The digital world proved to be the great disruptor for almost everything known to humankind. Media? Disruption. Banking? Disruption. Currencies? Disruption. The neo-banks seem to be following the (outdated) Facebook motto: ‘Move fast and break things’. In short, they seem to be challenging the status quo. And are they succeeding, with the huge, already-established players like central banks?
The central banks, which are the regulatory organs, are actually required (by nobody specific, only the whole global economy) to be the monoliths and symbols of stability. They should be (as we can imagine – it’s not that easy) the safe bastions in the world financially suffering from Covid-19. Should they be the last certain things in this crazy world?
Last year, Benoît Cœuré, the head of BIS Innovation Hub (Bank for the International Settlements), gave a fascinating speech about Project Helvetia and other innovations for central banks.
The wind of change for the central banking
It looks like the changes we’ve been witnessing are more and more influencing the whole economic outlook, and digitally-driven evolution will force central banks (or encourage them, if you prefer it more subtly) to shift to innovations inspired by the latest fintech market solutions.
Cœuré has actually been responsible for tightening the cooperation on the topics related to innovations. In December 2020 he tried to tackle the issue. He claimed that the oddity of the central bank’s innovations necessity (as it may appear for some) is somewhat unreasonable.
Before taking over BIS Innovation Hub, he was a member of the executive board of the ECB (European Central Bank), which of course is one of the most well-known (and the most influential) institutions of the kind. He has been always pointing out that the central banks need to be innovative, with their responses to the crisis for instance.
He explains that the disruptive innovations (the ones that tend to break and dismantle things) are in contrary to the mission of central banks. This doesn’t change the fact that the challenge is real and remains. Thus, the movement of central banks must be rapid, and they need to understand the demand to become flexible. This new system will push them away, should they not evolve to fit in.
What’s new on the agenda for central banks?
His BIS Innovation Hub has revealed its program in January. Their goals and bullet points are indeed some hot topics, that should be tackled in the nearest future. These are:
- Suptech & Regtech;
- Central Bank Digital Currency (CBDC);
- Open Finance;
- Green Finance;
- Cyber Security;
- next generation FMIs (Financial Market Infrastructures).
Cœuré’s speech was focusing on the new ‘Project Helvetia’ which could be considered as a kind of experiment between the Swiss National Bank, BIS Innovation Hub, and SIX (the financial market infrastructure provider from Zurich). They are working on the integrated tokenized assets and the money of central banks – with CBDCs becoming the newest hot topic on the agenda of innovations in central banking.
In March, during the BIS Innovation Summit, they tried to tackle various new issues, such as decentralized finance and AI (Artificial Intelligence). It hosted various influential names of the banking world, such as Jerome Powell (the Chairman of the US Federal Reserve), Jens Weidmann (the president of Deutsche Bundesbank), and Agustín Carstens (the BIS’s general manager). They discussed the possible ways of innovating for central banks so that they can operate in the modern, digital age. It was moderated by Gillian Tett, the Financial Times editor.
Should you want to get to know the results of the discussion, as well as the BIS Innovation Hub’s endeavors, visit the comprehensive Ian Hall’s piece published on the Disruption Banking website. The author analyses the current priorities of the institution, as well as takes a closer look at the prospects of central banking. To get access to the article, simply use the following link: https://disruptionbanking.com/2021/05/04/as-fintech-gets-hot-is-central-banking-becoming-cool/.