Cross-border capital flows can “run”– just as deposits can “run” for banks. And the majority of a sovereign’s assets – claims on future taxpayers, are both hard to value and inherently illiquid – so, like banks, they are susceptible to runs by international investors, which even if not based on fundamentals, could threaten their solvency by raising borrowing costs. Sovereigns are particularly exposed to run risk or a sudden “stop” if they have borrowed in foreign currency – the so called “original sin” – as large depreciations raise the domestic burden of repaying the debt, particularly if there is a shortage of foreign exchange reserves. In the Euro-area, countries have become painfully aware of the risks of borrowing in a domestic currency that individual sovereign states have no right to issue. But of course, sovereigns are also very different from banks. By definition, their finances are not regulated by any authority, and there is no legal framework for dealing with bankruptcy or resolution, giving them more discretion to default. Instead, we have IMF surveillance (which is weaker than bank supervision) and a complex and often messy process whereby markets and the official sector deal with sovereign debt restructurings. While there are important differences between sovereigns and banks, I think there are enough parallels to draw some insights. 4.
Commodity price changes with relatively more of a permanent nature may distort the general pricing behavior and initiate a wage-price cycle. This may entail prolonged upward movement in inflation in general and, accordingly, the high costs associated with this. Therefore, to be able to contain the potential second-round effects due rises in commodity prices, it is important for central bankers to pay close attention to core inflation indicators and inflation expectations, and shape their communication policy in this direction. BIS central bankers’ speeches  1  We, as the Central Bank of the Republic of Turkey (CBRT), are also in the position to carry out the abovementioned analyses. As a matter of fact, in our Inflation reports as well as the Summary of the Monetary Policy Committee (MPC) meetings, we share with the public, our assessment of the nature of commodity price changes. In the Inflation Report published in January 2012, we made the following assessment on oil prices: “Another risk factor in the forthcoming period is the uncertainty regarding oil prices. Although the weak course of the global economy dampens commodity prices, recent manifesting problems regarding oil supply pose upside risk to energy prices.