The new Board stopped backing the Governor and even the loyal staff started complaining of harassment. Demetriades began to tire eventually and health started to suffer. The personal attacks mounted even bringing his family into picture. In March-2014, he submitted his resignation citing “personal reasons and difficulties working with the Board as the reason for resignation. This way the government won not just the battle but also the war against its own appointed Governor.

The events in Cyprus showed how governments can undermine central bank independence in interesting ways. The rules prevented the Governor from being fired but one could still build the pressure through the Board and firing the Deputy Governor.

Given this brief, there is a reason why I mention that Cyprus case reads much like India’s case. The RBI Governor was under pressure for rising NPAs, low credit growth and maintaining high reserves, leading to discontent with the Government. There was news on how the powers of governing RBI had shifted from the Governor to the Board members. There were also reports on how Governor Patel was tired fighting these battles and his health was suffering. In the end, these multiple events forced him to resign, also serving for two years just like his Cypriot counterpart. The resignation letter of the Governor also mentions personal reasons but not saying anything else.

The German classical archaeologist Gustav Hirschfeld once said ‘He who would become and remain a great power in the East must hold Cyprus in his hand.’  Paraphrasing the quote, those who believe in great power of central bank independence, should hold and read this account of Cyprus central bank Governor in their hands! Hope Dr Urjit Patel writes his own account as well.

Is all economics local?

May 13, 2019

Interesting speech by Andy Haldane of Bank of England.

The speech uses lots of interesting data and graphs to understand local economy of UK. There are all kinds of patterns which suggest income inequality both between and within UK regions. The location matters a lot to well-being.

In his speech, our Chief Economist Andy Haldane looks at the economy at the local level. He uses data maps to show how peoples’ experiences of income, wealth, health and wellbeing vary depending on where they live.

Andy then considers how the latest developments in economic modelling and data could help give us a clearer, bottom-up picture of what’s happening in the economy.

Finally, he explains what we’ve been doing to make the Bank of England more engaged with what’s going on in local communities.


Next generation of Islamic financial institutions: Leadership, values, ethics

May 3, 2019

Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia in this speech talks about the nextgen ISlamic Financial Institutions:

The next generation of Islamic financial institutions would thus be driven by values and not just profit. With a moral outlook for the ultimate good, strengthened by self-discipline, greater accountability and integrity, Islamic financial institutions will have stronger consideration of the impact of decisions made. There should be greater drive to continuously improve their offerings and treatments towards customers and employees, which include fair and transparent disclosure in order to increase the positive impact of their activities. Development of banking practices based on VBI concepts are also anticipated to encourage the creation of new business opportunities and provide the foundation for better returns for Islamic banks over the long term. An example is assessment of financing application by Islamic banks based on value-creation instead of mere credit scoring which would benefit business propositions from new sectors such as SMEs. Another example is refocusing, strengthening and repositioning of personal financing by Islamic banks to best meet the needs and circumstances of customers.  In time, there may emerge greater differentiation between VBI and non-VBI institutions which will be better understood by shareholders, fund providers and financial markets more generally. Furthermore, the more comprehensive and holistic approach of VBI in advancing the good for society could prove to be a key competitive advantage that will influence and shape the future of the financial industry.

The drive for positive changes in the Islamic financial services industry however requires a major paradigm shift in many institutions. It takes a long view to recognise returns beyond financial profits where social and environmental gains are also highly valued. It will also take increasing professionalism and high quality talent that will contribute to this transformation of mind and culture. In Malaysia, we can readily leverage on the available Islamic finance talent development ecosystem, which has a comprehensive and diversified range of offerings, spanning tertiary and professional education, research, training and consultancy services which are globally-recognised. The implementation of VBI has already galvanised many stakeholders including institutions of higher learning such as the International Centre for Education in Islamic Finance (INCEIF) and International Shariah Research Academy (ISRA) to undertake impactful applied research that advances the implementation progress of VBI by the financial industry. Indeed, Islamic finance has greatly benefited through these institutions that have contributed towards enlarging the pool of Islamic finance professionals and deepening expertise through various programmes and initiatives. At the same time, these institutions have also grown in recognition. INCEIF for example, has been awarded the prestigious accreditation by the Association to Advance Collegiate Schools of Business (AACBS) International in recognition of its excellence in various areas, including its diverse programmes that have benefitted students from more than 80 countries.

