They say that everything happens for a reason. When it comes to cybercrime, this seems to be an accurate statement. Criminals will target individuals with a very specific reason in mind: steal their money and their personal data. In order to do so, they look for any weak points of entry that they can use to implement their scams and extortion plans. One of the solutions to this threat lies within the field of crime prevention – the more aware individuals are of potential cyber scams, the more prepared and secure they can be.
An essential way to boost awareness is to make sure that the public stays up to date with any new tricks that criminals might have up their sleeves. In order to address this, Europol’s European Cybercrime Centre (EC3) and the European Banking Federation (EBF) have launched Cyber Scams 2.0, a reviewed and updated version of the 2018 Cyber Scams campaign. Over the next two weeks, the new materials, available in eight languages, will be promoted on social media channels by national law enforcement agencies (LEAs), banking associations and other cybercrime fighters.
Some of the Cyber Scams materials added to the campaign include:

Tech support scams
Updated Vishing advice
ID theft methods

In addition, the campaign is also raising awareness on SIM swapping, emphasizing the importance of identifying and reporting any such attempts.
Cyber Scams 2.0 is an excellent example of public-private cooperation, with EU’s banks and law enforcement agencies coming together to help build a more cyber-resilient society. The initiative was launched as part of EBF’s #DigitalThursdays event, against the backdrop of October’s European Cybersecurity Month , the EU’s annual campaign dedicated to promoting cybersecurity.
Compliments of Europol.
The post Europol | Cyber scams 2.0 – new tips to help boost your cyber skills first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Commission has today adopted a review of EU banking rules (the Capital Requirements Regulation and the Capital Requirements Directive). These new rules will ensure that EU banks become more resilient to potential future economic shocks, while contributing to Europe’s recovery from the COVID-19 pandemic and the transition to climate neutrality.
Today’s package finalises the implementation of the Basel III agreement in the EU. This agreement was reached by the EU and its G20 partners in the Basel Committee on Banking Supervision to make banks more resilient to possible economic shocks. Today’s proposals mark the final step in this reform of banking rules.
The review consists of the following legislative elements:

a legislative proposal to amend the Capital Requirements Directive (Directive 2013/36/EU);
a legislative proposal to amend the Capital Requirements Regulation (Regulation 2013/575/EU);
a separate legislative proposal to amend the Capital Requirements Regulation in the area of resolution (the so-called “daisy chain” proposal).

The package is comprised of the following parts:

Implementing Basel III – strengthening resilience to economic shocks

Today’s package faithfully implements the international Basel III agreement, while taking into account the specific features of the EU’s banking sector, for example when it comes to low-risk mortgages. Specifically, today’s proposal aims to ensure that “internal models” used by banks to calculate their capital requirements do not underestimate risks, thereby ensuring that the capital required to cover those risks is sufficient. In turn, this will make it easier to compare risk-based capital ratios across banks, restoring confidence in those ratios and the soundness of the sector overall.
The proposal aims to strengthen resilience, without resulting in significant increases in capital requirements. It limits the overall impact on capital requirements to what is necessary, which will maintain the competitiveness of the EU banking sector. The package also further reduces compliance costs, in particular for smaller banks, without loosening prudential standards.

Sustainability – contributing to the green transition

Strengthening the resilience of the banking sector to environmental, social and governance (ESG) risks is a key area of the Commission’s Sustainable Finance Strategy. Improving the way banks measure and manage these risks is essential, as is ensuring that markets can monitor what banks are doing. Prudential regulation has a crucial role to play in this respect.
Today’s proposal will require banks to systematically identify, disclose and manage ESG risks as part of their risk management. This includes regular climate stress testing by both supervisors and banks. Supervisors will need to assess ESG risks as part of regular supervisory reviews. All banks will also have to disclose the degree to which they are exposed to ESG risks. To avoid undue administrative burdens for smaller banks, disclosure rules will be proportionate.
The proposed measures will not only make the banking sector more resilient, but also ensure that banks take into account sustainability considerations.

Stronger supervision – ensuring sound management of EU banks and better protecting financial stability

