Transcript of Question & Answer Session Panel Participation at the Sibos 2018 Conference

So sorry for beginning a bit too early. And my name is Hiromi Yamaoka from the Bank of Japan. Today we'd like to have a discussion about the central bank and fintech. Indeed, fintech is already an important factor for the financial world. And there's a development in these 10 years, just 10 years ago, a decade ago, we, or central bankers were in the Global Financial Crisis.

But at that period, there's no Blockchain, no DLT, no cryptocurrency, because Bitcoin was created in 2009, and Blockchain DLT also were created in 2008 to 2009. And in terms of the smartphone and iPhone. For example, iPhone was introduced in 2007. So around 10 years ago, not so many people had the iPhone. But now, according to the World Bank statistics, there's still 1.7 billion unbanked around. But among them, already 1.1 billion of those have a smartphone or mobile phones. And AI, of course AI has existed since 1980s. But in terms of the machine learning or deep learning, those technologies has developed very rapidly since around 2010.

So in these 10 years, there's lots of technological progress in terms of the information technology. And those technologies enabled the financial industry to serve everyone in the world, globalisation financial services. And at the same time, they can use Big Data, and customise the financial services to everyone in the world. For example, no iPhone or smartphone were originally the phone. So it's one person per one mobile phone.

And for example, if we think about PC, PC is one instrument from one family. But if we think about the financial services, by using the mobile phone, we need to think about the customised services to satisfy each person's needs.

And the third one is the virtualisation of financial services. For example, if we use Cloud computing, and DLT Blockchain and the mobile phone as a customer's relationship management, we can use a virtual bank. We can create a virtual bank without having any brick and mortar branches. So there's a big change in the financial world. And at the same time, Central Bank has many, many responsibilities about the financial industry and the financial services.

For Central Banks need to provide safe and efficient infrastructure, and maintain the stability of payment and settlement, maintain financial stability. Conduct monetary policy, and facilitate the development of finance and industry. And there's lots of impact of fintech on the financial structure and the financial market.

For example, there's a lot of new entrance in financial services. For example, non bank payment service providers, B2B lenders without using their own balance sheet to provide the loans and credit and robot advisors. And there's a new product, Crypto Asset, which is becoming a speculative investment too. And new networks and [unclear].

Now, fintechs are entering the financial services by using their own big data, and utilise those data for a variety of businesses. And there's new market strategies. There's lots of algorithm-based trading, and high frequency trading. And there's new sources of systemic impetus. The more and more financial institutions are using the Cloud computing services. And more and more businesses are based on the Big Data, and new structure in finance.

There are lots of decentralised technologies like Blockchain with DLT. And open banking, by using open API, and in terms of the risk sharing structures, formerly banks have its own risks by providing loans and getting a deposit and they are making a maturity transformation by using their own balance sheet. But nowadays, for example, in terms of the Robo Advisors, they do not use their own balance sheet in order to perform as fund intermediary functions.

So from the central banker's point of view, maybe the risk sharing structure, it's changing a lot due to the fintech developments. So now today, we have an excellent and fantastic panellists from all over the central banks, from APAC, Mr Greg Johnston from Reserve Bank of Australia. As you know, Reserve Bank of Australia is leading central bank in terms of promoting financial service, and Reserve Bank of Australia launched the FSS in order to support the 24/7 payment services on a private basis by offering the central bank money settlement on the real time per-settlement basis.

And from Europe, European Central Bank, Mr Marc Bayle de Jesse, you know, ECB is also a leading figure to promote financial innovation with fintech. And there is that [TIPS] also, to support the 24/7 pan-European settlement or payment by offering central bank money. And also, ECB is in charge of establishing T2S, a new securities platform.

And from Federal Reserve Bank of New York, New York is over the centre of the financial innovation. Mr Lawrence (Larry) Sweet, and he is also a leading figure in the BIS CPMI in terms of the cyber security and end point security.

So, first of all, I'd like to ask my central bank colleagues about the important elements of fintech for the central banks. For example, which technology are very important from the viewpoint of central banks, and which technology or which element of fintech are you focusing on specifically? So first I'd like to ask Greg about your opinions on that point, please.

Thank you very much, Hiromi. It's a pleasure to be here this afternoon to talk about central banks and fintechs. I come from the financial infrastructure provision side of the Reserve Bank of Australia, so I run the area that operates our RTGS system, which is called RITS. And as Hiromi's pointed out, also we have a new system that's now operating since October last year, and was part of a public launch earlier this year called the Fast Settlement Service and that's an integral part of the new payments platform.

