 Welcome to the Wall Street Journal debate on volatility as the new normal in conjunction with the World Economic Forum. Nowadays, you don't have to look very far, even if you're not a Wall Street trader, to see the real-world effects of volatility in financial markets. Anybody who's filled up their car in the US recently will have noticed just how much cheaper it's got after an amazing 56% collapse in the oil price since last summer. And for those delegates who haven't been out for drinks in Davos yet, and Switzerland was never cheap, let's face it, brace yourself for the impact of the Swiss Central Bank abandoning its currency ceiling. At one stage on Thursday, the Frank soared 30% in a matter of minutes against the euro. Good afternoon, my name is Thorold Barker from the Wall Street Journal, and I'm delighted to welcome our fantastic panel from around the world to discuss this increasingly important issue. Joe Shoshuan is the longest-serving governor at the People's Bank of China, having been appointed in 2002, and he's been a leading figure in policy circles since China started opening its economy to the world. Apart from navigating the global financial crisis, Governor Joe has pushed to rebalance the Chinese economy away from investment towards consumption and championed a more freely-traded international renminbi. Guillermo Ortiz was Finance Minister of Mexico and then Central Bank Governor, and he has plenty of experience with volatility, having lived through the tequila crisis of 1994 and 1995, so hopefully he will share some anecdotes from that. He's currently Chairman of the Advisory Board of Banorte, one of the country's leading banks. Arkady Dvorkovic is Deputy Prime Minister of the Russian Federation, a Western-trained economist who studied at Duke University. He's held a number of policy positions in recent years, and currently oversees industry, energy sector, agriculture, IT, telecommunications, and I think a few more things, but that will keep you busy for the time being. Antony Scaramucci has worked in financial markets for 25 years in New York, including stints at Goldman Sachs and Lehman Brothers. He founded Skybridge Capital in 2005, an alternative asset manager with $13 billion under management, and he also hosts the high-profile SALT Investment Conference for hedge funds every spring in Las Vegas. And finally, Ken Rogoff, Thomas Cabot Professor of Public Policy and Professor of Economics at Harvard University. He's author of the best-selling and sometimes controversial book along with Kymyn Reinhart, This Time It's Different, Eight Centuries of Financial Folly. For good measure, he's also a chess grandmaster. So please join me in welcoming this distinguished panel. So to kick off with, I'm going to ask each of the panelists with their very different perspectives to tell us very briefly what they see as the biggest sources of volatility for the coming year and the risks that that will create. So I'll start with Governor Joe. Okay, thank you. This is, I think, important and difficult questions. The volatility in the financial market sometimes, you know, changes from time to time. I remember a half years ago, central bankers sit together to talk about why the volatility was so low. That's, they may say that the market participant had a less risk appetite, but suddenly the situation changed. So I think probably it's related, first, the concern of international situation, especially geopolitical situation. People don't know what kind of development it goes. But second, I think that we really have volatility at this time in the financial market and the commodity market. I think it's still a big question that's for the coming months, how it's developed. I think third concern is that along with QE exit, whether there may be some of the irregular capital inflow and outflow around the world, we still remember that in the summertime of 2013, there are some of irregular capital flows from emerging markets. So emerging markets, financial markets participants try to look at this kind of uncertainty and it's maybe also a source of volatility. Thank you. Fantastic. Mr. Ortiz. Well, I think that, you know, following on Shishwan's comments, obviously, there is an increase in, let's say, overlaying of uncertainty, which begets volatility and that's caused, you know, by obviously the falling oil prices, by the divergence of monetary policy among major banks. You just mentioned the move of the Swiss National Bank last week. You have geopolitical risk and some kind of facade. This is something normal, you know? I mean, you have this mixed current of data coming from the world, which people, you know, have difficulty figuring out and this goes to the background of sort of more structural issues, you know, in terms of inflation or risk of deflation and economic growth in general. This mixed with the sort of, you know, modern technology of trading platforms and so on. It just keeps adding layers of risk, which begets uncertainty and that obviously causes volatility. And Shishwan was saying, you know, at a point, you know, central banks were suppressing actually volatility until they could not do it any longer and, you know, central banks are not in the business of, you know, suppressing or reducing volatility. They're in the business of conducting monetary policy, but as a byproduct of that, you know, then you get all these cross currents that I just mentioned. Great. Deputy Prime Minister Vokovych, you have obviously, your country has been through a lot of volatility recently, so it would be great to hear your perspective on this. Thank you. Well, I also went through a few crisis already, 98, 99, 2008, 2009, now in other one. And probably you would expect me to say that oil is a major sink, as I'm coming from Russia. It is not. I think the more important thing, and volatility is a function of uncertainty, most uncertainty comes from the policies, from the government policies around the world. The most uncertain thing is now how the US government will behave, how European governments in the European Commission, European Central Bank will behave. Some people will say that they don't know how the Russian government will behave. The inter-transparency and uncertainty about government policies is one of the major volatility factors now around