Today’s package provides stronger tools for supervisors overseeing EU banks. It establishes a clear, robust and balanced “fit-and-proper” set of rules, where supervisors assess whether senior staff have the requisite skills and knowledge for managing a bank.
Moreover, as a response to the WireCard scandal, supervisors will now be equipped with better tools to oversee fintech groups, including bank subsidiaries. This enhanced toolkit will ensure the sound and prudent management of EU banks.
Today’s review also addresses – in a proportionate manner – the issue of the establishment of branches of third-country banks in the EU. At present, these branches are mainly subject to national legislation, harmonised only to a very limited extent. The package harmonises EU rules in this area, which will allow supervisors to better manage risks related to these entities, which have significantly increased their activity in the EU over recent years.
Members of the College said:
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said: “Europe needs a strong banking sector to keep lending to the economy as we recover from the COVID-19 pandemic. Today’s proposals ensure that we implement the key parts of the Basel III international standards. This is important for the stability and resilience of our banks. We do it by taking into account the specificities of the EU banking sector, and avoiding a significant increase in capital requirements. Today’s package will make EU banks stronger and able to support the economic recovery and the green and digital transitions.”
Mairead McGuinness, EU Commissioner responsible for Financial services, financial stability and Capital Markets Union, said: “Banks have an essential role to play in the recovery and it is in all our interests that EU banks are resilient going forward. Today’s package makes sure that the EU banking sector is fit for the future, and can continue to be a reliable and sustainable source of finance for the EU economy. By incorporating ESG risk assessments, banks will be better prepared and protected to weather future challenges such as climate risks.”
Didier Reynders, Commissioner for Justice, said: “The board members and key function holders of banks can have a significant influence on the activities of a credit institution. They play a pivotal role in directing the businesses and managing banks’ activities in a cautious and sound manner. Harmonised rules were necessary to assess whether board members and key function holders are suitable for their duties. Today’s adopted rules will clarify the respective obligations of credit institutions and competent authorities. They will then ensure consistency at EU level and will ultimately contribute to the increased robustness of banks.”
Next steps
The legislative package will now be discussed by the European Parliament and Council.
Background
In the aftermath of the financial crisis, regulators from 28 jurisdictions across the globe, within the Basel Committee on Banking Supervision (BCBS), agreed on a new international standard for strengthening banks, known as Basel III. This agreement was finalised in 2017. The EU has already implemented the vast majority of these rules, which has resulted in the EU’s banking sector being much more robustly capitalised.
As a result, EU banks remained resilient during the COVID-19 crisis, as evidenced by the fact that they continued lending. Today’s reforms complete the post-financial crisis agenda with a view to substantially boosting the competitiveness and sustainability of the EU’s banking sector.
Compliments of the European Commission.
The post Banking Package 2021: new EU rules to strengthen banks’ resilience and better prepare for the future first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The Commission adopted today its State of the Energy Union Reports for 2021, taking stock of the progress that the EU is making in delivering the clean energy transition, nearly two years after the launch of the European Green Deal. While there are a number of encouraging trends, greater efforts will be required to reach the 2030 goal of cutting net emissions by at least 55% and achieving climate neutrality by 2050, and the data will need to be analysed carefully next year for more long-term post-COVID trends.
The report shows that renewables overtook fossil fuels as the number one power source in the EU for the first time in 2020, generating 38% of electricity, compared to 37% for fossil fuels. To date, 9 EU Member States have already phased out coal, 13 others have committed to a phase-out date, and 4 are considering possible timelines. Compared to 2019, EU27 greenhouse gas emissions in 2020 fell by almost 10%, an unprecedented drop in emissions due to the COVID-19 pandemic, which brought overall emission reductions to 31%, compared to 1990.
Primary energy consumption declined by 1.9% and final energy consumption by 0.6% last year. However, both figures are above the trajectory required to meet the EU’s 2020 and 2030 targets, and efforts need to continue to address this issue at Member State and EU level. Fossil fuel subsidies dropped slightly in 2020, due to lower energy consumption overall. Renewable energy and energy efficiency subsidies both increased in 2020.
This year’s report is also published against the backdrop of an energy price spike across Europe, and around the world, driven largely by increasing gas prices. While this situation is expected to be temporary, it puts into focus the EU’s dependence on energy imports, which has increased to the highest level in 30 years, and the importance of the clean energy transition to increase the EU’s energy security. Energy poverty affects up to 31 million people in the EU according to the latest data, and this issue will remain in sharp focus in light of the economic challenges of COVID-19, and the current price situation. It is why the Commission has put a strong focus on shielding vulnerable consumers in its recent Energy Prices Communication.
The State of the Energy Union Report analyses how energy and climate policies have been impacted by the COVID-19 pandemic in the past year, and it presents the substantial legislative progress in pursuing the EU’s decarbonisation efforts. It also notes the political efforts to ensure that our post-COVID recovery programmes embrace our climate and energy objectives more than ever.
Background
The State of the Energy Union Report analyses the five pillars of the Energy Union: accelerating decarbonisation with the EU Emission Trading System (ETS) and renewables at is core; scaling up energy efficiency; enhancing energy security and safety; strengthening the internal market; research, innovation and competitiveness. It also identifies areas of future priority action in delivering the European Green Deal. Five inter-related reports accompany the main report.

Annex on Energy subsidies in the EU: Fossil fuel subsidies fell in 2020, principally owing to decreasing energy demand amid the Covid-19 pandemic, however, additional efforts need to be made in order to ensure that fossil subsides are to decrease in the future in the EU, avoiding a rebound in subsidies amid general economic recovery and increasing energy demand.

Progress on competitiveness of clean energy technologies assesses the clean energy ecosystem, from research and innovation to deployment. It assesses progress based on key competitiveness indicators. The report shows that while the EU remains at the forefront of clean energy research, further efforts are needed to increase R&I investments and to bridge the gap between innovation and market

The Climate Action Progress Report: “Speeding up European climate action towards a green, fair and prosperous future” describes progress made by the EU and its Member States in attaining their greenhouse gas emission reduction targets, and reports recent developments in EU climate policy. The report is based on data submitted by Member States under EU Regulation on the Governance of the Energy Union and Climate Action.

The Carbon Market Report describes developments in the functioning of the European carbon market, including on the implementation of auctions, free allocation, verified emissions, balancing supply and demand, market oversight and EU ETS infrastructure and compliance.

The Fuel Quality Report provides information on the progress made with regard to the greenhouse gas intensity reduction of road transport fuels and the quality and composition of fuels supplied in the EU. The report summarises the situation reported by Member States under Articles 7a and 8(3) of the Fuel Quality Directive.