The RBA has a range of interests which relate to fintech. First of all, we have policy responsibilities, like many central banks, for the efficiency and the stability of the payment system. We run core financial market infrastructure like RITS and the FSS and we also provide services to Australian government agencies. So we have an interest in fintech from three different perspectives. I think if you want to get the common denominator about what motivates us, the short answer is it's the public interest.

And so we will view a fintech opportunity not so much from, although this is true too, just purely from an interest in the technology itself, but for us it's got to have a purpose and relate to one of our roles. So in terms of what can we do and what have we done, we obviously listen to our government clients, we listen to the fintech community through our policy area. We have got involved in the building, we hope, of infrastructure that will facilitate easier access by the fintech community to the Australian payment system. And that's through the new payments platform and the development of the FSS.

We can promote a common vision of where we need to be as an industry, and sometimes when you need a multi-lateral uplifting capability, the central banks can add a lot of value there. We can promote common standards and a common experience that fintechs can take advantage of. So it is not a great thing for fintechs if they're trying to build a product that they believe is useful for a customer segment. If the experience that their customers will get from one, say, financial institution to another is quite different.

We're interested as a market infrastructure operator in fintech that will help us make our system more stable, and that could mean AI to monitor transactions that we've got going through our system to detect anomalies. From a government agency point of view, we might be interested in fintech that presents or helps us present a more readable and digestible set of data that our customers are interested in. So we've got a range of irons in the fire, there's a lot going on even for central banks in this space.

Thank you very much. Thank you. So next Marc, which element are you interested in as a central banker, or what area are you focusing on as your responsibility in elemental fintech, please?

Thank you Hiromi, thank you for inviting us here today. We have a lot of interest on fintechs from different perspectives. I will not repeat what Greg just said, I think we have the same approach in the sense that we have a different perspective. We look at it from all the angles, but basically to focus on our main objective, we want the market infrastructure to be as efficient as possible so that it delivers the best service to the economy, so that it brings the payee to the payer the quicker and the safest possible, with full trust.

That it brings an issuer to the investor in the quickest way as well, in the most efficient way. And with a secure and balanced technology. So fintech are a bit disrupting, the way we're working, but it's a long travel on digitalising our financial market and flows. And it's just further improving the speed at which we look at it. So we look at it from our three main missions. The first one, as a potential operator of services, can we benefit from this technology? So we test the technology. We test this with our friends, in particular with Hiromi, yeah, we made the Stella Project to test out what we can do payments in a RTGS mode.

We tested also how to do DVP settlement by synchronising two different Blockchains with technology in-between, and we made publication together, and we are very happy. We are working on Stella Three, it's the next stage of reflection. And so it's very important for us when saying that, that when we develop services, we need to make sure that the technology we brought in is the best for our purpose. So somehow, we are technology agnostic. We are ready to use different technologies, provided it deliver trust, safety, efficiency, and operational cost which are as low as possible.

It's also true that in a globalising market, we need to find innovative solutions which necessitate to interlink different market infrastructure in different context. So here this new technology can help us. Because the operator role is one way we are looking at it. In this respect, we developed fintech lab within ECB. And we collaborate with all the Euro system central banks on how we can leverage as much as possible this technology.

So far as a rather [more standard] technology, centralised seems to be more efficient for the services we need. So we are using them at the moment. But being curious and looking at it is very important. The second role we have is to look more at it from a catalyst for change, or making sure that integration of the way this technology could flow in our economy is integrated. It does not recreate silos, it does not recreate fragmentation. Fragmentation of liquidity, fragmentation of services.

So we are looking at it also in this context to make sure that there is an harmonised approach to it, a good interaction between the different actors, and in particular in the field of payment we have been quite active creating task forces with the central banks, banks, market infrastructures, making a publication on those topics, and seeing how we could develop eventually a use case, which would help us to reduce our fragmentation in Europe, which is one of our challenges.

So we are looking at how to implement in a more efficient way [unclear] protection. For instance, we are looking at how eventually can help it share their transparency increase within our economic area, to mention just two, we look also whether it can help for task withholding collection. So many, many points.

The last point is we look at it also from a safety point, and I guess Larry will develop even further on this point. We want to make sure that this technology does not create instability, it does not create an escape to our regulatory and oversight function. So we should make sure that the way that we make sure that trust remains in the system can be preserved independently of the technology which is being used. So we really look at it from many angles. All of the points which are on this list are relevant.

This means new entrants, this meant eventually new assets, or crypto assets. It means new actors, which we were not choosing before. It means also that we have to deal with higher speed, higher interconnectivity and interconnection between the actors. And therefore, we have to adapt the way we are developing services and looking at it in this regard.

Thank you very much. So then Larry, are you coming from New York, the centre of the financial innovation. And so which element of fintech, or which of the technology of fintech are you most interested in? And as a central bank, what are you focusing on? Which technology is most relevant for your function or for your central bank, please.

