However, although there are elements that cause concern, there is also a lot to indicate that the process of price formation has changed. The most important change since the 1970s and 1980s is probably the change in the target for monetary policy and the support and credibility attained by the inflation target. I am convinced that the Riksbank’s inflation target is understood and accepted by trade union members, officials and leaders. Knowledge about the inflation target and the role of monetary policy has become widespread in a quite different way to the fixed exchange rate norm. The fixed exchange rate regime basically required that wage cost increases should be adapted to the surrounding world in order not to affect employment negatively. When, despite this, wages rose more than in our competitor countries, employment was saved by recurrent devaluations. The high level of activity in the Swedish economy during the latter half of the 1980s also played an important role. No wage formation system would have coped with the overheating that existed at the end of the 1980s. The insight that excessively high wage increases rather quickly lead to growth being dampened and an increase in unemployment with a monetary policy focused on an inflation target, probably serves to have a restraining effect on wage formation. BIS Review 20/2000  4  Large increases in real wages with low inflation have probably increased insight into the value of price stability.
Our banking system is sound and safe, despite a challenging operating environment: capital and liquidity levels remain well above global standards; loan quality and profitability compare favourably with global peers. We do not take this for granted. We are keenly aware that Hong Kong as an IFC plays an outsized role not only in supporting the local economy, but also in underpinning trade and investment activities across the region. Our banking assets are 9 times our GDP; the equity market 16 times; and assets under management 13 times. Hong Kong is the largest US dollar funding centre in Asia, and is second in the world only to London and New York. In a highly interconnected global financial system, where so much depends on the stability of IFCs, we strive to be a responsible stakeholder. We seek to achieve this — by putting in place mechanisms to closely monitor market developments and behaviours; by continually improving our regulatory regimes to mitigate risks in the financial system; by building buffers and planning for contingencies on sunny days, and by swiftly implementing contingency plans when storm clouds approach; and by contributing to policy deliberation and standard setting at international regulatory forums. We also build resilience by enabling market participants to seize new opportunities to deepen and expand Hong Kong’s role as an IFC. This brings me to my third word: opportunity. Opportunity For many decades Hong Kong has been intermediating the trade, investment, and financial flows between China and the world.