But the possibility of a systemic problem of global dimensions involving the world's most important currency was a serious concern at the time. And the events in New York quite naturally prompted us to look at our own contingency plans, especially for crucial operations, such as our payment and settlement systems. These plans had already been greatly expanded and rigorously tested in advance of the Y2K transition. They cannot specifically address every possible disaster whether at home or elsewhere - but we are pretty confident that they are robust and flexible enough to enable us to maintain our core operations in all but the most unmanageable situations. More broadly, the events on 11 September have also prompted us to reflect on the nature and structure of global clearing systems. Last year, as you know, Hong Kong launched its own US dollar clearing system, to provide real-time settlement for the full range of US dollar transactions in the Asian time zone. The aim is to cut down Herstatt risk - that is the foreign exchange settlement risk relating to the delivery of different currencies in different time zones - and to provide a fast, efficient and cheap service for our own region. September 11th brought home to us the risk of serious disruptions to the global settlement system and underlined the importance of our US dollar clearing system as a risk  2  BIS Review 88/2001  management service.
In essence, all policy actions by the Fed, the ECB, the banks of Japan, England, Canada, and of many small open economies in the last 6 years have been about affecting long-term rates by influencing one, and often times more, of these interest rate components. Take the case of forward guidance. When nominal rates reached the ZLB, and particularly due to the low inflation environments, traditional monetary policy became very constrained –fully constrained by definition, one might say, given the impossibility of lowering short term rates any further. However, to the extent that one can credibly influence the expected path of future monetary policy actions, risk-neutral rates at different horizons can be lowered, perhaps even significantly so. However, as pointed out by Mike Woodford in an influential paper presented at Jackson Hole a few years ago, to truly make a dent on rates with this strategy, central bankers were likely to run into a temporal-inconsistency problem. This problem is basically that in the event that long-term rates can be reduced enough to jump-start the economy, the expost optimal policy stance would be inconsistent with the one promised in the midst of stagnation.