Compliments of the European Commission.
The post State of the Energy Union 2021: Renewables overtake fossil fuels as the EU’s main power source first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Speech by Governor Randal K. Quarles on the economic outlook at the 2021 Milken Institute Global Conference “Charting a New Course,” Beverly Hills, California |
Thank you to the Milken Institute for the opportunity to join you today. This morning I’d like to outline my view of current economic conditions and the economic outlook and then turn to the implications for monetary policy. In particular, with employment still well below its February 2020 peak, I will focus on how the escalation in inflation this year is testing the monetary policy framework adopted by the Federal Open Market Committee (FOMC) in August 2020.1
Outlook for Economic Growth
Recent data suggest that growth in the third quarter is likely to be lower than we had expected, but the foundations remain in place for strong economic growth over the remainder of this year and next. Employment is growing, financial conditions are accommodative, businesses are investing, and households, in the aggregate, have a large stock of savings to draw on for future spending. Weaker growth in payrolls in August and September, along with uneven consumer spending in July and August, appear to reflect ongoing concerns in some parts of the country about the spread of COVID-19, especially in high-contact service industries. Supply bottlenecks and labor shortages that have been more widespread and persistent than many expected are camouflaging continued strong underlying demand for goods, services, and workers. Supply constraints are particularly evident in interest-sensitive parts of the economy, such as residential investment and vehicle sales, limiting the scope for additional monetary accommodation to stimulate activity in those sectors.
I expect that these developments, however, have for the most part simply postponed activity temporarily and that robust growth will return in the coming months. There is evidence in recent weeks that we seem to be moving into a new phase of the economy. Nominal retail sales rose seven-tenths of 1 percent in September on the heels of a nine-tenths increase in August, an indication that consumers kept up their pace of spending. Robust business investment in equipment and intangibles continued in the second quarter, and indicators suggest another gain in the third quarter. Forward indicators of business spending and the need for firms to replenish depleted inventories point to strong investment into next year.
The Labor Market Continues to Strengthen
Without a doubt, the headline job gains in August and September were lower than expected, but, as I will show, based on almost every other major labor market indicator, there is ample evidence that the demand for labor is strong. At last measure, the Labor Department reported that job openings remained near a record high in August, and a record number of workers were voluntarily quitting their jobs, an indicator of their confidence in finding a better one. Other measures of job openings by education level indicate that jobs are plentiful even for less-skilled workers who have been affected the most by the COVID event. Another indicator I’ve been watching closely is the so-called U-6 unemployment rate, which consists of people who are working part time but prefer full-time work and discouraged workers who want a job but have given up looking. U-6 unemployment declined significantly over the past two months to 8.5 percent in September, roughly the same level as in the middle of 2017, when most everyone considered the job market to be quite healthy. In fact—and this will not be news to most of you—shortages of skilled workers in many occupations predated the COVID event and are likely to persist after its effects have faded. Some of this shortage reflects the aging of the workforce, changes in the types of jobs people want to do, and the time it takes to train workers.
Strong demand for labor is outpacing supply, and, naturally, that development is putting upward pressure on wages. Through September, average hourly wages are up 4.6 percent over the past 12 months, the largest and most sustained increase in wages for workers since the 1990s.
I noted the imbalance between the demand and supply for labor, and some of the labor market indicators that are still well short of pre-COVID levels are those related to labor force participation, which has been about unchanged this year on balance. I expect that as conditions normalize, this measure will pick up, but it is unlikely to return to its February 2020 level. One reason is that a disproportionate number of older workers responded to the initial shock of the COVID event by retiring, which may be an area where participation and employment struggle to retrace lost ground. Longer-lasting changes in labor force participation could make wage pressures more persistent and have implications for the assessment of maximum employment.
Tapering Asset Purchases
Since the middle of last year, the Fed has been increasing its holdings of Treasury securities and agency mortgage-backed securities by $120 billion a month to foster smooth market functioning and to support the economy by putting downward pressure on interest rates. Conditions had improved considerably by the time we announced our forward guidance for asset purchases in December, but the unemployment rate remained at 6.7 percent, near-term growth was being constrained by heightened social-distancing restrictions amid surging hospitalizations from COVID-19, and inflation was running significantly below 2 percent. As we sit here today, demand for labor is strong, and unemployment has declined to 4.8 percent. We have exceeded the previous high for real gross domestic product and are close to reaching the pre-COVID trend. Inflation, about which I will say more shortly, is running at more than twice the FOMC’s longer-run goal.
Taking all of the evidence into account, I think it is clear that we have met the test of substantial further progress toward both our employment and our inflation mandates, and I would support a decision at our November meeting to start reducing these purchases and complete that process by the middle of next year. Bear in mind that asset purchases are pressing down on the accelerator, adding each month to the amount of accommodation the Fed is providing to the economy through downward pressure on longer-term interest rates. Reducing purchases and ending them on this schedule is not monetary tightening, but a gradual reduction in the pace at which we are adding accommodation.
Monetary Policy When the Goals Are Not Complementary
A move to reduce the pace of asset purchases soon also is entirely consistent with the FOMC’s plan to pursue our longer-run maximum-employment and price-stability goals, and our new monetary policy strategy, which we refer to as our framework. The forward guidance that we put in place for asset purchases was an operationalization of the new framework. Last December, with inflation running well below 2 percent and unemployment still elevated, we committed to continue purchasing assets at least at the current pace until we had made substantial further progress toward our goals. In most situations, those goals are complementary. That is, high unemployment usually coincides with subdued inflationary pressures. Therefore, at the time, we did not foresee those goals coming into conflict.
But we are facing a situation now where inflation is high even though employment has yet to fully recover from the COVID event. In that case, according to the FOMC’s monetary policy framework, when objectives are not complementary, the Committee “takes into account the employment shortfalls and inflation deviations and the potentially different time horizons over which employment and inflation are projected to return to levels judged consistent with its mandate.”2
Applying those principles throughout 2021, we have been very patient and focused on the need for the labor market to recover as quickly as practicable from the severe damage experienced during the darkest days of the COVID event. We are remaining patient because, despite some periods of rapid progress, the recovery in jobs has been uneven and is still incomplete.