Besides talent, strong and visionary leadership in particular at the Board and Senior Management will be crucial for success in this paradigm shift. This leadership and strong professionalism must continuously be complimented with the right ethics to transform the culture, systems and people. Nurturing talent also needs to be extended to the board level. In Malaysia, directors can gain greater appreciation on the dynamics of Shariah principles through programmes such as the Islamic Finance for Board of Directors Programme. This specialised Islamic finance training programme builds on the core foundations on corporate governance as set out in the Financial Institutions Directors’ Education programme. Directors would also be exposed to diverse perspectives from within and beyond the Islamic banking community on contemporary issues in the industry.

Let me conclude. The Islamic financial sector has made great strides over the recent decades. The next growth frontier in Islamic finance however lies in realising its potential to create greater socio-economic impact. Values and ethics, strongly instilled would strengthen trust between people and the system. For the Islamic finance industry, the move towards embracing VBI manifests the larger aspiration of Islamic finance. In shaping positive behaviour amongst industry players, Islamic finance can become a leading agent of change and bring about sustainable positive impacts to the economy and society. Translating this vision into reality then requires our collective efforts, steered by strong and capable leadership.

All financial sector is looking for similar values….

100 years of Keynes Economic Consequences of Peace: Lessons for today?

May 1, 2019

Mark Carney, Governor Bank of England revokes Keynes (who else) to drive home gains from technology:

A century ago, John Maynard Keynes resigned as a delegate to the Paris Peace Conference over his concerns about the scale of reparations in what would become the Treaty of Versailles. He returned home to write The Economic Consequences of the Peace. In that seminal work, Keynes marvelled that before the war:

“The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth… [or] adventure his wealth in the natural resources and new enterprises of any quarter of the world that fancy or information might recommend.”

Such global trade and portfolio management were made possible by new technologies ranging from the telegraph to the first transatlantic cable.

Replace “telephone” with “tablet” and “tea” with “turmeric latte” and you have not the start of the Twentieth Century but of the Twenty First. The second great wave of globalisation is cresting. The Fourth Industrial Revolution is just beginning. And a new economy is emerging driven by immense changes in technology, the reordering of global economic power, and the growing pressures of climate change.

Carney believes gains from technology would be better distributed this time:


Switzerland monetary policy since 2008: From one crisis to another

April 30, 2019

A spirited speech by Thomas J. Jordan, Chairman of the Governing Board of Swiss National Bank. He defends the policy of the central bank since 2008 which has moved from one crisis to another:

Ladies and Gentlemen, the global financial and economic crisis broke out eleven years ago,  and was followed by a marked decline in economic output and inflation. At that time, the SNB had to switch to an expansionary monetary policy stance in order to fulfil its mandate. We initially responded with conventional measures, and quickly lowered interest rates to virtually zero.

The global financial crisis was swiftly followed by the sovereign debt crisis in the euro area. The attendant uncertainty on the financial markets bolstered demand for the Swiss franc as a safe haven, thus putting appreciation pressure on our currency. To counter these upward forces, we had no option but to resort to unconventional means. We intervened on the foreign exchange market, and in September 2011 introduced a minimum exchange rate against the

From mid-2014 onwards, the international monetary policy environment began to change. On the one hand there were increasingly clearer signs that the US was about to adopt a tightening stance, whereas in the euro area a loosening of monetary policy was becoming more and more
likely. The euro subsequently depreciated markedly against the major currencies. As a result, by the beginning of 2015 the minimum exchange rate was no longer sustainable. To retain control over our monetary policy, we therefore decided in January 2015 to change tack. 

In that exceptional situation, we had to weigh up the pros and cons of using alternative unconventional instruments. It became apparent that we would have to lower interest rates below zero given that various other central banks had already done so. This was the only way we could limit the appeal of the Swiss franc. When we discontinued the minimum exchange rate, we thus also imposed negative interest of –0.75% on banks’ sight deposits held at the

This then brought the level of interest rates in Switzerland back down below that in other countries. Coupled with our willingness to intervene in the foreign exchange market as necessary, the negative interest rate has taken the pressure off the Swiss franc and prevented a sharp drop in inflation.

Pros and cons of negative policy rates:

What would happen if we were to simply stop charging negative interest in the current environment?

Dispensing with the negative interest rate would have a substantial impact on the Swiss economy. Swiss short-term interest rates would again be higher than in other countries, which would clearly increase the attractiveness of Swiss franc investments. This is turn would cause the franc to appreciate, which would be detrimental to economic momentum in Switzerland and would see unemployment rise and inflation pushed into negative territory.