Thank you, Hiromi, thank you for the opportunity to be here, and good afternoon, everybody. I would say just like all of my colleagues here, it's not surprising our starting point of interest reflects our role in the financial system, which is we care for the soundness of the banking system, the safety and efficiency of the underlying payment clearing and settlement systems that support it, and ultimately the soundness of the overall financial system in the macro economies.

So that really guides our interest in all of these developments, as well as other developments in the markets and in the real economy. We have to stay abreast of it. So I think our first way we approach it is to make sure we understand how technology is evolving, how the different actors in the financial system are using it, and make sure we understand it from those core responsibilities. And we do that, we must do it both domestically and internationally. So I can just share a little bit just as examples how we intend to do that.

So domestically in the US the Fed is actively engaging with the market to understand both from like a supervisory hat, how the institutions are using the technology and bringing it into the services that they offer, how they manage their operations, et cetera. And we also work collectively in the financial system, how can we support innovations in developing a very concrete example, faster payments?

That's a very big issue now, the Federal Reserve has been working with industry groups over the last couple of years. You know, what should be our objectives, and the way to create real-time payments on the retail side. And just a few weeks ago, the Federal Reserve put out a new sort of, we called it a Federal Register notice, basically a discussion paper to ask about what kind of new rails, settlement rails could the Federal Reserve provide in order to support the market in delivering faster payments, particularly on a 24/7 basis.

So we're very much engaging and working collaboratively with the industry from the perspective of the needs of our domestic financial system. Internationally, as I've said, technology provides both opportunities and potential risks, and we need to leverage the opportunities and manage the risks well. And it's no surprise to everybody in the room, sort of two of the key risks that have emerged alongside of technology is cyber risk in general as well as the risk of payments fraud related to the phrase we've been using this week, "endpoint security." How all the different banks and other participants in the payment systems connect to the central market infrastructures or messaging networks like Swift. We've heard of, like, the Swift CSP.

So we're also mindful that even as technology creates huge possibilities, we need to be very mindful of making sure that the associated risks are well-managed, and we're staying ahead of that. And we recognise that's not just a role for each of us individually as central banks, but as the financial system is global, we also have to coordinate globally in our approach for this. And so we work very much hand-in-glove together in providing both in learning and being aware of these evolving risks and opportunities, but also providing guidance or requirements or aligned policy perspectives in how to handle the risks as well as support the innovations.

Thank you very much. So the next topic is what central banks can do through fintech to promote efficiency while maintaining stability of the financial system and the payment system. And central bank may have a variety of functions. First, central banks are working as the operator of the financial market infrastructure. Central banks operate the RTGS, Real-Time Gross Settlement System, Large Value Payment System, as well as security systems.

So central banks are in a position to provide central bank money, which is risk free settlement to stabilise the payments of settlement system. But at the same time, central bank must pay attention to strike an appropriate balance between the private-based innovation, and the public-based stability. And then central bank may work as an overseer of the market infrastructure. So in order to maintain the stability of the payment system in the financial market, central bank may work as an overseer or supervisor, or sometimes in some cases regulators to stabilise the system as a whole.

And then central bank may work as a catalyst of the variety of entities. For example, in terms of end point security as Larry mentioned, it's quite important to lay that at the bottom line of the securities available. Because in the securities issues, there's a strong network of externality. And worst participant may decide the overall level of the securities. So it's quite important to involve a variety of entities, and promote the securities among a variety of entities. So a central bank may work also as a catalyst.

So the next question is, what specifically can central bank do to enhance efficiency of the financial transactions, market transactions? And at the same time, how central bank can maintain the stability of overall payment system or settlement system and the financial stability. So the question, Greg, how do you think about the central bank specific role to promote fintech, promote financial efficiency while maintaining stability, please?

Thanks, Hiromi. Perhaps I can draw upon some of our recent experience in the Australian payments industry as you're now, I think, well aware, we've now gone through a process since about mid-2013 to bringing to market a whole new infrastructure. And as part of that process the central bank had a range of different roles. Our payments policy people started a conversation about what do we think the Australian payment system and financial markets need as a next generation infrastructure. We saw comments from a wide variety of people. In fact, anyone who wished to could comment. We then distilled what we thought the vision was, and then threw the challenge to the industry. And, to their credit, they came back with a proposal which included some innovation.

That innovation was the creation of what was called an overlay service and that terminology is now well embedded in payment specialists around the world. The idea of it is that it's sort of like an innovation sandbox that sits around a set of core financial, or payment system rails. The idea was that we would work collaboratively together with the industry to develop this new infrastructure.

