Guest view: Innovation transforms central banking
04 Jun 2019

The future of central banking is inextricably bound to innovation. The technological sea change that is transforming the financial sector and the wider economy is affecting all aspects of our work, from payments to monetary policy to financial regulation. Our mandate to preserve monetary and financial stability, now and in the future, comes with a responsibility to lead an intensifying debate about the nature of money in a digital world and how new players will reshape the provision of financial services, and to show the way by upgrading our own tools and instruments.

As guardians of monetary stability, central banks have more at stake than most in the future of money, be it in its traditional or digital form. Today’s cryptocurrencies, for example, do not fulfil money’s basic premise: to serve as a unit of account, a means of payment and a store of value. Central banks have called out the false promises made by the creators of cryptocurrencies and will remain alert to potential threats to monetary stability. At the same time, they are actively exploring the possibilities that the underlying distributed ledger technology opens up for payments, clearing and settlement systems as well as digital currencies,

And as guardians of financial stability, central banks are directly affected by innovation in the financial sector and in the infrastructure underpinning financial markets. Financial stability matters because it reassures consumers that their savings will not evaporate overnight. At the same time, it ensures that credit provision will continue to support economic activity. Hence the importance of getting the balance right between innovation and stability.

The new waters that central banks are navigating are perhaps most evident in banking, where incumbents are under pressure from both below, from fintech startups, and above, from technology giants. As supervisors and regulators of a rapidly changing sector, central banks and other financial authorities need to be as creative, nimble and tech savvy as any new kid on the banking block. Our daily vocabulary now includes suptech and regtech – as the intersection between technology and supervision or regulation respectively is known. Authorities are harnessing advances in artificial intelligence and its practical applications to help shape new supervisory tools. And they are creating innovation hubs to bring entrepreneurs and incumbents together, as well as “regulatory sandboxes” that allow innovators to test new technologies and products in a safe environment.

By Agustin Carstens, general manager of the Bank for International Settlements, Reuters, 3 June 2019

Read more at Reuters

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