Excerpts from speech by Benoît Cœuré, chair of the Committee on Payments and Market Infrastructures (CPMI) and member of the Executive Board of the European Central Bank, at the Economics of Payments IX conference, Basel, 15 November 2018.
New technologies will reshape the way financial services are provided in the future. And they will pose new and virulent risks to the financial system. More interdisciplinary research, bringing together macroeconomists, payment experts and IT developers, is needed to reap the benefits that new technologies promise, to help central banks, regulators and standard-setting bodies keep our financial system safe, and to forestall and prevent misuse and deception.
CCPs: CCPs themselves are rarely, if at all, sources of risk (in fact, pooling risk actually reduces it), but they can become nodes of risk amplification and propagation. Also, the sources of disruption can be manifold. These include insufficient financial resources, failure of margining models, particularly in illiquid markets, and/or badly designed or executed default management processes.
Cyber: The next financial crisis may well start as a cyber-incident. In recent years, these have grown rapidly in scale, scope and sophistication. Failure to adequately protect against cyber-attacks may have far-reaching repercussions. Digitalization is the breeding ground for cyber-threats. Despite its undisputable benefits, digitalization brought many ills, such as hacking, phishing or identity theft, and in general it is an enabler of new forms of fraud. And the stakes have risen. Hackers increasingly target wholesale payment systems and the large money flows they handle.
Crypto: Lightning may strike me for saying this in the Tower of Basel – but Bitcoin was an extremely clever idea. Sadly, not every clever idea is a good idea. The opportunities of the blockchain are many, but the problems of Bitcoin are also plentiful. I believe that Agustín Carstens summed its manifold problems up well when he said that Bitcoin is “a combination of a bubble, a Ponzi scheme and an environmental disaster”. The CPMI started studying cryptos and the underlying distributed ledger technology (DLT), including blockchain, early on. Back in 2015, we released a report on cryptocurrencies — today, for well-known reasons, we like to speak of them as assets — and last year we published an analytical framework for looking at DLT. That said, there is still much that we do not understand, and things are moving rapidly.