The Reserve Bank of Australia's contribution, aside from starting the conversation in that way, was to think about how we might arrange settlement, which is a core Central Bank responsibility. As Hiromi has pointed out, we provide a risk-free asset, which payment service providers use to extinguish liabilities between them.

The question for us was what would be the most flexible, and the most usable settlement arrangement for that ecosystem going forward? We arrived at the view, which was a little bit different at the time, that an RTGS, a real time gross settlement option would be the best for this new ecosystem. That was a little different because many smaller value systems still settle on the net deferred basis. The high value systems routinely settle on an RTGS basis. It was a technical challenge for us and it was a bit of a change of the routine. Nevertheless, we felt that RTGS provided the maximum amount of flexibility for people who wanted to put business cases on this new rail. The reason I say that is because it extinguished interbank settlement risk, credit risk between payment service providers as an issue, as a challenge to deal with as people are putting forward new propositions on this set of rails.

That's an area where we got involved and we stayed closely involved through the project with all of those three different roles that I mentioned earlier. As a supervisor, as a provider of financial market infrastructure and also as a provider of government services to the Australian Government. The thing we've done since then, is to stay involved. We still retain our involvement in the NPP Australia Limited. Both at the board level and on various committees to try and promote the ongoing use of that infrastructure. A key focus for us at the moment is to encourage the completion of the full roll out of the capability of this new system to all bank customers. Another key challenge for us is to think about how to make it easy and clear for fintechs to play and to develop new services on that ecosystem.

Thank you very much. Same question to Marc. What can central bank do to maintain stability while enhancing the efficiency?

Yeah. Well it's a permanent struggling, it's not only related to fintech. The point is that we have to make sure that our infrastructure, whether we are operator, whether we are overseer are delivering the best to the economy. That we have the strongest possible way to go. In Europe, we had the reflection on this some years ago to define how we would modernise our market infrastructure and came with different projects which are being delivered now.

The first of which, as you mentioned in your introduction, Hiromi, is TIPS, our instant payment settlement function that we developed. It is triggering a whole reflection behind, which is being done together with the market. So it's not only an answer of the central bank, it's done [unclear] of the market. It has been triggered by a political act, so we could say catalyst function in this regard by a committee on which you have all the market represented. Both the supply and the demand side of the market. So the merchants, I would say consumer association but also the banks and the FMIs and the Central Banks thinking on how we can enhance the way payments are flowing in Europe. Which came about by sponsoring the development of a scheme called SCT Inst which is how you frame instant payment in Europe.

Pushing the different provider to put in place solutions which allow, like in Australia, even though Europe, being an association of countries, sometimes it a bit more complex for us politically. We have other challenges than you, I guess. This being said, now we are in place to come with this. How did it relate to Fintech? Well, because all the services which are being developed need this efficient infrastructure. All the innovation flowing around. In particular, you mentioned the iPhone as one example. All the mobiles that we have in hand and that the new generation, the [unclear] of finance are expecting real time processing. When you buy something through this you expect it now. You will not understand that the payment takes a few more hours or eventually a day more. While this can be resolved instantly, technically. Therefore, we need to adapt our market infrastructure to the level where the economy is. One of the motivations where we moved on this is based on that.

It does force us to think whether we can use this technology, as I was saying. For now we are not choosing it for the moment. We believe that it creates the framework for this technology to develop and for fintech to develop services in a safe environment. We will modernise more widely the way the banks will be able to access central bank money. We will further enhance all our services, our RTGS. We will try to rationalise our personal context by putting together a security settlement and large value payment on the same technology. So we can rationalise the excess to our services in Europe, in central bank money. Allowing and to create a central liquidity management function in central bank money which will be accessible for the bank, optimising the way liquidity can be used. Supporting again, the development of innovation in the economy. Not having to rely on systems, on frameworks which are elsewhere not located within our, at least, control.

We can have the stability element that you were mentioning, Hiromi at least, under our oversight. It's a very important balance you have to find. Also, very important to see that all these projects have to be done in a coordinated manner. Not only within Europe, but more globally. So it does not say that because we want to have a possibility to ensure stability, trust in our currencies, that we should not collaborate outside. No. On the contrary, collaboration is very important.

As you know, and under your authority, the CPMI has created a working group looking for instance at a way we enhance our RTGS. I think it's a very important undertaking so that we can coordinate the way we are implementing those new technologies. The way we are enhancing our services to support the development of those fintech services which are important for developing our economies.

Thank you very much. Same question to Larry, please. What can central bank do to promote fintech, enhance efficiency while maintaining stability at the central bank? Please.