If we stopped charging negative interest, would that at least be beneficial for savers, pension funds, life insurers and banks? The marked weakening in the economy would cast a pall over the earnings prospects of Swiss companies, and Swiss equities would come under pressure.

Although short-term interest rates in Switzerland would no longer be negative, there would be little change in capital market interest rates owing to the deterioration in the economic outlook. All in all, the level of interest rates would thus remain low, and so too would the yields on long-term Swiss franc bonds. Ultimately, there would be scarcely any significant improvement for savers, pension funds, life insurers and banks.

The same goes for the real estate market. Although its momentum would be curbed somewhat if we were to cease charging negative interest, there would be little change in the low level of interest rates and the impact would therefore be limited. In the current situation, the risks to financial stability must be addressed with focused macroprudential measures. This will then curb demand for mortgages and real estate and strengthen banks’ resilience.

Ladies and Gentlemen, abandoning the negative interest rate in the current environment would weigh heavily on the Swiss economy. This would not help either savers or pensionfunds, nor would it be beneficial for financial stability. In other words, as things stand at present, removing the negative interest rate would not be in the interests of our country as a whole.

The critics of central banking will tell you that it is the very SNB interventions which have led to these problems at the first place.

Janet Yellen’ journey from a Fed economist to Fed Chair…

April 25, 2019

Interview of Janet Yellen on Dallas Fed website. She holds a unique role in Fed History:

Janet Yellen holds a unique place in Federal Reserve history. In addition to being the first woman to lead the institution and chair the Federal Open Market Committee (2014 to 2018), she is also the only person to have served as a Federal Reserve bank president (at the Federal Reserve Bank of San Francisco, from 2004 to 2010), Fed Governor (from 1994 to 1997) and Vice Chair (from 2010 to 2014). It all began with a year as a humble Fed staff economist from 1977 to 1978.

For more details on Yellen’s career, read this detailed transcript as well at Federal Reserve website.

Why do we keep getting wrong in financial regulation: Complicated systems vs complex systems

April 24, 2019

A nice different speech by Brian Johnson of CFPB.

He asks this one question: Why do we keep getting this regulation bit wrong in finance? Why do we keep having crisis despite so much work on regulation? His answer is we have got the whole approach wrong. He brings concept of complicated systems vs complex systems:


Competence and not nationality should determine the next ECB chief…

April 23, 2019

Nice interview of Mr Benoit Couvre of ECB.

He says competence alone should be the basis for next ECB chief:


History of US Trade Policy as an instrument of Foreign Policy: Paradigm lost under Trump?

April 22, 2019

Came across this interesting speech by Alan Wolff, Deputy Director of WTO on February 5, 2018.

Wolff points how US has used its trade policy as a mix of foreign policy and economic policy:

For most of the last 100 years, the United States has entered into trade negotiations based upon the belief that open markets foster democracy which in turn supports the maintenance of world peace. This grand credo – that increased trade bolsters the prospects for peace – indicates that U.S. trade policy – aside from its announced goal the opening of foreign markets – has also had an important foreign policy component.  In fact, trade policy has been a bedrock of U.S. foreign policy dating from the Second World War.  If this is no longer the objective of U.S. trade policy, this largely unnoticed change in policy is nothing short of revolutionary. 

Some clarifications are in order to keep the overarching policy objective in perspective: First, the fact that this high foreign policy aim was embraced by political leaders did not regularly affect actual detailed trade negotiations. In the trenches, U.S. trade negotiators, at least for the last several generations, have apparently been oblivious to the greater purpose that their efforts served.  They simply sought to open foreign markets for U.S. goods, services, and investment.  Second, foreign policy objectives can be served not only by opening markets but, as has been the case, through weaponizing trade though the imposition of sanctions.

The question examined today is whether the grand article of faith – that obtaining more open markets leads to the creation of democracies which in turn improves the prospects for world peace – is still accepted U.S. dogma and whether it is operational as current policy.  If it is not, and the evidence suggests that this might be the case, the change in policy, is profound.  If there has been a loss of faith, it is likely to have occurred through erosion over time, and is not solely a question of a new administration coming into office as a result of the 2016 Presidential election. 

This paper attempts to trace the thread of trade policy for peace from its inception, and provide some evidence of whether somewhere along the way that policy was forgotten or discarded.  If so, it is a paradigm lost. 

