Mr. Governor, distinguished company, girls and gents,
It’s a pleasure to hitch you just about right this moment at your annual financial convention on this very well timed and essential subject of cash and public safety.
The yr 2020 shall be remembered as one of the severe well being crises and international financial contractions in virtually a century. Together with many different areas, the shock to the euro space has been notably extreme. In simply two quarters, the euro space is estimated to have misplaced as a lot output because it has gained during the last 15 years.1
The swift emergency actions taken by governments and central banks to mitigate the speedy affect on the true financial system by way of extraordinary fiscal, financial and prudential measures have stabilised what might have been catastrophic for international markets.2
These actions reinforce right this moment’s convention theme, that public safety and common livelihoods are inextricably linked to the general public provision of cash. Right here, I consult with the central bank’s crucial function in making certain that “cash makes the world go spherical” – that’s, safeguarding continued belief in cash as a way of cost, a retailer of value and as a unit of account, a core public good for the financial system at massive.
However the pandemic has additionally proven that whereas central banks proceed to safeguard important belief in cash, it’s expertise that permits our globally linked world and the supply of cash to go spherical. Know-how has been indispensable in serving to to mitigate the financial and social affect of the Covid-19 disaster. Know-how has enabled financial exercise to proceed at arm’s size and partially overcome social distancing protocols.
In lots of respects, the present disaster has subsequently been a catalyst for forcing us all to take stock and to rethink the foundations of the sport. New methods of working that have been beforehand considered a fallback possibility at the moment are seen by many people as the brand new norm. The following accelerated modifications in work and consumption patterns are more likely to have an enduring affect on financial relationships. Digitalisation has taken a leap ahead.
These paradigmatic shifts elevate essential questions that your panel discussions will cowl right this moment, and ones that we on the Bank for Worldwide Settlements (BIS) have been contemplating in depth for the previous few years. In my remarks right this moment, I wish to emphasise the crucial significance of worldwide collaboration in delivering the monetary structure of the long run and spotlight the function the BIS will play.
Rethinking the catalyst for change
Whereas the financial ramifications of the Covid-19 pandemic are nonetheless unfolding, the pandemic has accelerated tendencies in digital innovation that have been already properly underneath means. Customers in lots of international locations have stepped up their use of contactless funds, and as bodily shops quickly closed, e-commerce exercise surged.3
But, the pandemic has highlighted each progress and shortcomings in funds.
Whereas entry to cost companies has elevated over time, it’s nonetheless removed from common. Low-income and susceptible teams face the best problem in paying or receiving funds. Prices are comparatively excessive within the retail section and people prices usually are not all the time clear to end-users. To achieve the unbanked, some government-to-person (“G2P”) funds have relied on paper cheques, which take longer to course of and may pose greater dangers of fraud than bank transfers. Funds throughout borders are nonetheless sometimes sluggish, opaque and dear, which is especially the case for lower-value funds comparable to remittances.4
There’s a lot scope to enhance the standard of cost companies by way of comfort, transparency and velocity. Nonetheless, variations in client habits throughout markets and ranging levels of maturity in banking methods and funds markets may impede localised options for larger interoperability or integration. Disparate ranges of technological development and adoption may create challenges for cross-border funds and the flexibility of public authorities to coordinate throughout jurisdictions.5
One key problem subsequently is how authorities and central banks can use their roles as catalysts and facilitators to spur digital innovation and enhance interoperability or integration in cross-border cost companies.
There’s definitely no silver bullet, however what is obvious is that worldwide collaboration is important – to help technological capability, guarantee interoperability between nationwide methods, improve cross-border funds and remittances, help monetary inclusion, and to keep away from spatial and social fragmentation.
Now greater than ever, central banks should function a foundation for sound innovation within the digital period to take care of the protection, integrity and stability of cash and funds. All these developments make central bank public items extra crucial,6 and central banks have to be on the slicing fringe of expertise to serve society.
It’s for these causes that the BIS established its Innovation Hub to spearhead central banks’ responses to digital innovation. Digital innovation is aware of no borders. It’s subsequently the Hub’s mission to foster worldwide collaboration and construct on the efforts of central banks which have made vital advances in digital innovation. Partnerships with different stakeholders, comparable to bank and market supervisors and worldwide organisations are crucial for this process.
We’re constructing a portfolio of tasks in areas related to central bank actions throughout the three Innovation Hub Centres which have already been established – in Hong Kong SAR, Singapore and Switzerland, every in collaboration with the native central bank. These tasks are designed to develop in-depth insights into crucial tendencies in monetary expertise of relevance to central banks, and to develop new technological purposes – sometimes as proofs of idea to be delivered to central banks – to boost the functioning of the worldwide monetary system.
The BIS determined in June to increase the Innovation Hub over the subsequent two years to incorporate 4 new centres in Europe and North America.7
I welcome the chance to strengthen our hyperlinks with Latvijas Banka by way of the brand new Eurosystem centre primarily based in Frankfurt and Paris. The opening of the Stockholm centre, with a gaggle of Nordic central banks, shall be one other alternative to faucet the technological potential of your area. Centres can even open in London and Toronto, alongside a Strategic Partnership with the Federal Reserve in New York. With an expanded footprint, the BIS Innovation Hub turns into a world drive for innovation in central banking.
Discovering options to complicated issues
Discovering options to complicated issues over the approaching years is an crucial for not solely the profitable functioning of central banks but additionally for strengthening monetary sectors.
This crucial resonates notably strongly in Europe given the dual goals of making a Capital Markets Union and advancing the digital agenda. There’s clearly a strategic complementarity between these two goals, and a chance to enhance each the resilience and effectivity of the European financial system. The Subsequent Era EU instrument can additional contribute to this digital push, as emphasised final week by President Von Der Leyen in her state of the union speech.
