Monetary  4  BIS central bankers’ speeches  An unemployment rate of 7% is not our intended destination. Nor even is it necessarily the first turning on the way to our final destination. Rather, it is a conveniently located layby at which we can pull over, study our economic map in detail, and work out whether we are anywhere close to our first turning. Why unemployment? There are two other challenges facing the UK economy and the MPC which the Committee’s guidance also helps to address: the uncertainty as to why productivity has been so weak and the extent it will rebound as demand increases; and the need to clarify how monetary policy is likely to respond as the economy recovers. Defining our guidance in terms of a threshold for unemployment is helpful in both cases. Giving supply a chance When considering the appropriate trade-off between bringing inflation back to target quickly and supporting the recovery, by far and away the biggest judgement facing the Committee is the extent to which productivity is likely to recover as demand increases. If you speak to some economists they are quite optimistic and suggest that productivity growth is likely to rebound relatively robustly as growth picks up. They note that productivity is strongly pro-cyclical. They also point to evidence that some companies have retained employees in anticipation of the recovery, while others have had to use resources more intensely to generate the same level of orders given the weakness of demand.3 But other economists are less upbeat.
We collaborated successfully in several areas over the years, particularly in promoting the greater use of RMB in the region. PBoC’s decision in 2013, under Dr Zhou’s leadership, to appoint the Industrial and Commercial Bank of China as Singapore’s RMB clearing bank was a significant milestone and spurred the growth of Singapore as a key RMB offshore centre. In 2016, MAS announced that RMB assets would be included as part of our Official Foreign Reserves, three years ahead of the inclusion of Chinese bonds in key global bond indices. At the personal level, I have had the pleasure and privilege to interact with Xiaochuan at many international and bilateral meetings. I have always found his views insightful. At our bi-monthly meetings of central bank governors in Basel at the Bank for International Settlements, I would sometimes ask Xiaochuan some rather inconvenient questions – about risks related to shadow banking or industrial overcapacity in China. Xiaochuan would always answer these questions, as well as those from other governors, with a disarming candour and clarity, never avoiding the hard issues. This not only helped to build trust among his counterparts in the international community but also endeared Xiaochuan to many of us as someone we could count on for insights into the complexities of the Chinese economy and financial system. Today, Dr Zhou will speak on “The Rise of Technology in Finance – Opportunities and Challenges for Central Banking”. Many of us are familiar with Dr Zhou’s views on financial and economic reforms.