the world. And oil price is a function of that. I don't think that oil price here is an independent factor. And we know what equilibrium price is now. Everybody knows, actually. But oil price can be both higher and lower than equilibrium. Equilibrium price, everybody knows? Of course everybody knows. That's news to me. Of course everybody knows, but not everyone is interested in reaching this equilibrium. It is about interests. At the end, we will come to that level. But right now, there are some countries, some forces around the world that are not really interested in getting to this level immediately. After some period, yes, but not immediately. Fantastic. And so when you talk about governments, you mean the Saudi government as well and those policies that you said? The oil market, yes, Saudi government as well. Because its own interests, mixed domestic and global and the structure of the market is important. It's clear. But also what is important is a combination of domestic interests and global political interests for major countries like United States, European governments, China, of course. And Russia is also in that circle. And sometimes, unfortunately, governments are not taking right decisions before the short term political interest domestically. And this adds to the uncertainty that we have now. Great. Thank you. Mr. Skarovich? Well, yeah, just to put some context on this, if we were here in 2009, we didn't have the interventionary governmental forces that have been in play over the last six years. But if you now look today, and let's say someone was writing an economic history of our time 50 years from now, they would be saying that this was the age of major governmental interventionary forces. The first stage of that was depression of monetary policy, depression of interest rates that created a tremendous amount of low volatility. We're now about to enter the second stage of that, where they're going to ease up on the monetary policy and then other things are going to start to happen. Now, what we've learned in the last five or six years is that each government is going to use its own arsenal or its own capability. If it's the United States and its monetary and military policy, the Saudi government is using oil-tary policy. See, and so every government is going to be in there. I'm sure China, Russia will have things that they're going to do. The EU is doing the same. And so as an investor, you now have to calculate governments intervening in the markets, which are going to create huge unexpected volatility turns. The age of the low volatility is over, and we're now about to enter that new epoch. It's going to be very bad for the macro manager, hedge fund manager, and certainly very bad for long, short managers, because the rules have completely changed. Professor Rogan, if you could bring all that together with your perspective, which is a very global one. Well, I want to separate market volatility from volatility in the macro economy. If we're talking about market volatility, certainly the central bank policy is very hard for them to understand, much less for the markets to understand. And we're very much in unknown territory. I think if we're talking about bigger things in the global economy that sort of affect the arc of volatility, the transition in China from being investment, export-driven to more consumption-driven, it's a huge change. And that has been playing out in many places, I think, oil, partly that story, low exports in Germany, commodity prices. Governor Joe mentioned geopolitics, and certainly they're in the mix. Although I have to say, I find when I'm talking about geopolitics being the risk, I tend to think we must not have much going on because it's always there, some form of geopolitics. Clearly, Europe is a risk. I can't really tell if it's just that you might have an election in Spain or somewhere that just changes the whole dynamic or whether it's not really that it's a risk, it's just a depressing certainty. I'm not really sure where I stand between those two things. And I think oil's been mentioned. That certainly mirrors a lot of the uncertainties, the heightened volatility. I don't know what the equilibrium price of oil is. I think it's actually very hard to say whether it's going way back up, whether it can go down further, I don't know. But it's clearly mirroring quite a bit of volatility in the economy. So can we, to Mr. Garamichi's point, can we start with central banks? We've got the European Central Bank meeting tomorrow, and it's widely expected they will launch full quantitative easing. It's unclear how much and exactly the form of that. But that's taking place while the central bank in Japan is still being very aggressive and while the US central bank, the Fed, is beginning to pull back and looking to actually raise interest rates. What does that mean from a market's perspective and from an economic perspective, Professor Rogoff, in terms of the potential for that to cause dislocations as people begin to find that what was eminently predictable over the last few years has suddenly become quite unpredictable? What I mean to think, obviously, it will. We don't have a lot of history with something at quite this degree of interest rates all coming down to record lows everywhere at every horizon and what happens if central banks actually start persuading people that yes, we can inflate. Yes, we can restore inflation to normal and the markets should be prepared for it, but they're probably not. On the other hand, I suspect that the larger picture is the divergences between the two central banks where it might not be so much the Fed raising interest rates as Europe and Japan doing more and more dramatic things to try to ease monetary policy. And what do you think, Mr. Ortiz, what do you think that impact is from an economic perspective globally? Do you think that that will have a big dampening effect on economies around the world or is that going to be more of a financial market implication? I think it's going to be both, you know. Obviously, I mean, as Kenneth was saying, I mean, we are in uncharted waters. And Mr. Scaramucci said, you know, the last few years have been, you know, played by a huge government intervention, but we have to ask ourselves why. I mean, what happened before the