Early on, patience was easy: In December of last year, my FOMC colleagues and I were expecting much lower inflation—the median projection for 2021 by FOMC participants was 1.8 percent. The FOMC’s preferred inflation gauge did not crack 2 percent until March 2021. But, by June, prices had risen 4 percent over the previous 12 months, ticked up to 4.2 percent in July, and increased further to 4.3 percent in August. The median of the most recent projections by FOMC participants traces a path in which inflation ends the year just a touch lower than the current level. Nonetheless, I do not see the FOMC as behind the curve, for three reasons: Most of the biggest drivers of the very high current inflation rates will ease in coming quarters, some measures of underlying inflation pressures are less worrisome, and longer-term inflation expectations are anchored, at least for now.
First, let me address the big drivers of this year’s price increases. The inflation we have experienced so far has been very unusual and largely related to supply constraints associated both with production and distribution problems related to COVID and with a demand shock arising from the unprecedented and rapid reopening of the economy. We all saw the remarkable price increases and shortages in the used car market. There have been a few other very specific and identifiable supply problems that have driven some other prices to very high levels—the semiconductor shortages that led to auto production slowdowns, for example, and, in some cases, labor shortages or restrictions related to the COVID event were associated with trade disruptions.
Second, if we recognize that much of the excessive inflation we are seeing this year is directly attributable to disruptions that, like the COVID event, will end, then monetary policy often can look through those types of disruptions to consider what inflation will be in the future when this episode passes. To get a fix on where inflation is headed, it is helpful to consider measures of inflation that try to filter out the most unusual and presumably transitory price increases that may be driving headline inflation. The Federal Reserve Bank of Dallas’s trimmed mean measure of inflation systematically removes prices that are increasing or decreasing at abnormally large rates, in order to get some perspective on underlying inflation pressures. For the 12 months through August, the Dallas trimmed mean inflation was an even 2 percent. Of course, while this metric may provide a better indicator of future PCE (personal consumption expenditures) inflation, I do not mean to suggest that this is necessarily a better reading on current inflation—consumers and businesses have to pay for the goods whose prices have risen sharply, and those increases are being felt.
That brings us to the third reason that I do not think the FOMC is behind the curve: anchored inflation expectations. We monitor longer-term expectations of future inflation because we believe they influence changes in actual inflation over the medium term. In fact, our new framework recognizes that stable, well-anchored inflation expectations help return inflation to 2 percent when it is running high, as it is now, as well as when it has fallen somewhat below that goal, as it often does during a recession.
So far, market-based measures of longer-term inflation expectations, as well as surveys of professional forecasters, have increased only moderately this year, moves that more or less reversed declines in those expectations over the previous half-dozen years. Measuring expectations is an inexact science, but smoothing through the ups and downs in expectations in recent years leaves these indicators within a range that has been consistent with inflation near our 2 percent goal.
How Long is Too Long?
Going forward, the question is not only whether inflation will fall in the coming months, but also how far it will fall and if it will fall soon enough to avoid spurring a concerning rise in longer-term inflation expectations. I agree with my FOMC colleagues and most private forecasters that inflation likely will decline considerably next year from its currently very elevated rate. For instance, most of the September Summary of Economic Projections forecasts for PCE inflation in 2022 were between 1.9 and 2.3 percent, with a minimum of 1.7 percent and a maximum of 3.0 percent.3 But I see significant upside risks to my current inflation outlook. Supply constraints in production and distribution already have become more widespread and have lasted longer than most forecasters anticipated. As noted earlier, labor supply constraints are making it difficult for businesses to keep up with demand. This dynamic will continue to support robust wage growth, putting further upward pressure on prices. Moreover, there is evidence in the past couple of months that a broader range of prices are beginning to increase at moderate rates, and I am closely watching those developments.
The fundamental dilemma that we face at the Fed right now is this: Demand, augmented by unprecedented fiscal stimulus, has been outstripping a temporarily disrupted supply, leading to high inflation. But the fundamental productive capacity of our economy as it existed just before COVID—and, thus, the ability to satisfy that demand without inflation—remains largely as it was, and the factors that are disrupting it appear to be transitory. Looked at purely in that light, constraining demand now, to bring it into line with a transiently interrupted supply, would be premature. Given the lags with which monetary policy acts, we could easily find that demand is damping just as supply is increasing, leading us to undershoot our inflation target—and, in the worst case, we could depress the incentives for supply to return, leading to an extended period of sluggish activity and unnecessarily low employment.
But “transitory” does not necessarily mean “short lived.” Indeed, we are discovering that it’s going to take more time than we had thought for supply to return to normal, and with demand already high during that time, I am monitoring the extent to which it could be further boosted by the additional fiscal programs currently under discussion. If those dynamics should lead this “transitory” inflation to continue too long, it could affect the planning of households and businesses and unanchor their inflation expectations. This could spark a wage-price spiral that would not settle down even when the logistical bottlenecks and supply chain kinks have eased. So the central question we have to answer is “How long is too long?”
I am among those who see a good chance that inflation will remain above 2 percent next year, but I am not quite ready to conclude that this “transitory” period is already “too long.” We haven’t yet met the more stringent tests for liftoff that we have laid out in forward guidance about the federal funds rate. Let me quote from the latest FOMC statement: Raising rates will not be appropriate “until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”4 Importantly, the level of uncertainty around the paths for inflation and employment are higher than normal as we navigate the unprecedented reopening of the world economy. Therefore, we will remain outcome based, waiting to see further improvements in employment and the evolution of inflation pressures in coming months. And, if the broadly held expectation that inflation will recede next year turns out to be wrong or if inflation expectations show signs of becoming unanchored to the upside, I am confident that the monetary policy tools at our disposal can bring inflation down toward our 2 percent goal.
How High Is Too High?
I said just now that the central question is “How long is too long?” I am also keenly aware, however, that inflation of 4 percent or more certainly cannot be characterized as only “moderately” above 2 percent, and thus we also have to deal with the question of “How high is too high?” Moreover, the two questions are obviously related: we can tolerate inflation of 2.5 percent as supply returns to normal without dramatically affecting inflation expectations, for a much longer period than we can tolerate inflation of 4.5 percent. So, how high is too high? I cannot speak for my FOMC colleagues on this issue, but I will conclude with some thoughts of my own.
In 2012, the FOMC formally adopted a longer-run inflation target of 2 percent, and since then, that target has been reaffirmed annually by the Committee including in our new framework adopted in August 2020.5 The key innovations in the new framework relative to the previous incarnation are designed primarily to address the risk that inflation and inflation expectations could settle below our 2 percent target. That risk emanates from the understanding that several longer-run changes in the U.S. economy may have conspired to reduce the level of the equilibrium federal funds rate—the level at which it is neither slowing nor speeding up economic activity. In turn, a lower average level of interest rates would make it more difficult, on balance, for the Federal Reserve to respond to negative shocks to the economy with sizable cuts to interest rates. The inability to cut interest rates sufficiently can then reinforce downward pressures on inflation such that it begins to run persistently below the FOMC’s 2 percent goal and causes inflation expectations to fall with it.
