I am thinking specifically of how the financial sector has developed in recent decades, both globally and in Sweden, and of the fact that global real interest rates have fallen. This has tangibly affected Sweden, which is a consequence of the Swedish economy being increasingly integrated with the global economy. I will then present my view of what these changes have entailed, both for how Swedish monetary policy is conducted, and for how we need to develop how we discuss and perceive monetary policy in general. Crises affect monetary policy The three unusually large crises we have experienced over the last decade or so can be added to these long-term structural and global changes. Over ten years ago, the global financial crisis started in the financial sector, when the excessive risk-taking that had built up over many years finally came to the surface. Shortly thereafter, the sovereign debt crisis broke out in Europe. The pandemic in the midst of which we currently find ourselves is another kind of crisis. It started as a health crisis before developing into an economic crisis. During these crises, central banks around the world implemented different kinds of measure to stabilise the situation. But the episodes remind us that the future is always uncertain and that preparedness for crises needs to be a central element of monetary policy. Twenty years ago, a different view prevailed and the approach developed then, which continues to set the tone in today’s discussions of monetary policy, was based on a fairly stable macroeconomic environment.
At the HKMA, we have set a goal to promote the growth of CTCs in Hong Kong because their activities, such as foreign exchange and rate hedging, financing, and cash management, will help deepen our capital markets and create additional users of our financial and professional services industries. As you know, in many cases multinational corporates will co-locate their CTCs with their regional headquarters. By attracting more CTCs to Hong Kong, we hope this will hasten the process and further consolidate our status as an international financial centre. 19. Ladies and gentlemen, Hong Kong already provides a conducive environment in which CTCs can operate, but we are doing more, particularly on the all-important tax front. Through the work done by the Inland Revenue Department, Hong Kong’s Comprehensive Double Tax Agreements network has expanded from just five in 2009 to currently 35 agreements. These DTAs are important to multinational corporates as they help reduce the withholding tax rate on interests of cross-border loans. The Government has also announced major changes to the tax regime that will make Hong Kong an even more attractive destination for setting up CTCs. 20. With the changes, the interest deduction rules under the Inland Revenue Ordinance will be amended so that interest expenses arising from genuine cross-border intragroup financing activities, under specified conditions, will be deductible. This will lower the overall tax cost and resolve the “tax asymmetry” issue currently perceived by some MNCs as an impediment to their establishing or expanding CTC operations in Hong Kong.