financial crisis when there was no intervention? And it was precisely, you know, this lack of feeling, you know, that markets could allocate resources and manage risk well that led us to the place where today. And, you know, central banks. I don't want to interrupt, but I actually disagree with that because if you look at the United States, we've had a policy in the United States to promote housing. And so what they did was they forced a lot of people into these subprime houses that could afford it. I mean, the governments are always there, sir. No, but why was that? It's way there more now than before. Why was that? Because it was a sensation, you know, that markets are better and the government policy was to provide housing or whatever. I mean, I don't want to go into this. But it is, you know, as Kenneth was saying, the divergence of central banks, which is putting a huge degree of uncertainty on the whole thing, you know. The U.S. isn't about to normalize monetary policy. We're expecting huge QE tomorrow from the European central bank. It is very difficult to think that Japan will reach the 2% inflation rate. So, you know, Japan's central bank is likely to embark in a new round of easing policy. And this whole, I mean, this combination of things, obviously, is adding layers. And this has, you know, profound implications not only for financial markets. And in terms of financial markets, what we should be very worried about is correlation, not so much volatility, obviously, but, you know, particularly correlation among asset classes. But, Mr. Skomach, do you think that asset prices are detached from fundamentals? I mean, do you think that the interventions have caused that to occur, and hence the ability for, say, another Swiss franc event to occur is much more significant? Some asset prices are detached. But in a period of low interest rates, what we know in financial markets is that interest rates are the gravity in financial asset markets. The lower the rates, the more valuable the assets become. I think what's scaring everybody is that, if you were here a year ago, people predicted that rates were gonna go higher, but if you were looking and really doing the work, you knew that rates were going lower because we are in the age of oversupply. Dr. Rogoff and I were talking about that in the green room. We have two and a half billion people that are now onboarding themselves into the Western-style capitalist experience. It's not just in China, and it's not just in India. It's parts of Africa, it's Latin America, and this is having a major consequential effect that no macroeconomist and no policy theorist, Dr. Bernanke, nobody, has gotten ahead of. And so we're way behind this thing. United States did a better job, frankly. I'm not just saying that because I'm American, but they got ahead of it a little. The Europeans are way behind. The Japanese have had fits and stores for 25 years, but you are in a deflationary age, and if we get deflation, the average citizen in the world does not understand the consequences of what deflation is, and it's an annihilation. It's the Darth Vader death star outside of the atmosphere of the earth shooting a laser to blow up the world's economy. That's kind of dramatic, plus that. I mean, I think that it's been good for everybody, you know, on the whole and the central bank. Hang on, hang on, let me think it's on a one-to-one Anthony, one second. Can you let Professor Rowe just come in? Yeah, I mean, I think that... I love your enthusiasm, please, keep it up. Just getting started. No, I mean, I think the 2.5 billion, 3 billion people coming into the labor force is fantastic. It's been lifted, people out of poverty, and you know, the whole talk about the world becoming less equal. I think if you treat every citizen in the world the same, there's never been a period where it's becoming more equal, it's been good. But it's put a lot of political pressures in the advanced economies. On central banks, I think they've been a little surprised that they have trouble creating inflation. I don't think they knew that. And frankly, since this summer, especially, the markets have lost confidence that they'll ever do it. You even look five years, 10 years out, and it used to be, okay, you say 2%, 2%, but we know you're gonna cheat, maybe, and so the expectation would be 3% or even a little north of that. And now, you know, it's coming down to 2%, and you're well below 2%, we just don't believe you that you're gonna do it. That's quite a dramatic change. And do you think the markets are right to believe that? Because everything is now priced in the assumption that that won't happen. Do you think there's any chance that there'll be the major central bankers here and investors, but I don't? Maybe central, it's not a problem of central banks, you know, I mean, I think it's very difficult, for example, for the European central bank or for Japan to actually get to their 2% inflation target, you know? We are looking at this against the background of ever slowing growth. I mean, the IMF just lowered growth perspectives, and this has been going on for five years. Well, let's talk to someone who's got a lot of growth in his country still at the moment, which is slowing, but is still at 7.4%. I mean, how do you think of, China has been, frankly, in some ways, a bastion of stability through this process that's continued to grow quite significantly, and up until now, the markets have been in decent shape. But now you're seeing the housing market slowing significantly, and you're seeing a stock market which has rallied incredibly aggressively last year, up about 53%, and fell 7.7% just in the last few days based on a small regulatory change on margin. I mean, how do you approach this yourself as the economy slows, as a central banker, thinking about how you manage this whole process? Before answering your question, can I comment on this previous... Please. I would like to distinguish the concept of government intervention or central banking intervention and the concept of counter-cyclical adjustment of monetary policy. If central bank see the cyclical changes of economic growth, the job creation, so surely it's central bank, we may have a counter-cyclical response and to have a policy adjustment. It does not mean that any intensive