Latvia’s journey in direction of digital innovation serves as a superb model for a way central banks are taking the lead in making advances within the provision of revolutionary monetary expertise options.8 Right now, each sixth cost made within the Digital Clearing System of Latvijas Banka (EKS) is an instantaneous cost, and knowledge from the Credit score Register is now out there additionally by way of sensible units. Latvijas Banka’s personal ZibLab, a digital platform for selling the creation and growth of revolutionary and user-friendly cost options, helps market individuals to collectively deal with sensible and technological questions and coordinate growth of interoperable, safe, user-friendly and revolutionary cost options within the Baltic area.
The BIS Innovation Hub can also be embracing new revolutionary methods to search out options to unravel many complicated cross-border issues arising from pointless fragmentation or efforts being undertaken in silos.
Digital funds and central bank digital foreign money (CBDC) are an essential a part of our agenda. As of mid-July 2020, at the least 36 central banks had revealed analysis into retail or wholesale CBDC.9 Whereas no main jurisdiction has as of but determined to situation a retail CBDC, a number of tasks have reached a pilot section.
Going ahead, enhancing coordination and taking steps to forestall or scale back fragmentation in cross-border cost methods are public sector priorities, as embodied within the request by the G20 Finance Ministers and Central Bank Governors to the Monetary Stability Board, along with the BIS’s Committee on Funds and Market Infrastructures, different worldwide organisations, and standard-setting our bodies, to develop a roadmap to boost cross-border funds.10
Exploring the potential of “subsequent era” multilateral cross-border cost platforms shall be a key focus for the BIS Innovation Hub Centres. One such challenge underway at our Singapore Centre examines how digital id and cost rails could possibly be interlinked to create a “international stack”.
However the digital transition past funds – notably the event and utility of regulatory expertise (regtech) and supervisory expertise (suptech) – can also be a key space of curiosity.
Over latest years, there was rising curiosity from monetary establishments and the official sector in using expertise to help new enterprise models and to unravel regulatory and compliance necessities extra successfully and effectively. The potential collective advantages for regulated entities and supervisory authorities to enhance effectivity, scale back handbook processes and make efficient use of knowledge, are huge.
To this finish, the BIS Innovation Hub, by way of its centre in Singapore and along with the Saudi G20 Presidency, this yr co-hosted the primary international digital TechSprint initiative. Fintech companies have been invited to develop revolutionary technological – and deployable – options to handle real-life challenges recognized by supervisory authorities. This was undertaken utilizing the API Trade (APIX): the world’s first cross-border, open structure API market and sandbox platform through which individuals can combine and check options with one another by way of a cloud-based structure.
Different Innovation Hub tasks contribute to the regtech and suptech agenda. Our Swiss Centre is creating a prototype of a central bank-specific, real-time succesful market-monitoring software. The cloud-based stream processing platform will course of real-time monetary information feeds and compute related liquidity and market danger measures. It will present central banks with overviews of market circumstances by way of customised dashboards and real-time alerts.11
And we’ve many tasks that transcend regtech and suptech. In August, the Hub centre in Hong Kong SAR and the Hong Kong Financial Authority launched the TechChallenge – Digitising Commerce Finance initiative to spotlight the potential for brand new applied sciences to boost commerce finance mechanisms (“tradetech”). Personal companies have been invited to submit revolutionary options specializing in connecting tradetech platforms, tech-driven commerce finance inclusion for SMEs, and tradetech infrastructure for rising markets.
Within the coming months and years, because the world offers with the fallout from the pandemic, and the shift in direction of digital finance evolves and accelerates, the Innovation Hub will work on discovering actual options primarily based on sensible tasks to handle ever extra complicated issues throughout an increasing vary of areas, together with cyber resilience, sustainable finance, and the appliance of synthetic intelligence and machine studying to central banking and monetary supervision. Collaboration with stakeholders comparable to Latvijas Banka, shall be crucial for this mission.
To conclude, actions taken by public authorities and central banks have been important in serving to scale back the depth of the COVID-19 shock and its harm to the worldwide financial system and monetary system, and in the end restoring public safety.
Multilateral collaboration and proactive actions taken by central banks can even be important for constructing a monetary structure that’s future-proofed and resilient to face up to a wide variety of shocks. Know-how and innovation shall be entrance and centre as we transfer ahead into this new world.
I thanks in your consideration and I want you a really fruitful convention.
1 C. Lagarde, Video interview with The Washington Publish, carried out reside by David Ignatius on 22 July 2020.
2 See BIS, Annual Financial Report 2020, June 2020, and the BIS Bulletins.
3 See R Auer, G Cornelli, and J Frost, “Covid-19, cash, and the way forward for funds”, BIS Bulletin No 3, April 2020.
4 See BIS, “Central banks and funds within the digital period”, in BIS Annual Financial Report, Chapter III, June 2020.
5 See CPMI, “Enhancing cross-border funds: constructing blocks of a world roadmap – Technical background report”, July 2020.
6 For a dialogue of the function of central banks within the new world of funds, see BIS, Annual Financial Report 2020, Chapter III, June 2020.
7 See BIS, “BIS Innovation Hub to increase to new areas in Europe and North America”, 30 June 2020.
8 See Latvijas Banka Annual Report 2019.
9 See R Auer, G Cornelli and J Frost (2020), “The rise of central bank digital currencies: drivers, approaches and applied sciences”, BIS Working Papers, no 880, August.
10 See Committee on Funds and Market Infrastructures (2020), “Enhancing cross-border funds: constructing blocks of a world roadmap – Technical background report”;
11 The monitoring software will initially deal with the international exchange (FX) spot market, though this may be prolonged to extra devices comparable to FX futures and/or markets at a later stage.