Well Hiromi, as you pointed out, we have lots of ways to influence. You have on the screen, I'm pointing that here. Our roles as operators, overseers, catalysts, I would say. In general, we usually leverage all of these roles as we're moving forward. I can just elaborate on two examples, one domestic, one international to give an example. Domestically, as an overseer, as I mentioned very quickly, the Fed observed about three years ago, the clear and developing need and desire for faster retail payments. How was that going to happen in the US in order to make our payment system overall, safe and efficient and supportive of evolving needs.

That was you're all sort of taking stock of what gaps exist. Should we try to fill it? We used our role as catalyst, by assembling, by pulling together key stakeholders from all relevant parts of the financial system to work together, agree to a set of criteria objectives, a vision of where we want to go and identify different models and try to come up with a view on how to move forward. As operator, we asked ourselves then what the specific services we could provide as an operator as a financial system, of a payment system, in order to support those efforts. One is already a reality. We had introduced a new concept for us. Something called a joint account, which allowed basically any set of depository institutions who can have an account at the fed to establish a pot of money that they jointly own and allow that pot of money to be available to back 24/7 retail payments. That's already gone live in the US. That's moving forward.

As I said we're out for comment now, what additional services might the Federal Reserve provide to help facilitate the expansion of such faster payments and make it more ubiquitous. Reaching across all corners of the 50 states of the US. Just showing how we tried to use the three roles together. Likewise, internationally following really the eye-opening event of the big fraud and hacking of the central bank of Bangladesh. We took stock as overseers. What can we learn about the risks for the broader financial system overall. Not just for the risk of any one user payment system from losing money, which is very important, but also does it have systemic implications for the broader financial system.

We certainly as an overseer took stock and saw that it does. We saw that there were huge amount of gaps in the way people approached the topic in terms of both preventing, detecting and responding. Then we developed collectively, all of us on the table here, a strategy which we are now out as catalysts trying to promote around the world to help strengthen end points and making the system as a whole stronger. As we're taking that catalyst role very seriously, we're also looking what each of us could do as operators.

For that I could already talk about in Fedwire. We already launched a set of tools that we could provide to all of the users of Fedwire to set parameters and controls to help them prevent and detect potentially fraudulent payment systems. We've gone out there to take stock and strengthen our end point requirements, as a user of the service. And are looking at just like Swift is doing with the assurance program. What kind of a process should we put in place as an operator to give confidence that users of the payment system are adhering to the requirements that they're supposed to meet.

These are just two examples, domestically and internationally. How we try to leverage all of these roles and have them work together to our common objective.

Thank you very much. Yeah, indeed the Bangladesh hacking incident was a very shocking event for the central bank. Since then, Larry is playing a leading role in the CPMIBA CPMI meeting. Then, I'll like to ask a bit more specific question. There's lots of possible issues from the viewpoint of first operators and also overseer and then catalysts also. In terms of operators, I think that the RBA, Australia's initiatives very, very interesting and important. You launched the FSS to support the NPP private-based 24/7 payment by offering the central bank money to support those private based initiatives. Actually, it's quite important. It seems to me that you tried to strike a balance between enhancing innovation, private-based innovation. For example, the mobile phone based transfers while maintaining the stability by using central bank money. Could you kindly elaborate a little bit about your project in terms of the FSS and NPP and the thoughts of the RBA behind those pressures, please.

As I mentioned earlier, the development of the FSS was a collaborative effort between ourselves and the industry. We saw that as a means of promoting our collaboration and particularly innovation in the financial system, and the payment system in particular. For us it presented quite a lot of challenges. Our current system RITS was certainly not able to operate at the pace that we felt was necessary for a new system that would serve the retail payments industry. It was a significant undertaking for ourselves. We had built up new infrastructure stack, both at our Head Office site and at our backup site. The new infrastructure works at 1000 transactions per second. It works in a really very secure way. It works in a defined, message format way with the NPP under a close orchestration. That was a large undertaking.

But as a market operator, the key objective there is to promote innovation rather than to predict what particular innovations that we would like to see or that customers would like to use. If you ask us what do we hope the side effects of the development of the FSS and the NPP are, I think we would like to see some more specialised service production by industry segments. In the past, traditionally we've had a defined range of payment instruments. Just about everybody offers them. They're offered in a very predictable way to customers. I think we're hoping now that we will be able to bring forward innovation with smaller subsets of financial institutions and fintechs working with them. That might be to present information in a more palatable or more digestible way to customers. It might be to coordinate the movement of assets with the movement of money, which obviously FSS plays a key role in. It might be to develop apps or central pieces of infrastructure, which means that individual bills around the financial system are not required anymore. You have a central piece of infrastructure that enables bringing forward new innovation to market more quickly.

