While that might entice some participants back into the market to keep a lid on the basis, there is a risk that it engenders behaviour that might concern us. It can incentivise people to stop hedging and take on the exchange rate risk. Corporate borrowers or asset managers might decide to run unhedged foreign exchange positions.
After the global financial crisis, the powers and activities of central banks have broadened, including explicit roles in contributing to financial stability. This raises a number of questions: How to balance the new roles, mandates and potential conflicts of interest? How do financial stability, macro-and microprudential objectives and price stability interact?