As is well known by now, those revisions to the Fed’s monetary policy framework put new emphasis on reaching maximum employment and introduced new flexibility in how to account for progress toward our price-stability goal by seeking inflation that averages 2 percent over time to ensure longer-term inflation expectations remain anchored at this level. This revision implies that monetary policy will provide more support for economic activity over a typical business cycle than had been the case, in order to prevent longer-term inflation expectations—and, ultimately, inflation itself—from settling below 2 percent.
In this low interest rate environment, some researchers have suggested going further than our current framework does in allowing inflation to run moderately above 2 percent for some time following periods where it has run persistently lower than 2 percent, and actually raising the inflation target to 2.5 percent or 3 percent or even 4 percent.6 At the outset of our recently completed review, we reaffirmed that inflation at a rate of 2 percent is most consistent over the longer run with our congressional mandate for price stability.7 I believe that any future discussion of a higher target would need to address whether it remained consistent with that congressional mandate. I would also emphasize that at this point, the public is very accustomed to a world of inflation near 2 percent, which has allowed households and businesses to operate with considerable certainty. Research shows that such certainty is valuable for households and businesses to make sound financial decisions and to avoid economic distortions that could hinder economic growth.8
My strong support for our consensus framework is predicated not only upon its new features designed to address inflation that falls too low, but also its commitment to prevent longer-term inflation expectations from rising materially above a level consistent with our 2 percent goal. In this sense, the current elevated rates of inflation are not challenging our new framework any more than they would have challenged our previous framework or, for that matter, most reasonable frameworks for conducting monetary policy. As I said earlier, when our price-stability and employment goals are not complementary, the framework calls for policy to depend on the remaining shortfall from our maximum-employment goal, on the extent to which inflation continues to exceed 2 percent, and on the amount of time we expect it will take for employment and inflation to meet our goals.
I remain quite optimistic about the capacity and willingness of consumers and businesses to power a robust expansion as we put the COVID event behind us, even with the headwinds coming from the supply side. But that forecast for growth and uncertainty about the resolution of supply constraints mean that there are upside risks to inflation next year. So my focus is beginning to turn more fully from the rapidly improving labor market to whether inflation begins its descent toward levels that are more consistent with our price-stability mandate, as most forecasters and most of my colleagues on the FOMC expect over the next year. I would also be quite wary of further increases in inflation expectations in this environment. If inflation does remain more than moderately above 2 percent, be assured that the FOMC has the framework and the tools to address it.
Compliments of the U.S. Federal Reserve.
The post U.S FED | How Long is Too Long? How High is Too High?: Managing Recent Inflation Developments within the FOMC’s Monetary Policy Framework first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Speech by Fabio Panetta, Member of the Executive Board of the ECB, at the ECB-CEBRA conference on international aspects of digital currencies and fintech | Frankfurt am Main, 19 October 2021 |
It is a pleasure to welcome you on behalf of the European Central Bank (ECB) to the fifth annual meeting of the International Finance and Macroeconomics Program of the Central Bank Research Association (CEBRA). This year’s meeting is taking place virtually. And it brings together participants from nearly 20 time zones, which is fitting for a conference that seeks to shed light on how digitalisation is changing money and finance globally.
In my remarks today, I will focus on the international dimension of central bank digital currencies, or CBDCs. The ECB launched an investigation phase for the digital euro over the summer.[1] One of the aspects we are investigating is whether it would be possible to use the digital euro in cross-border contexts, and under which conditions. Many other central banks are reflecting on whether they would allow non-residents to access their own digital currency if they were to decide to introduce one.[2]
Decisions about the issuance and design of CBDCs require a careful assessment of the trade-offs between risks and opportunities. The international dimension makes that assessment more challenging still. So, it is already worth thinking about the implications of the cross-border use of CBDCs.
This is where research can help policy. The international dimension of CBDCs is almost unexplored in terms of research. The Latin phrase “hic sunt leones” – here be lions – was used in pre-Renaissance maps to identify uncharted territories that could potentially be dangerous. And in the realm of digital currencies, just like in the pre-Renaissance world, we need research to map those territories. To replace myths with knowledge. To provide the conceptual backbone and evidence that guide our thinking. And to point to the opportunities and challenges ahead.
The literature on the international aspects of CBDCs is still in its infancy. Many of you are contributing to this literature. After reviewing what we already know about the international dimension of CBDCs, I will discuss today open questions of direct policy relevance, in particular: what is different about CBDCs compared to alternative monetary and financial instruments? And how much international cooperation do we need in view of externalities from CBDC issuance, interactions among CBDCs, and the emergence of other innovations such as global stablecoins?
In international fora, the ECB is also involved in technical and policy discussions on how CBDCs could facilitate cross-border payments through different degrees of integration and cooperation – ranging from basic compatibility with common standards to establishing international payment infrastructures.[3] Today, however, I will focus on aspects that are relevant for research on international macroeconomics and finance.
Charted territories
Let’s start by considering what we already know about the international dimension of CBDCs. Available research points to three main implications of allowing non-residents unrestricted access to a given CBDC.
First, a CBDC that can be used outside the jurisdiction where it is issued might increase the risk of digital currency substitution – or digital “dollarisation”.[4] If a foreign CBDC were to be widely adopted, this might lead to the domestic currency losing its function as a medium of exchange, unit of account and store of value – ultimately impairing the effectiveness of domestic monetary policy and raising financial stability risks. These risks are particularly relevant for emerging markets and less developed economies that have unstable currencies and weak fundamentals. Currency substitution could also occur in small advanced economies that are open to trade and integrated in global value chains.[5] Since international trade and finance are complements to each other, financial integration may matter, too.[6] It is hard to gauge in advance how significant the risks of digital currency substitution could be, and in which currencies this substitution could occur. Trade and finance linkages with the issuers of international reserve currencies – the United States, the euro area and China – vary considerably across countries (Chart 1). That, in turn, suggests that the risks of currency substitution vary significantly across countries and currencies. In any case, the introduction of a CBDC in one jurisdiction must do no harm.[7] In particular, it must not put the financial system of other jurisdictions at risk.

