BANK OF ALBANIA

PRESS RELEASE
Bank of Albania Annual Conference 2018: Conclusions

Publication date: 02.11.2018

 

The Bank of Albania co-organised with the London School of Economics and Political Science (LSE) the annual conference: “Monetary Policy, Economic Integration and the “New Normal””, on 1 November 2018.

During the conference, participants discussed at length on issues related to the “new normal” of monetary policy, given the new global economic conditions, in the wake of the last financial crisis. In this framework, the main challenges that central banks face relate to achieving their targets on economic, price and financial stability in a more complex and dynamic reality. Globalisation, the rapid developments and the everlasting innovation in financial markets, as well as the interconnection of financial system with the monetary policy pass through and the overall soundness of economy are the most current topics of discussion in the central banking area. 

The participants presented the challenges that open small economies face, which become more difficult when these countries are and remain subject to frequent shocks from global financial markets, the monetary policies of the main central banks, also subject to the impact from the regulation and risk appetite of the global financial market. For this reason, the dilemma of the monetary policy for emerging economies is even more complex than those in advanced economies. These countries should consider the impossible trilemma of monetary policy: maintaining a fixed exchange rate; implementing an independent monetary policy and ensuring free capital movement with international partners. One conclusion broadly supported by the participants was that the experience of regional countries has shown that there is a broad range of successful solutions available both in theory and practice of the monetary policy. Nevertheless, this solution should always be consistent with the priorities they set out, the instruments they employ and in accordance with the financial stability, fiscal policy and structural reforms.

Also, the participants emphasised the need to support monetary policy with supervisory and regulatory instruments - macro-prudential policies - and with structural reforms, which support a stable economic development and facilitate the transmission of central bank’s measures.

In addition, discussions addressed experiences of emerging economies, which are part of the European Union, and those aspiring to become part of this Union, focusing on the banking supervisory practices, possibilities to coordinate the instruments and policies of financial stability, and minimising costs in case of resolution. The experience of the relevant countries shows that the regulatory and supervisory aspects and the balance sheet of commercial banks have improved. Nevertheless, some legal and regulatory aspects, and the management need to improve further. The write off of non -performing loans from the banks’ balance sheet, the enhanced transparency and improvement of legal aspects related with their management procedures are necessary for the recovery of the economy in the future, and serves for banks to become more reliable institutions.

Nowadays, central banks encounter new global challenges related with the financial sector, on which they should be attentive.  Among the most important elements are: the implementation of Basel III principles; the strengthening of regulatory and supervisory frameworks on risk management; and the establishment of capital buffers to encounter potential crisis in the future. In this regard, the harmonisation with the EU legal aspects, the establishment of an efficient structure, the active collaboration between the European banking supervision institutions with national ones aiming to share banking information, are important in this regard.

Technological innovations in financial markets and the challenges they pose to central banks in the framework of monetary policy and financial stability are rather actual; therefore they were broadly discussed in one the sessions of the Conference.  The new instruments establish the possibility for higher inclusion in the financial system, providing social and economic benefits to the society. On the other hand, central banks and supervisory authorities should be more watchful and prepared by coordinating their supervisory and regulatory activities to guarantee the well-functioning of these new instruments.

The keynote speaker to this Conference was Prof. Ricardo Reis, A.W. Phillips, Professor of Economics, LSE, one of the most known young academics, who has conducted a set of researches in the field of central banking. In his speech, Prof.  Reis emphasised that in the last ten years, the innovation of central banks has dominated the monetary and financial management policies. Central banks have broken the taboo by introducing new concepts and undertaking innovative monetary policies.  The academic world has studied and benefited from these innovations; it has included them in the existing theoretical framework and has adopted them as ready-made recommendations to be implemented in the future crisis.

The Closing Panel with the Governors’ Roundtable brought together in a discussion panel the governors and deputy governors of the Bank of Albania, Iceland, Kosovo, Bosnia & Herzegovina and Croatia. This panel summarised in a theoretical and practical point of view the dominant characteristics of challenges that central banks face, especially the regional central banks. At the beginning, the panellists focused on  providing an overview of the situation of each country and then on the nature of policies that central banks have employed to face the relevant challenges  In his input, Governor Sejko emphasised that central banks face a set of new challenges arising from new economic and technological developments, for it is necessary for central banks to establish sufficient buffers to face the present and future surprises and collaborate with each other to find the best solutions according to specific conditions of each country. At the conclusion of the panel session, all participants agreed on the conclusion that no policy is a substitute of the structural reforms in guaranteeing the price and financial stability in the long term.

At the conclusion of the conference, Governor Sejko and Mr Erik Berglof of the LSE, presented to media the main conclusions of this conference in a joint press statement. Governor Sejko stated that the proceedings of this conference were rather valuable, and provided a set of experiences and models for the challenges that the Bank of Albania faces. These experiences provide a clearer perspective for the way ahead in improving policies and regulatory frameworks, in order to successfully achieve the objectives of the central bank, regarding both price stability and financial stability, for the economic growth and the improvement of the Albanian citizens’ welfare.

In his comments, Mr Berglof, in the capacity of co-organiser of the Conference, and as a regular visitor of Albania, affirmed his positive impressions on the achievements of Albania in improving the macroeconomic conditions, the realisation of structural reforms and the successful establishment of institutions.  In more concrete terms, he pointed out the progress of the central bank in Albania in the recent years, emphasising how important is to build strong institutions, such as the Bank of Albania.

The Bank of Albania thanks LSE, all the speakers and participants for their contribution to the success of this conference. This conference is also a testimony of the value of the cooperation between the institutions and the academia in the field of scientific research. This cooperation helps deepen the knowledge of policy-making institutions and supports their development.