Why is this so very important?  It means that the basis for U.S. support for the multilateral trading system must now be found in pragmatism, in narrower commercial self-interest, and perhaps much less if at all on the basis of America’s foreign policy interests. 

If the sole motivation for participation in the world trading system is obtaining reciprocity, can the system be maintained, much less improved?  Which countries will act and to what extent for the global public good?  This question is independent of providing “special and differential treatment” for developing countries.  The answer to the question of how much countries will be willing to act on the basis of a broader definition of national interest is fundamental to the well-being of all. 

He starts the history from Woodrow Wilson era where subsequent Presidents used trade policy to push foreign policy agenda. However, those on the other side would argue US used trade policy for neither foreign or economic purposes but to just puts its nose in all global matters.

Is Trump era doing a reversal of this trade driven agenda:

It is too early to judge what the foreign policy of the Trump Administration will be, nor anticipate the potential for interaction of this administration’s foreign and trade policies. (21)  What do we know so far?  I have not seen any reference to date from the Administration of its espousing the formula to which Woodrow Wilson, Franklin Roosevelt, and their successors subscribed to – namely that international trade fosters the growth of democracies which in turn leads to enhanced prospects for world peace. 

If there is a discontinuity, why did it occur?  What has changed? 

First and foremost, the current administration has announced that it intends to redress what are taken to be imbalanced trade relationships with other countries.  This, the primary announced goal of current U.S. trade policy, clearly resonates with a not inconsiderable number of American voters.  These supporters of the President, concerned with their own failure to participate in the benefits of globalization, are likely to believe that America has done enough for the world trading system.  More pointedly, in the view of some, it is time for America to be paid back for the investments it made for the global public good.  This is not a majority public view according to polling data.  Members of the American public, when asked whether they back free trade agreements, say that they do. (22)  There is not a lot of evidence of a widespread movement toward isolationism which critics of the Administration feared in the early days of this presidency.

Second, there is little belief at present, in American policy circles, that movement in the direction of free markets, at least in the foreseeable future, is accompanied by movement toward democracy.  The progress toward greater political freedom does not appear to be linked to rising standards of living and greater market orientation.

The WTO has 164 members.  By signing up to the WTO, the trade of each acceding country is freer than it otherwise would have been.  The trend to democracy, however, is not encouraging.  According to one source that measures progress toward democracy in the most recent period, seventy-one countries suffered net declines in political rights and civil liberties, with only 35 registering gains in 2017.  And 2017 marked the 12th consecutive year in which declines outnumbered improvements. (23)  According to the IMF, world GDP growth has averaged nearly 4% per year since 1980, including this eleven-year period. (24)  The march to prosperity does not seem to be in lockstep with the march to democracy based on present data. What the future holds, decades from now, is not available.  Suffice it to say that in the case of the largest developing country that joined the WTO, U.S. policy makers would not say that the paradigm is working. 

If freer trade is not leading to greater democracy, than the logic of free markets leading to democracy then peace, does not hold. 

third answer may be that it is felt the post war reconstruction has accomplished all that it could accomplish through trade.  The case is not being made that the Trans-Atlantic Trade and Investment Partnership (TTIP) is needed to shore up European security. (25)  During the Cold War, European reconstruction was seen as critical to preventing a slide to communist domination.  Similarly, trade is not seen as a foreign policy tool with respect to Japan.  During the Korean War, accelerated development of the Japanese economy was seen to be in America’s interest. 

The United States and China have massive bilateral trade and are at the same time enhancing their armaments as a priority for the contingency that these weapons may be needed primarily with respect to each other. The U.S. and China each view their major trading partner as a strategic competitor with which conflict is likely to occur.

The U.S. government does not see external threats to smaller countries where it has interests solved through enhanced trade.  As a result, it is not seeking trade agreements to bolster any particular regime, either because more is needed than a trade agreement, or nation building is no longer considered desirable or feasible, or both.  As an example, the stability of Mexico, a concern when NAFTA was being negotiated, has not been articulated as a current U.S. motivation for re-negotiation of NAFTA. 

Enhanced U.S. trade with Russia and Iran are not seen as practical inducements to change their current conduct in international affairs.

fourth answer may be that the U.S. does not have much more to give in terms of lowering trade barriers in an era where industrial tariffs are on average very low for all developed countries. (26)  The world of trade has become multi-polar.  The U.S. is no longer the largest trading country, and adding in the European Union as a whole, it is only the third largest trader.  


Lot more in the speech…

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