We're hoping that the pace can quicken up. The specialisation of certain products can be more clearly attached to the needs of particular customer segments. For us, as a market infrastructure operator, it was all about promoting that sort of culture and that sort of possibility for the Australian payment system. The other aspect of what we do as a market infrastructure operator is to make sure that our access arrangements are fit for purpose to promote that sort of an objective as well. With that in mind, we don't just allow access to banks, or as we call them in Australia, authorised deposit taking institutions. Providers of payment services to third-parties can also apply for a settlement account at the Reserve Bank. That enables them to participate as a more equal player in the various payment clearing streams in Australia.

Thank you very much. So Marc, you also introduced TIPS to support 24/7 pan-European payment. Also, you have also project of T2S which involves a very innovative idea of some sort of the efficient management. Could you kindly elaborate a little bit about TIPS and T2S?

Yes. With the goal of fintech I understand. As I said, we are modernising our market infrastructure services to be able to better service the economy at large. TIPS is a good example of that. Whether we can use as operators, as we are now on the operator side, this technology has been tested particular in the Stella Project with you. We concluded that at this stage, no. The more, I would say, centralised type of technology is better in many respects in this case and would deliver a better service to the market. But it does not say that because at this occasion we are not using this technology that it will not be the case in the future.

Again, our starting point is a policy action we want to reach and not a technology we want to use. It has triggered different questions. The questions are not only triggered by the development of services we do, but also by the evolution of our society. In particular, the way we give access to our services is also another question which is being discussed in the central bank community. In Europe, and not only in Europe, in many countries today as new RTGS generation are coming, whether the current access policies that we have should be or not extended to new actors which are very active in the field of payment, in particular, or a third-party provider of services in this field. Whether it's better that they stay out or in or whether we should bring them in partially for some activity or not is the real question for the smooth functioning of our infrastructure.

Certainly, some of the technology we could use, and we will use in our infrastructure, are more related for the moment to machine learning and to potentially artificial intelligence. Which will help us to be stronger in terms of detection and therefore prevention of risk, where we need here to use all what is possible with the new technologies, fintech. This morning I was in a panel discussing on EID and fact that digital identity has to be protected and that the appropriate technology has to be used in this field. Also, I think that the use of fintech technologies, which are being there could help us to be stronger. So in this field, I would say we have probably a lot to learn there and to bring in our platforms and services. So it will not be using these technology as a core function of TIPS or T2S or the value services we develop with the new generation of services but probably some of it will come to reinforce again. The objective we have is to deliver a safe, well-functioning and efficient market infrastructure for settlement in central bank money and circulation of liquidity central bank money amongst our economies. So it's certainly something we are looking at.

Thank you very much. Larry, you are coming from US. US is always a centre, a core or the finance innovation. Nowadays lots of companies, including the data giant company, big tech company like [unclear] enter partially into the financial services. Fintech may have an impact on the financial market or financial structure. From your point of view, what would be the impact of fintech or fintech-type new entrants to the financial services on the structure of financial system or financial stability. I'd like to ask your views on that.

That's a pretty big question. I guess it's sort of like two quick ways I'm thinking one could answer that. One is the very direct way of how those developments interact with the banking system and the financial system and make sure the narrow ways they're planning to use it are both safe and efficient and/or consistent with each of their roles in the financial system. I think what you're touching on is more broadly, we see a lot of the, whether it be stated or unstated, objectives of innovative ideas is, I might put this a little simplistically, you see a lot of people working in technologies and new things we could do and discover, well wouldn't it be great if we could sort of plug into the central bank?

And if we could have an account at a central bank or access to a service that we don't currently have, look at all that great things we could do. And sure that's true, but when you get into that moment and you're looking at it, it does require society basically to look at the fundamental role of central banking, commercial banks, and non-banks. And you know, all of the financial system is in some sense a man-made, artificial construct that we've, through good times and bad times, we've sort of settled on through survival of the fittest, this seems to work.

So it's often important, and as Mark is saying, once the question we think, "Do we have it right? Who should have access, who shouldn't, what," and then you go to the next stage. Who's access should be supported by the public safety net be it for supervision or liquidity support, or whatever the elements are that give us some comfort in the current financial system, should we change that? But I think it's important to face those fundamental issues head on, rather than sort of ignore it through the back door of just technology. So we wrestle with that a lot, and we've been thinking domestically and internationally about those very topics.

And just to connect it to an example I said before, when the Fed provided this new joint account approach, that was a way to sort of strike a balance in sort of maintaining the current understood and agreed structure of the financial system where there's a set of entities who are allowed to have claims on the central bank, but provided it in a way through the designation of an agent by those owners to support both banks and non-banks in having a more innovative way to create and deliver retail payments. So we're looking at it all the time, how can we do it? But it's an ongoing challenge.