intervention to that. But we know that among the central bankers, some central bankers believe the counter-cyclical policy adjustment, but some others don't very much believe that. So they may have a different policy stand. So I say that if central bank do have a counter-cyclical policy adjustment, whether it can bring the inflation to the 2% target or not, it's still uncertain because the economy may have the other problem, the structure problem, the labor market problem, the too low growth rate, or the other things. So I agree with the central bank governor, Mario Drakki, I think governor Kroda says that the monetary policy may create a room, a time period for the other structure policies to come out, to implement, to do a good jobs. So in this sense, the monetary policy is not a panacea to really reach that the target people expected. But I think that this kind of central bank policy adjustment, I think anyway, is useful. For China, I think, your question, I think it's right that basically China still keep that's relatively high growth rates the last year was 7.4%, but we had some of also cyclical movement. Typical things is the residential housing market. So people, yeah, China is a very large country, so we have so many cities, so they may perform very differently. So somewhere they have oversupply, somewhere in some cities it's a steer that's over demand. So, but generally, we see that there may be a cyclical adjustment. For the central bank, we, I think that's basically the keep monetary policy stable because this is not a nationwide serious problem. For the asset market, I think that we may have an impact of international commodity markets to the domestic market. So people, the market participants may be very nervous to watch about the big Chinese or your companies or those companies related to the commodity, the still mirrors or the others. So I think a general feeling for the market participants is that they fear the uncertainty. They are a little bit nervous, but sometimes they may have overreactions. So it may enlarge the volatilities. But basically, I think it's still stable. Chinese stock markets. Before you go into the stock market, just on the real estate market, I mean, how concerned are you and would you, like some other central banks, explicitly, if the property market did fall significantly, how much would you actually explicitly try and target that and stabilize that as a central bank in China? Generally, if the aggregate indicator of Chinese economy is okay, so we central bank are difficult to have a specific policy directed to the real estate market. But however, you know that we can have some of the so-called macro-prudential policies, including loan to value ratios, including some of special government program to support those of the old city reconstructions. So not very much, but we try to do some things counter-circuit and to use macro-prudential instrument. And then going back to stocks, are you concerned that some of the policies you started to do to address the slowing economy will push more money into stocks and create a bubble in stocks that becomes destabilizing? There is always the possibility that the central banks, I think in China, we try to manage to have relatively stable money supply, not too much liquidity into the economy. But the economy changed from time to time. Sometimes it's because of international financial market situation. So the liquidity in the Chinese financial market changed from time to time. So sometimes central bank withdraw the liquidity, sometimes inject the liquidity. So certainly it may have some of impact to the asset market, including stock market. But I think that the stock market participants should mainly focus more on the fundamentals of those listed companies. Okay. So you had a point to make, or I was going to ask you a question. Just three small points. First, if you need to know how to get to higher inflation come to Russia, we know how to produce high inflation. What's your secret? Why don't we bring you to the United States or Japan or Europe? Well, actually inflation is a problem for Russia. Of course, we have extreme inflation and we need to reduce it. But it comes to the demand for money, basically. And if businesses, people trust into central bank policy, then they produce higher demand for money and inflation goes down. If there's no real trust in the policy, then inflation will go up whatever you do since there's no real demand for domestic currency. But I think Europe is already too late. I remember the session last year and that was when we discussed whether Europe has to ease monetary policy or not. And most people were saying, yes, Europe has to do it already. We have one year past, no steps have been made, basically. Europe is very late. And I think all now believe that Europe should make certain steps. And American policies were very smart in this regard. I think even if you take a part that we don't like, sanctions against Russia, sanctions that the United States introduced against Russia also work against Europe and work heavily already. Some of the European banks are saying that because of the sanctions against Russia, we are losing competitiveness against American banks. Since American banks know, well, they can call to the State Department to ask whether they are allowed to give loans or finance certain projects. European banks do not know anything about the taking risks of financing any specific project. And regulations that have been adopted in the United States towards transparency of banks also led to the degrading of European banks' competitiveness. And the third point, and I think I read this in one of Mr. Rubin's articles, is the relation between monetary policy and macro-potential regulations. What he's saying, and I think he's right, that, well, you can use monetary policy to produce a better situation in your economy and to change interest rates. But then you come to the situation where you risk with bubbles, with asset bubbles. And the only instrument that was mentioned by our Chinese friend is macro-potential regulation. You can use some of the instruments to alleviate pressure in the asset market. But, well, in Chinese system, you can do it since you are very efficient doing this. I'm not sure that you're able to do this in Europe, since