Chart 1
International trade and financial linkages with the United States, the euro area and China

Sources: ADB MRIO 2019, IMF CPIS, Haver Analytics, IntLink and ECB staff calculations.Notes: International trade and financial exposures as of 2019. Trade exposures vis-à-vis the United States, the euro area and China are calculated based on Belotti, F. et al. (2021), “icio – Economic Analysis with Inter-Country Input-Output tables”, Stata Journal, forthcoming. Financial exposures are calculated as the sum of total portfolio investment assets and liabilities of a country held in either the United States, the euro area or China. All data are in US dollars. The financial exposures to China include Hong Kong.

The second implication of allowing non-residents to use CBDCs relates to global spillovers. Issuing a CBDC can magnify the cross-border transmission of shocks, increase exchange rate volatility and alter capital flow dynamics.[8] One reason for this is that CBDCs combine characteristics such as scalability, liquidity and (potentially) renumeration, which make them appealing relative to financial assets that are traded internationally. Research finds that introducing a CBDC available to non-residents “super charges” uncovered interest rate parity – in other words, it alters the standard relation between interest rate differentials across countries and the exchange rate. That, in turn, leads to a stronger rebalancing of global portfolios in response to shocks, and to higher exchange rate volatility. Economies not issuing a CBDC are then subject to stronger spillovers. And their central banks need to be more reactive to output and inflation fluctuations, which reduces their autonomy. Chart 2 shows model simulations by ECB staff illustrating how the presence of a foreign CBDC affects the reaction function of a recipient central bank. That central bank faces stronger shock spillovers and may need to be twice as reactive to inflation and output fluctuations.[9] By contrast, the reaction function of the central bank issuing the CBDC hardly changes. Of course, the design of the CBDC, including the introduction of restrictions on remuneration and quantities, has a considerable influence on the extent of these spillovers.[10]

Chart 2
Optimal monetary policy in the presence and absence of a CBDC

Source: Ferrari, M., Mehl, A. and Stracca, L. (2020), “Central bank digital currency in an open economy”, CEPR Discussion Paper Series, No 15335, Centre for Economic Policy Research, October.Notes: Model-based optimal response to output and inflation of the central bank Taylor rule in the presence and absence of CBDC under a fixed-remuneration design. The key parameters optimised are interest rate persistence, the elasticity with respect to inflation and the elasticity with respect to output.

Finally, research suggests that issuing a CBDC which can be used by non-residents might have an impact on the international role of currencies. The costs of cross-border payments might fall, which may enhance the role of a currency as a global payment unit. And the specific features of a CBDC – such as safety, liquidity, efficiency and scalability – might further bolster its international use. But there is a flipside to this: broader international demand may cause the exchange rate to appreciate. This could weigh on the currency’s attractiveness as an invoicing unit for exports in other jurisdictions and, in turn, reduce global interest in the currency. On the whole, model simulations by ECB staff suggest that issuing a CBDC would underpin the international role of a currency, albeit not to a particularly large extent. This is visible from Chart 3, which contrasts two model simulations – one simulation without a CBDC and the other with a CBDC issued by one of the three countries in the model. The share of that country’s currency in global export payments (shown as blue bars) increases when it is available as a CBDC.[11] However, the rise is modest, at about 5 percentage points – less than a 10% increase relative to the baseline simulation without a CBDC. Also here the caveat applies that the impact of CBDCs on the international role of currencies depends on choices related to their design, such as restrictions on remuneration and quantities. But the message is clear: the international role of a currency depends more on fundamental forces, such as the size of the economy and the stability of its fundamentals.

Chart 3
Model simulations of the impact of a CBDC and its design on international currency use
(currency breakdown of global export payments in percentages) 

Source: ECB calculations.Notes: The chart shows the currency breakdown of global export payments in alternative model simulations, where “currency in focus” is the currency of the country that issues a CBDC (one of the three countries in the model). It is based on simulations using a three-country DSGE model in the spirit of Eichenbaum et al. (2020) with baseline assumptions (no capital controls, a 1% liquidation cost for debt securities and symmetric 33%-weights for all countries). See ECB (2021), “Central bank digital currency and global currencies”, The international role of the euro, Frankfurt am Main, June.