Yeah, thank you very much. So then I'd like to ask a question from the floor. So if you have a question, please raise your hand and clarify your name and organisation, please.

Thank you, gentlemen. My name is Manoj Agrawal, I'm from India. I'm the group editor for a magazine called Banking Frontiers. In India we have a particular challenge with all this technology that we talk about. There is a rural segment that is an under-banked segment which does not have access to a lot of technologies and that population is huge. So are we looking at technologies that then include a lot of those people?

Because historically that's what technology has done, is reduce cost, made things efficient, so that the common man can access something whether it's a phone on a train for technology. Are there low-cost technology solutions that have been examined?

Have you got something from your side?

I'm willing to jump in. I could start by kicking off the Committee on Payment and Market Infrastructure is working with the World Bank, had actually taken a look at this topic a couple of years ago. And we've issued a report, it's not very well talked about outside of the narrow community, but it's the payment aspects of financial inclusion. And when we looked at that, we were asking ourselves that very same question, you know, can technology be the solution?

And we very quickly came to understand that technology can be part of the solution, but looking at technology in and of itself can also aggravate problems. What we've discovered is we think it's very important when you're looking at technological innovations to help financial inclusion, basically to keep your eye on the money. Where would the funds that those who are currently in, say, the unbanked who are working in a cash society, if they give up their cash and put it somewhere in order, where will it be, will it be in some place safe?

So it's equally important as we're looking at delivery mechanisms, like say the technology somebody could use, whether it be an iPhone, or some other form of access, where is their wealth going to be, what will be their store of value? In particular, will it be something as sound as cash, meaning a claim on the government, or might it be a functional equivalent of a claim on an unsupervised entity where it creates credit risk for those who are most vulnerable?

So it is important to look at where the money is, and one of the core parts of this strategy for promoting financial inclusion is to ensure that those who are currently unbanked have access to a safe account, a safe place where their money can be stored, and then you can talk about the technology to use it, and to deliver it in a way that's meaningful and cost effective and deals with the social needs of those who are currently unbanked.

Maybe just on the cost element, the last point, I mean I fully agree with all the points of Larry, I mean we are working on some of this financial inclusion. But on the cost of technology, we see that the implication of those new technologies allow us to go to a very, very, very low level of cost. So I think it's the new services which are coming up, to the new technologies and to the smartphones which are getting everywhere, it does not need the same infrastructural cost that we needed before to set up those payment systems with dedicated line, with dedicated network, very complex.

We have lighter technology which is available, which allow in particular for new entrants or country maybe which have less sophisticated marketing, not market, real infrastructure. So it in place to have already services it, at a relatively cheap price. I mean we see that the cost recovery for the TIPS project we are doing allow us to have a fee of 0.02 cents per payment.

Zero percent?

Yes. So we can do five payments with one cent of a Euro. And that allows us to recover our cost. So you can come to level without a transport. I'm speaking of our cost as a system. So you can go really to a very low level of cost, provided you have this success, or you need to resolve the first point indeed, where can you safely store these electronic records of your wealth. But then once you have it, I think there is ways to do that which are quite efficient, yes.

Can I add a follow-on point?

Please, please.

So the security costs of IP are going up. Has that been included in the cost calculations?

Yes.

So, any other questions from the floor? Please.

I'm just wondering if in very remote areas, cryptocurrency could almost, you know, if there's no traditional payments infrastructure, could cryptocurrency almost replace fiat currencies?

[Laughs] Please?

No, why don't you try?

No, no. No, no.

Maybe I can take it. First, there is no cryptocurrency, it does not exist. There is only crypto asset. So far, I am not aware of what I would call a crypto money. So we are discussing within the central bank community, I guess there is publication on that on the opportunity or not to issue in a crypto way our currencies, then you could call this eventually "crypto currency," I guess. So crypto Euro, I would say. And the analysis we have so far on that has been that there is no appetite, I speak for Euro, it is the official word of my president, for our society to go there, because we have efficient functioning cash processes, there is trust in our bank notes and coins, and there is also trust and efficient processes of payment in an electronic manner.

As I was saying, we are introducing instant payment TIPS. But there is also the whole functioning of the payment infrastructure which is very safe and well-functioning. So there is no appetite to go there today, and no need to go there today. If the society were to say, "We need something else," then this will have to be analysed and considered then to see what role. But we should be careful here to make difference between technology, between assets or things, of some things which is cryptonised or tokenised, and the replacement of currency, which have an economic function which is very important for the functioning of our economy, which have trust, which have a lot of elements, which are not just exchanging something electronically between us.