those instruments were highly inefficient. In Europe, and you saw bubbles arising despite the instruments being used by Central Bank, both in the financial market and in the banking sector. So I think while easing Central Bank, European Central Bank and national governments should be very careful about not creating new bubbles in the upcoming period. Okay, and do you think there's a risk that the ECB and its quantitative easing, we don't know what it will do yet, but that that actually much more pushes asset markets rather than actually addressing the underlying economy of Europe, Professor Robert? Well, I think it has driven the exchange rate down if they don't do it, the exchange rate will back up. But I'm thinking stocks as well. I mean, I think that the nature of it is not a big enough qualitative change, frankly, to really push inflation up. I think the problem's been that they don't control inflation perfectly, and it's very volatile, but markets get the sense that there's a ceiling at 2%. I mean, even the Fed, when it put bounds on it, it's at 2.5% when it's willing to go, allows inflation to go much lower. So I think to get out of this, ultimately, the Central Banks need to communicate that they're willing to be much more symmetric at a minimum. And if inflation's been really low for a long time, they're okay with it being higher. They have not been willing to say that. And I think that's necessary, not just quantitative easing for this to work. Right, but that comes all back to communication. And one of the big challenges has been that they've made a lot of promises, and we saw this in Switzerland, that ultimately sometimes you can fulfill and sometimes you can't fulfill. And I think, you know, as we get to the end of forward guidance and some of these things, that presumably has a large opportunity to create instability. I mean, I wouldn't draw a parallel with Switzerland and the other things. This was a very unusual thing. It's very hard to fix your exchange rate and have an open capital market. So that just shouldn't have been done in the first place? Well, I don't know. You shouldn't have expected it to last forever. Okay. You know, just talking about this issue of communications in Central Banks, it's a complicated one. I mean, the Fed has said policy actions are data dependent. You know, and what does that mean for markets? You know, it doesn't really mean a lot in the sense that everybody interprets data differently. So the markets, market participants are watching the Fed, the Fed is watching the markets, and the participants are watching each other. So it's a lot of second guessing on this. And I'm not sure whether, you know, these forward guidance provide, you know, anything that can clarify sentiment and that would produce a reduction, let's say, in volatility going forward. Particularly given the divergence that we're seeing in Central Banks, this is something that just to finish, you know, when we had the great crisis, we had, you know, coordination of Central Banks. I mean, the initial response was pretty coordinated. And now they're getting in different directions. And now, you know, everybody is going in its own way. And ultimately, I mean, no one has mentioned this, is that there is absolutely no global coordination. Right. That's a good point. No global coordination. I mean, so... So before I just want to go back to Russia, but just Anthony has a quick thought. For the elephant in the room that none of us are addressing, is the excess cash on the balance sheet of the S&P 500 in the United States. There's over $2 trillion of cash on the balance sheet. The current administration, I'm not saying they're not pro-business. They certainly feel, and they would say that they are, but I think there's a perception that they're not. And there's been a lot of cash hoarding at the S&P 500 level. And so my prediction is that we're going to get better than expected growth. A lot of that is due to tax, overseas tax. That's as well. And so the prediction here is that the next American president, whoever it may be, will be a very successful one because that balance sheet is going to be reduced, the cash is going to get invested, and it's going to surprise the world the amount of growth that's going to come not only out of the United States, but the rest of the world. So what we like to do is we think linearly and we expect that there's going to be very slow growth for a very long period of time. But this is the ghost in the machine that could happen to us in two or three years that unleashes growth. And now the Federal Reserve will be working the other way to try to tame inflation, and that's the irony of the whole thing. So what would that mean just to follow that? If people are surprised when it comes to interest rates and deflation, it actually turns out to be much better than people think, there's going to be a lot of dislocations if people start valuing assets of 4% risk-free rates instead of 1.8. There'll be a lot of dislocations, and I think the central theme and the point that I was trying to make to our audience is that the governmental intervention is with us to stay, and it's coming not only from the United States, China, Europe, Saudi Arabia, it's coming from the world, and they're now players in the marketplace, they're going to create a lot more volatility and a lot more unexpected things happen, and you've got to get defensive and you've got to think about it from that perspective as an investor. Okay, well we'll go on to the impacts in a minute, but just going back to Russia quickly, you're living with a lot of volatility in the ruble and the oil price at the moment. I was interested to hear you say it's not the oil price, it's the geopolitics, it's the biggest issue for Russia. Can you just expand on that a little bit more? Is that when it comes to foreign investment drying up? Is that the banking system, the sanctions? I mean, just give me a sense of exactly what's hitting where in the economy and what Russia's going to do about that given that geopolitics have two sides to each equation. Well, oil price is an issue for us certainly, but what we decided a few years ago, we decided to establish a macroeconomic framework where dependence on oil price is lower than before. We are putting together the budget