It was thus long believed that one could “buy” lasting lower unemployment by allowing inflation to rise. However, this relationship was empirically proved not to hold in the long run. In the 1970s, for instance, there were periods with both high unemployment and high inflation, what is known as stagflation. Instead we now base our discussions on the assumption that there is in the long run a “natural” unemployment level that depends on the functioning of the labour market. This way of functioning can in turn improve or deteriorate as a result of economic policy measures in a broader sense. The problems cannot be tackled with monetary policy. If monetary policy tries to push down unemployment below this “natural” level, it will only result in higher inflation. This is because inflation expectations have great significance. Although there is a relationship in the short run between unemployment and inflation, the central bank cannot make use of this in the long run, as companies and individuals will realise what policy is being conducted and adapt their behaviour accordingly. For instance, wage-earners may demand higher wages as compensation for expected inflation, which will have a negative effect on employment, as the scope for new recruitment will decline. Monetary policy is thus unable to lastingly affect real variables such as long-term lower unemployment. But it can have a stabilising effect in the short run, particularly if inflation expectations are wellanchored so that temporary changes in inflation are not perceived as permanent.
I will leave these to participants in this Roundtable to deliberate on. I believe that the common purpose of today’s Roundtable is to discuss on ways to speed up the migration to electronic payment with special focus on electronic money. This is indeed a good platform for all key stakeholders to provide their thoughts and highlight areas that require further improvement. In conclusion, therefore, I would like to thank OMFIF and the Lafferty Group for their involvement in this Roundtable event. I wish you all success in your deliberations and look forward to your views and suggestions in achieving our common goal. Lastly, I on behalf of Bank Negara Malaysia also wish to register our appreciation to all of you for taking time from your busy schedule to attend this event. 4  BIS Review 69/2010