Uncharted territories
Let me now turn to the uncharted territories – the “terra incognita” identified by lions on medieval maps – in order to explore two broad sets of questions.
What is different about CBDCs?
The first is as follows: what is truly unique about CBDCs? And do we sufficiently account for this in our models? Existing research often models CBDCs as safe and liquid instruments. That is convenient as it allows us to draw on standard macro-monetary models, with some tweaks here and there. But to truly understand the risks and opportunities of CBDCs, we need to take them more seriously and acquire a deeper understanding of what makes them different from other monetary and financial instruments. Consider a few examples that illustrate why this is important – building on the three implications of CBDCs I just discussed.
First, how much of the discussion on the risks arising from digital dollarisation is new? The determinants emphasised in existing research often seem all too reminiscent of the macro literature of the 1990s on dollarisation. It would be good to understand what is truly unique about CBDCs now as compared with dollarisation back then. For instance, maybe the determinants are unchanged but CBDCs make dollarisation more likely by lowering transaction costs. Or perhaps CBDCs could be bundled with other useful services, such as privacy services, rewards or conditional payments.
Second, on international spillovers, introducing any other internationally traded safe and liquid instrument, such as a highly rated bond, into a macro model would also produce strong spillovers. Can we truly apply the same insights to CBDCs? We need to make sure we do not miss relevant channels and idiosyncrasies. For instance, what impact might a CBDC have on the effectiveness of capital account management measures?[12]
Third, concerning the international role of currencies, the effects obtained are likely calibration or estimation-dependent. Under which conditions will standard economic fundamentals remain the main drivers of international currency status? Research so far indicates that digitalisation does not change anything fundamental. To what extent would CBDCs still have the potential to affect the configuration of global reserve currencies and the stability of the international monetary system?[13]
So, a broad agenda for research concerns what is truly unique about CBDCs. Answering these questions is potentially important for policymaking.
First of all, it would help us to calibrate our models and better anticipate the future. For example, one challenge we face is estimating the potential demand for CBDCs, which is crucial to understanding their financial stability implications.[14] Depending on a CBDC’s design, this also entails estimating international demand. One approach is to conduct surveys about the potential interest of users – consumers and firms – in CBDCs.[15] Another is to draw information from the experience with instruments that are closely related to CBDCs, such as cash and bank deposits, for instance based on surveys of consumers’ payment choices and preferences.[16] Knowing what sets CBDCs apart would help us understand what is useful to look at, and what is not.
Moreover, answering these questions would also help us to assess whether lessons gleaned from history remain relevant. For instance, recent research looked at the experience of France in the 1930s to gauge whether CBDCs could make bank runs more likely.[17] And more recent systemic bank crises, like that of Japan in the 1990s, have been deemed useful episodes to consider.[18] Having a better understanding of what makes CBDCs unique would allow us to assess whether things are different this time round.
Let me stress again that the answers are likely to depend on the specific design features of CBDCs. And since design choices are best made when the implications are properly understood, this again points to the need to understand how CBDCs differ from alternative monetary and financial instruments.
International cooperation
Other questions that naturally emerge when considering the international context are: how much global cooperation is optimal? And how relevant are strategic interactions among potential digital currency issuers? This is the second set of unexplored questions which I would like to discuss today.
Allowing non-residents to use a CBDC issued in another jurisdiction may give rise to externalities, both positive and negative. An important goal is to “do no harm” if a decision to issue a CBDC were to be made. The question then is: how much international cooperation is desirable to internalise such externalities and avoid outcomes that are detrimental globally.
So far, the academic literature does not provide much guidance. But international cooperation offers clear benefits. Exchanging information on the progress of national CBDC projects in international fora allows us to share our experiences about possible problems and solutions, to draw attention to neglected issues and to further everyone’s understanding of the policy and technical challenges. It helps to forge consensus on what works and what doesn’t.[19] There are also benefits to discussing high-level principles at the international level, for instance to find consensus on important economic, financial and regulatory issues of common interest.[20] And there might be gains from reflecting on common standards to make CBDC projects interoperable, for instance to move from the cross-border use of CBDCs to cross-currency payments between CBDCs. Therefore, it might be beneficial to discuss common technical or regulatory standards to foster cross-border payments while limiting the impact on the monetary system.[21]
Cooperation is not without costs, however. And the costs may increase with the number of central banks involved and with their diverse objectives, legal frameworks, financial structures, mandates and preferences, which would likely be reflected in different CBDC designs. So the natural question to ask is: how much global cooperation is optimal?
This is a complex question to answer. One might be tempted to aim for uniform standards for CBDCs – a “one size fits all” approach. But the question then is whether meaningful cooperation is possible at all if conditions differ sharply across countries. Take privacy – an important design feature of a digital euro that was raised by members of the public and professionals in the public consultation we concluded earlier this year.[22] Privacy is unlikely to be equally important in all regions of the world. Where diverse preferences exist, some stakeholders might not see much merit in enforcing global standards. For instance, one concrete open question is: how could a jurisdiction with more stringent requirements on the traceability of payments allow cross-currency transactions with a jurisdiction granting higher privacy standards?
Another point to consider is the existence of strategic interactions – where decisions of one player depend on the actions of the other players – as they can tilt the balance of the benefits and costs of global cooperation. Many countries are simultaneously reflecting on CBDCs. But strategic interactions have not been studied much in the context of CBDCs, and the international dimension even less so. In fact, it is not only strategic interactions among potential CBDC issuers that might matter. Strategic interactions between CBDCs and innovative payment solution providers from the private sector, such as global stablecoins, also potentially matter, notably when such providers can leverage their large existing user base and their experience in bundling appealing services together.
