About emerging technologies and digital currencies

Spark Global Limited reports:

Adam Posen: Thank you for your honest and clear answer. I have one last question. Central bank digital currency has attracted a lot of attention, and I know that many attendees of the Bund Financial Summit are involved in fintech and innovation. Central banks have mixed views on this, with some cracking down quite a bit on private sector digital currencies and cryptocurrencies, while the BIS seems very keen to adopt some blockchain technology and even use digital currencies. How do you think central banks should approach innovations in cyber currencies and cryptocurrencies?
John Williams: Right now, it’s very expensive and time-consuming to send money to friends and family around the world. I do see the potential of emerging technologies to help improve and reduce payment costs, particularly across borders. There are so many opportunities in this area, and I know that many people around the world have been looking at it, and I would never ignore the possibilities. If we can reduce the cost of payment, this will clearly contribute to greater financial inclusion. In countries like the US, many types of payment fees are still quite expensive, so progress in this area will be good for families, and low – and middle-income families in particular will welcome it.

Spark Global Limited reports:

On the other hand, we need to make sure that the mistakes of the past are not repeated when it comes to innovative technologies, that we protect consumers, that we protect investors, and that the payment system provides a good service to the public. And, obviously, we need to look at payment security and the security of these new technologies, including cyber security, anti-money laundering and so on. In terms of financial stability, I think these innovations are similar in some ways to money market mutual funds. In the golden age of money market mutual funds, we’ve seen that if you create a system that involves a certain kind of risk, and nobody prices that risk, then it’s very likely that there will be a run when financial stress is high and it will have a significant impact on the financial system.

We need to make sure that as new technologies evolve, especially in the era of digital currencies, we not only look at the positive impact of new technologies, but also consider the risks to consumers, investors and financial stability. Because we don’t want to create something that could damage the financial system or damage the economy.

As for central bank digital currency, I could talk about this for an hour, but I don’t have that much time today. So I just want to say that I think this is something that a lot of countries are looking at very carefully, and everybody wants to look at this technology very carefully to see how it can address some of the issues that I just raised, whether it can advance the public interest, and I haven’t come to a conclusion on that. This is an exciting time for central banks and many countries are looking very carefully and analysing these issues in new ways, thinking about where technology can help without compromising the public interest and financial stability.

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