under the lower price assumption than the actual price. It's not the case this year, since nobody expected oil price to go down so sharply, but as a rule we did this way, we accumulated reserves to be used when oil prices are low, and this is exactly what we are doing now. But they've been used to support the banking system, haven't they? Which is a separate issue? No, we use those reserves for the priorities we believe are the most important. This quarter of 2015 we decided that the banking sector stability is the key. This is why we decided to put some of the funds to recapitalize the banking system. But for the year as a whole, we are putting some part of the reserves for fiscal stability purposes. We will cut some of the expenses, but we are not going to cut our budget by two-fold. We are going to cut by 10, maybe 15%, 10% most likely, and we cover the rest of the deficit with some of the reserves we have accumulated for years. And this is why oil prices are not as important for now as before. If you look at geopolitics, you have a fairly embedded situation with sanctions at the moment, given the conflict in Ukraine and obviously the annexation of Crimea. What is going to change there? Or are you just destined to have that continued volatility around that situation? The most risky situation is when you don't know where oil prices are going. But it's clear that they're not going to minus 40. There's some level where oil prices will stop. And we just need to... One would hope, yeah. We just need to find this level. And at some point, it's not far away. It's already closed. Russia can live with the current situation of the ruble. The most important for us is to stabilize the oil market at some point, so we don't know what to expect in the currency market. Let's say oil prices are 40. Then people know that the exchange rate will maybe develop a little bit more from today's level and stop. And then we'll be able to reduce interest rates domestically and start doing normal business with the current interest rates of 17%. The key rate of central bank is impossible to do any business in the economy. And people are just waiting before the situation will stabilize. No, it's a major volatility factor, but it's not going to last for long. And if sanctions continue as they are, the banking system and all of that important financing, that will be, in your view, sustainable in the current situation? With sanctions present, we just need to find different ways to stimulate the economy. We have to put more attention, institutional changes, creating better business environment and prioritizing import substitution and support given the competence level that we have now with lower rubble. So we'll just change focus with change priorities and do things that are more important for the economy right now. So even with sanctions, we'll have good basis to continue growth. For some period, the economy will slide, but it's not going to last forever. Even with sanctions, we'll find basis to start growing again. Can I ask you a question? What is the best scenario for Russia for sanctions and the oil price? Sanctions, overall, are stupid. I'm trying to let you get it out there. The best scenario for everyone is for sanctions to be lifted. So where do you think the oil prices should be? Well, you're asking me about equilibrium. No, I'm asking you, what's the best for Russia? Well, you know, I'm going to finish this off because I'm not sure that we can try the oil prices. The best scenario for Russia is stable prices. Stable prices. And if prices will be stable between 60 and 80, it's much better than prices 110 now and 40 the next day. So we would certainly prefer stable prices in the reasonable interval than instabilities that we face right now. So can we move on? Very quickly. Russia has been, I mean, the latest revision is that Russia will contract this year about 5%. That's what IMF says. IMF's projections. Now, assume that the oil prices stay low, you know, for several years. I mean, I don't know, but current levels for it. What is the way out for Russia? I mean, what does it need to happen? Well, let's not get into a debate on the Russian economy too much because we want to keep it back on volatility. So I just wanted to, because we don't have that long left, I just wanted to get a sense of, in your view, who the winners and losers are from the volatility that we've seen in currencies and in the oil markets, and particularly who might be the winners and losers going forward? I think for China and for many countries, the lower oil price and the other lower commodity prices, I think it's positive for picking up higher GDP growth rates and create a little bit more jobs. But certainly we hope that the international supply-demand relationship should be sustainable. For the financial markets volatility, I think that's very different. The currency, the stock market, the commodity futures, I think that's different from country to country and from sector to sector, and different from the specific market participation. And when it comes to the financial markets, is China quite separated from the rest of the world or does it face contagion? We've seen contagion in the past from Mexico, from Russia, and there is a tendency when assets move in very volatile ways that that spreads to other assets. Is China affected by those moves? Ten years ago, or 15 years ago, when the Asia outbreak, the Asia financial crisis, I think at that time, Chinese financial markets to some extent escalate from the rest of the world. But now I think it's closer and closer interlinked, especially in the last year, there is a reform to have a linkage between Shanghai Stock Exchange and Hong Kong Stock Exchange. There are many other developments that say Chinese money market, interbank market, commodity market, a link closer and closer to international market. So it's more open to international volatility. Professor Rogoff, what's your sense on the positives from volatility? Are we going to see some people benefit significantly from this? Probably some people here at Davos. Certainly the oil price fall, I think, has a huge boon for China, for Europe, for Japan, for the United States, and obviously it's hard on the oil exporting countries. I think the exchange rate movement's been a positive thing. The