ECB’s Cœuré describes central bank’s actions for AI and DLT in markets

Excerpts from speech by Benoît Cœuré, Member of the Executive Board of the European Central Bank, at the Central Bank Payments Conference, Singapore, 26 June 2018

There is no doubt that the fourth industrial revolution is dramatically changing the way we communicate, the way we shop, the way we learn and, quite frankly, great parts of the way we live our lives. Artificial intelligence and exponential increases in computing power are forcing firms to re-examine how they do business.

The financial services industry is no exception. Digitalization has already left bustling stock exchange floors in demise. High frequency trading is increasingly shaping market dynamics. And in the future, thousands of financial analysts may be replaced with robo-advisors.

The financial industry is often the industry spearheading technological change. Distributed ledger technologies (DLT) are a case in point. They have applications well beyond finance. The diamond industry, for example, is using digital ledgers to track and record their assets. But it is the financial sector, and payments in particular, where progress is arguably moving fastest.

Cœuré discussed:

  • The challenges of digital innovation: “Although cash still reigns supreme in the vast majority of countries, it may be sidelined sooner rather than later. If cash were to disappear, trust in the currency, a key public good, would be dependent on the creditworthiness of private entities. With bitcoin and other crypto assets we have seen large and unpredictable price swings and outright cyber heists that may expose people to the risk of losing their savings; this demands that central banks take these risks seriously. Were central banks to issue their own digital currencies, people would be able to hold a central bank liability comparable to cash, without the risks associated with commercial money.”
  • Making retail payment systems instant and available 24/7: “Later this year, the ECB will launch the TARGET Instant Payment Settlement (TIPS) service….(which) not only has the potential to help better prepare incumbents for the challenges arising from digital giants, such as Alibaba, Apple and Google, who are integrating payment services into their ecosystems, it also has the potential to be a catalyst for spurring progress in two old failings of our current system: cross-border retail payments and financial inclusion.”
  • Modernizing real-time gross settlement systems: “We are implementing the ISO 20022 standard and offering multi-currency functionalities in our infrastructures. In the near future, both payment and securities settlement services will also undergo a technical and functional consolidation.”
  • Enhancing cyber resilience: “Failure to adequately protect against cyber attacks may have far-reaching repercussions. Take wholesale payment systems as an example. A breakdown of these systems, even if only temporarily, would threaten financial stability, endanger the provision of liquidity by central banks and jeopardize the implementation of monetary policy.
  • Multi-lateral efforts: “Let’s work together to make our payment systems faster, cheaper and safer – and let’s shield them from the sound and fury of politics.”

Read the full speech

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