There are still lots of open questions surrounding strategic interactions and the timing of actions. The field of CBDCs could be seen as a clean slate at the moment. But this will not last for long.[23] The countries that have already introduced their own CBDC (such as the Bahamas) cannot set global standards. But this will change. China is expected to introduce the digital renminbi relatively soon, while other jurisdictions – including the euro area – are actively preparing to potentially launch their own digital currency. Can the “pioneer” central banks that have decided, or are deciding, on the design of their CBDC based on their own considerations, be expected to seek general consensus on a standard approach before moving forward? The costs and benefits of being the first to issue a digital currency are not well understood. Is it better to get it first – by aiming to set standards for others while putting domestic objectives at risk – than it is to get it right? Late adopters might have a more limited menu of potential design features to choose from. Another risk is that of a fragmented equilibrium emerging, with isolated islands of a few interoperable CBDCs that cannot interact with other CBDCs outside of their own small group.
In any case, when reflecting on cooperation or strategic interactions, we need to be mindful of the differences between jurisdictions. Crucially, the domestic central bank’s mandate should always be preserved.
Conclusion
Let me now conclude. This conference brings together academics and policymakers to discuss issues related to the international dimension of CBDCs. We are seeing clear progress in better understanding the technical implications of allowing non-residents access to CBDCs. Yet many policy and research questions remain open. Today I have outlined two high-level themes that could steer the discussion. I hope that this conference will provide a platform to explore these questions and many others. In turn, this will help us push the frontier of knowledge deeper into the uncharted territories in the realm of CBDCs, and show that they are not, in fact, a lion’s den but rather full of potential opportunities.
Compliments of the European Central Bank.
The post ECB Speech | “Hic sunt leones” – open research questions on the international dimension of central bank digital currencies first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Commission has today adopted a Communication that takes stock of the changed circumstances for economic governance in the aftermath of the COVID-19 crisis and relaunches the public debate on the review of the EU’s economic governance framework. The Communication follows President von der Leyen‘s commitment in the State of the Union address to build a consensus on the future of the EU’s economic governance framework. The Commission had previously suspended this public debate, which was first launched in February 2020, to focus on responding to the economic and social impact of the COVID-19 pandemic.
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said: “Europe is now sailing into calmer waters after the turbulence of the pandemic. Thanks to our coordinated and assertive response, we are now exceeding growth expectations. But the crisis has also made some challenges more visible: higher deficits and debt, wider divergences and inequalities and a need for more investment. We need economic governance rules that can tackle those challenges head-on. So today, we are launching a public debate. We want to hear views and ideas, and build consensus and ownership for effective economic surveillance. That way, we can make our societies and economies more sustainable, fair and competitive – and fully prepared for future challenges.”
Paolo Gentiloni, Commissioner for Economy, said: “After last year’s unprecedented shock, Europe’s economy is recovering strongly. Now we need to ensure that our future growth is both sustained and sustainable. We are relaunching this review of our economic governance against a backdrop of enormous investment needs, as the climate emergency becomes more acute with every passing year. At the same time, the powerful fiscal support provided during the pandemic has led to higher debt levels. These challenges make it all the more essential to have a transparent and effective fiscal framework. Achieving this is our joint responsibility and is crucial to the future of our Union.”
The relaunched debate will draw on both the Commission’s view of the effectiveness of the economic surveillance framework presented in February 2020 and the lessons learnt from the COVID-19 crisis described in today’s Communication. The Commission invites all key stakeholders to engage in this public debate so as to build consensus on the future of the economic governance framework. It is crucial to have in place a framework that can fully support Member States to repair the economic and social impact of the COVID-19 pandemic and respond to the EU’s most pressing challenges.
The Commission will consider all views expressed during this public debate. It will, in the first quarter of 2022, provide guidance for fiscal policy for the period ahead, with the purpose of facilitating the coordination of fiscal policies and the preparation of Member States’ Stability and Convergence Programmes. This guidance will reflect the global economic situation, the specific situation of each Member State and the discussion on the economic governance framework. The Commission will provide orientations on possible changes to the economic governance framework with the objective of achieving a broad-based consensus on the way forward well in time for 2023.
A new context in the aftermath of the COVID-19 pandemic
Since its inception, the EU’s economic governance framework has guided Member States to achieve their economic and fiscal policy objectives, coordinate their economic policies, address macroeconomic imbalances, and ensure sound public finances. The framework has evolved over time, and changes, such as the six-pack and two-pack legislation, were introduced to respond to new economic challenges.
Despite these evolutions, some vulnerabilities remained which the fiscal framework has not effectively addressed. At the same time, it has grown increasingly complex. Added to this, the economic context has significantly changed since the rules were first established.
These and other issues were already apparent in February 2020 when the Commission presented its Communication on the EU economic governance review. While the review’s main conclusions remain valid and relevant, the severe impact of the COVID-19 crisis further underlines the challenges facing the framework and has made the challenges even more acute.
New challenges and lessons learnt
The public debate on the review of the economic governance framework will need to take into account and address the issues that had been identified in the 2020 Communication. These include how we can ensure sustainable public finances, prevent and correct macroeconomic imbalances, simplify existing rules, and improve their transparency, ownership and enforcement.
Additionally, the review of the EU economic governance framework should reflect on the new challenges highlighted by the COVID-19 crisis. It could also draw useful lessons from the successful EU policy response to the outbreak, in particular from the governance of the Recovery and Resilience Facility.
An inclusive and open debate
A wide-ranging and inclusive engagement with all stakeholders is crucial to build a broad-based consensus on the way forward for the EU economic governance framework. The Commission is therefore inviting stakeholders to engage in the debate and provide their views on how the economic governance framework has worked so far and on possible solutions to enhance its effectiveness. These stakeholders include the other European institutions, national authorities, social partners and academia.
The debate will take place through various fora, including dedicated meetings, workshops and the online survey which has been relaunched today. Citizens, organisations and public authorities are invited to submit their contributions by 31 December 2021.
Compliments of the European Commission. 
The post EU Commission relaunches the review of EU economic governance first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.