I would be very glad to elaborate, agree and elaborate on what Marc said, is it's important to separate, you know, when you're thinking of the kind of examples you're talking about, remote access in different challenging areas of the world, the technologies to reach people wherever they may be, that's separate and is extremely important to think through. That's separate from what is the asset, or the crypto asset that is being used in that process?

And you know, in looking at both central bank, digital currency, and private digital currency or digital assets, the central banks have been looking at that for quite a number of years and it was just I think last year there was a joint committee report that came out. And it was very clear that while the technology was very promising and it can be used in different use cases, it was a very clear view that those kind of crypto assets that basically have no inherent value, do not represent a claim on or a liability of any entity, is really unsafe to rely on as money. They're unsafe as a store of value, as a unit of account, or a means of exchange. And I think that's a pretty clear and shared conclusion around the world.

Yeah, I guess the only, I mean like has been said already, I mean for Australia, we don't see a strong use case for the issuance of a digital currency. I think if you're talking about a less developed country with a large, unbanked population, in principle, as Larry said, if you know where that money is. If it's a claim on a central bank, if it's deliverable via technology that's available, perhaps you could come up with a scenario where that might actually add some value.

And even currency itself in some of those remote areas you can have challenges like counterfeiting for example. So it's possible, but I think you have to tread carefully, because you need to make sure that those people are not exposed to risks that are not apparent to them.

Yeah, thank you very much. Two weeks ago, the Financial Stability Board published a report on crypto assets two weeks ago. And in my understanding, the main message is it is very unlikely that the current crypto asset will be used for the daily payment purposes. It's mainly for the speculative investment tool. It is for two reasons. The first reason is that price fluctuation is so big. No one wants to use an instrument which value would go up, and no one wants to accept the instrument, which value would go down.

And the second and fundamental reason is that the trust is the most important thing for the payment instrument. And in terms of the crypto assets, or current crypto assets, they need to create a trust from scratch. So they consume a bunch of electricity for the calculation. And so this is my understanding with the current type of, please, please, please, please read.

The gentleman in the front, please.

Now as you know, we have technology that when we get access to Bitcoin or something else, we have also access to TIPS and things like this. So we don't need this micropayments, but we have discussed 10 years ago for some areas in Africa and so on. That we say, "Okay, we need micro payments because we have not access to the real economy. It's now over." So I think it's much more better to look in future, that the technology will have grown up in this area, and we have to pay back to the secure coins of the central banks.

I think also, but we take this new technology and these apps and this PSD2 and so on, so banks themselves has more choices to pay back as a home bank directly with a home account. We don't need so much PSBs and papers between, because we have access directly to the secure money. So I think things like PSD and so on, we came back to the secure area.

It's not really a question I guess, but a dynamic insight.

Yeah. And oh, the gentleman behind, so please.

There is a case of use for cryptocurrencies. For example, in Venezuela where there is high inflation. So I think it's wrong to assume that we don't need cryptocurrency as a currency. There might be a chance to use cryptocurrency where there's high inflation. And on top of this I would like to ask, if the European central bank is thinking to use, is not an optimum currency area. So is there a chance to use a digital currency in Europe to eliminate the friction of the European area? I don't know if the question is clear.

Well first, just to qualify. My statement was for Europe, I don't speak for the rest of the world just as well. I can't judge the situation in different countries which can be different. And for Europe, we are assessed, we are studying together with all central banks. As was said, there is a report which have been made by the CPMI, there have been reports which have been made by different groups in the FSB as well on reflecting on those developments.

So there is a reflection, and we are looking at it. We do not believe in Europe today, ECB, that having crypto Euro to take your language, would bring any benefit compared to what we have today. So that's exactly, I think it was repeated very clearly. But again, Mario Draghi, like three, four weeks ago, I don't know, it was only two weeks but I don't remember. But it's very clear.

And it's not, I mean it's a recent, and I would say point and objective which is very clear, because we have efficient functioning of our cash society and because we have efficient and safe functioning of our electronic payment system, which is also delivering a form of digital Euro if you want, through the banking system. We do not believe that we have to get out of the banking system to separate Euro other than with bank notes today in Europe. That's where we are today.

When I speak Europe, I speak Euro area, to be very clear, because we know there is some reflection in some countries. Sweden is making some reflection on whether Swedish krona should be issued in the e-krona scheme or not. They have not decided, to my knowledge, to go there, but they are thinking about it. So there is different contexts in different countries. But for the Euro in Europe, we don't believe that it would give any value to us today. And the fragmentation is not due to the form of the money if you want, in these regards.

Yeah, thank you very much. Very unfortunately, time is running out, I'm sorry for that. And thank you very much for everyone. Please, give a big hand to all the panellists, please.