euro needed to devalue. I think it needs to devalue more. The yen, it's very helpful. It might not be enough, but if you ask, we've been moving in the right direction, or exchange rates moving away from equilibrium, I think at least in the near term, it's a positive. How long does it take to feed through? People have talked about the benefit of oil prices for Europe, for example. How long will that take to show through in the numbers? It goes through fastest in the United States because I don't know the taxes and stuff. So in a place like Europe, the government gets some of the benefit because the tax rates are so high, but then the governments are up against it, so presumably they'll spend some of it. I think it'll be pretty big within the year, within this year. I think a factor, people are underestimating and how much it will help. When it comes to markets, one thing we haven't really talked about a lot is stocks. Volatility has been very, very low, particularly in the U.S. market for a long time. It's ticked up a little bit recently, but a lot of that has been based on very low interest rates, quantitative easing, and other things. Do you see that changing significantly? Actually, you can mention government bond again. In government bonds, volatility has been very low too. Are those going to shift as you look out over the next year? I personally don't think so. I think the low rates are with us longer than we could ever expect. If the Federal Reserve raises rates and puts it at a 25 basis point overnight rate, it's not going to have a dramatic negative effect on the stock market. That's a meaningless thing, frankly, because it's a long-term trend of the market. So my predilection and my prediction is that the markets, particularly the U.S. market, will be higher by this time next year as a result of where the rates are around the world. But you're asking about winners and losers. The people that are going to win over the next three years is the world's middle class. That's the big irony of the whole thing, because we're having a huge debate about the 99% versus the 1%, but as investment starts to return to the world and as growth starts to return, that debate is going to go down because you see what ended up happening with the monetary, the consequence of the monetary policy was it was a reflation trade, Thorough. And so what ended up happening was if you had assets, the Federal Reserve and other central banks were trying to reflate those assets to calm down the financial anxiety in the world. So explain that. Why does volatility help the middle class? Can you explain that a bit more? Because we're going into a transitionary period now where we're normalizing monetary policy. It's creating some volatility near term, but what it will ultimately lead to is a more normalization of the capital structure, which means there'll be more investing. I'm predicting greater than expected global investing, which will lead to greater than expected global growth, which will benefit the world's middle class. And frankly, if we're going to be very candid, 50 years from now, someone will say the monetary policy worked to stop the crisis, but it had the unintended effect. The side effect was that it frayed the social fabric of the West. The rich got very, very rich during that period of time, and the wages stagnated. And I predict that that's going to change, and most people are not predicting that, but you can just see why it would change because of the cash reserves that have been built up around the world prepared to now reinvest again. That's interesting. We've actually got 10 minutes less, so I'd love to throw this open to questions if anyone has one from the audience. So a microphone here in the front, please. Thank you. I have a question for Governor Zhou. Would you please elaborate a little bit on the impact of lower oil prices to the macroeconomy in China in 2015, and also its impact on the possible reform agenda, especially in the energy sector? And also I'm also wondering if... Can we stick with those two for the time being, please? Thank you. As I said, China is a big importer of the oil and gas. So I think lower oil and gas prices give some of the momentum for GDP growth rates and the job creation. So I think in this regard, it's good. But, however, China is also in a period of structure changes which strongly call for the new investment to the non-fossil energy, especially the wind farms, the solar energies, the other kind of the hydro-nuclear energies. So I think we worry a little bit that the price signal may give this incentive for the new energy types to develop and to reduce the new investment into the non-fossil energy. So actually we hope that the global commodity price should be stable and reasonable and should be sustainable. Otherwise, it's a very confused signal to create the volatility and also the volatility in the investment directions. And on the reform agenda? And also, will lower oil price help China to achieve a 7% economic growth target next year and also very quickly... No, no, just stick with 7%. Quick answer to that. Actually, the Chinese Congress hold in this March is going to discuss this target, GDP growth rates, the inflation target, or the others. But I think basically people's bank of China is confident that Chinese economy, basically it's still stable and to have relatively high growth rate. Meanwhile, we emphasize more on the structure reform. So basically I can still optimistic. Great, thank you. Here, thank you. I just want to probe on the question of central bank communication, perhaps for Governor Joe and Governor Autiz. The reason that Switzerland doesn't want to communicate is that it probably rightly worried that the market will bet against the decision if it preannounced it, which is indeed the case with the fact that it withdrew from the initial intention of withdraw the QE back in 2013. And the PBOC is kind of also communicating very grudgingly, sometimes waiting for the media or the market to get the information and then announce its policies. I'm just wondering, is this the real reason that PBOC or other central banks really don't want to communicate that intensively? I think it's a very complicated question but for different central bank, you know that the dependence on the public communication are on the different level. For example, if the economy got into zero lower bound, so there is already no room for further easing or lower down the interest rate. Surely you may have more of an older expression and try to have so-called voice guidance so the public communication is very important. But in the other normal situation, sometimes it's equivalent to whether you just announced a policy change or you have a lot of explanations. Basically, the central bank explanation of a policy change or a contraceptive adjustment probably the same as the public opinion expressed. The same as those of major economies to comment on that. So in that kind of situation, the dependence on the communication should be different from country to country. As a comment on that, when you have a policy change, it's very sensitive. It can be a big speculation and to cause big scandals that if you try to have early communications, like the case you mentioned, the Swiss bank will not have a policy change on that. So can we have a question on markets if there is one? It's nearly on market. It's more to Governor Zhao. He's been prone to opening up the Remimbi. And I was wondering his view. Now we see the CNH and CNY more or less at parity. Is it a sign that China is opening up? And last year we saw volatility also in the Remimbi. The first year that has been weaker. This is another big topic. I don't know whether we have time or not. I think we probably have time for two more questions. And Governor Zhao has been very kind, but maybe for one of the other panelists at this point. At the back there. May I ask a simple question? China did so much in investing in infrastructure. When Europe and the US will start investment in infrastructure, because it will help tremendously through this crisis. Well, I'd say, of course, it would help tremendously. It's not as easy to organize it. It's not just a matter of the financing, getting the right of way. You know, if you want to change the electric grid, which we do, it passes through many plates. Amtrak, the train, we want to put in a faster train. Every state has to approve it along the way. So that's certainly an obstacle. But yes, President Obama proposed an infrastructure bank at one point, which probably got all the traction that his proposals last night will get. But I think it was a good idea to try to provide a framework for making these communications. Thank you. One final question if there is one. Here in the middle. Thanks. I have a question for all the panelists. In 2014, the American GDP growth has been to the up five percent. Can you speak up? Can you hear me? Hello. Keep going. Yep, we can do that. So it's just about that for China has been in this last so many years been keeping as the engine for the world economy. Well, you'll think in the next few years this position will be replaced by America. Yeah, there's a question for all the panelists. Sure. Well, I think that the slowdown in China will have a huge material influence, not only in markets and commodity prices and so on. But on the example in Latin America, we haven't talked about Latin America, you know, but Latin American growth was propelled in the few years prior to the crisis, basically by China's demand of commodities and so on. So yes, it's going to have, I think, a quite dampening fact, particularly in Latin America and in Africa and in some place of Asia. And on the flip side, Anthony, what is the research in the U.S. me? Well, I think it's a complementary. I don't think it's necessarily going to replace China. But I think what we will see is China and the United States, if we manage that relationship as well as I think we're capable of managing it, those two economic superpowers can lead the world to a growth resurgence. So I do think that that's going to happen. And I don't think that a lot of people are predicting that right now because we're thinking about this very low deflationary environment. But the Chinese and the United States have a huge opportunity to lead the world economically in the next decade. And the Russian perspective? Well, I think that it is very important for China to continue leading the economy. And we all benefit when China does it. Probably with American growth, it is more at the expense of other countries sometimes rather than adds to the global growth. Especially it is unfortunately against European growth sometimes. And European economy continues to slide when the United States economy goes up. So we need to find ways. And this is about, I think, global dialogue and some of the platforms that have been created, the Asian Pacific region, free trade zones and things like that, to have American or Chinese growth, positively influencing growth in other countries. We need to find ways to agree on some of those things to produce global growth. For Chinese economy, we also use the world used in the beginning as a new normal. I think that when China found out that all the patterns of economic development become more and more unsustainable and environment unfriendly. So we must make changes. If Chinese economy slows down a bit, but meanwhile more sustainable, it's for the medium and long term. I think that's good news. It's a good thing. It's a concept in the new normal. On the other hand, if the government pursue too high growth rate, it may ignore or postpone those of necessary structure reform. And now I think that people care more about structure reform, which I think as a substitute, we would like to certify that it's a little bit lower growth rate with a stronger structure reform. Lower growth rate meaning what? Meaning what level? I think that's for the March of People's Conquerors to announce. I had to ask the question. And so that leaves the final word to Professor Rogoff in terms of this resurgence of the U.S., slowdown in China, and obviously Europe still stuck at a pretty low gear in the middle. What is your sense of how that plays? Well, I actually think what will happen is the rest of the world will recover over time that these things don't last forever. There are other places doing well. India is doing better. UK is doing better. And if China stays strong, I think the global growth will gradually pick up. Fantastic. Well, thank you very much for all of our panelists, and thank you all for attending.