The international conference "Money and public security", 25 September 2020.
Big changes rarely happen overnight. Sometimes they even go unnoticed.
But looking back we can almost certainly see all the milestones and road signs signalling the turns.
I find the today’s conference quite symbolic: we are discussing digitalisation of money and the format of the conference is also fully digitalised this year.
This is the year when the world stayed home. Staying at home is quite all right if you make good use of the time: see what must be improved, change the perspective and come out stronger.
COVID-19 has been a massive catalyst to processes previously considered, but seemingly quite far from their practical implementation. Many organisations, Latvijas Banka included, had, indeed, looked at teleworking as a future option. Then came March and practically everybody was teleworking from day one. COVID-19 has accelerated processes in many areas. The world in general and the financial world in particular have become more digitalised. Not only practically “right now right here”, but most importantly in terms expectations regarding the pace of change. We have reached a certain point and I do not think there is any chance of going back.
Two years ago, Latvijas Banka’s annual conference was titled "Payments of the 22nd century: future starts today". At that time, our experience with instant payments was quite modest, yet we had a strong belief that the future lies with instant payments. We were right and they have become the new normal today. Particularly in Latvia, where instant payments are available to more than 90% of bank customers and they are charged similarly to traditional payments. Many may even find it hard to remember the life before instant payments. The same is now becoming true of mobile payments. At our conference two years ago, we were discussing central bank digital currencies and a digital euro as a distant future uncertainty or certainty, depending on the discussant’s point of view.. Today central bank digital currencies, hopefully, to be joined by a digital euro, are virtually on our doorstep. My personal view is that digital euro is not about if it will happen, but when and how it will be designed to accommodate the technical requirements one needs a digital currency to perform.
Two weeks ago, President of the ECB Christine Lagarde said the following at the Deutsche Bundesbank conference:
"Here at the ECB, it is our duty to ensure that people have access to riskless, low-cost means of payment, as well as state-of-the-art payment services that reflect our changing economy."
Christine Lagarde stressed that Europe should develop the autonomy of its own payment system and consider the implementation of a safe digital currency. It is critical for our future economic growth, well-being of our citizens as well as sovereignty of Europe and its international standing. I fully subscribe to this. Yes, it is our duty and we shall do it.
Ladies and Gentlemen,
To have a vision, there should be ambition. And I want our ambition in the area of payment systems and digital means of payments to be crystal clear: we want it faster, we can do better. Europe has fallen behind the curve. Europe is a heavyweight of the global economy, alas, underusing its potential. We must run faster. It is never easy for a heavyweight to run fast, yet giving up is not an option.
At the same time, we should also realise that any new developments involve risks. Therefore, the title of this year’s conference is "Money and public security". There are many questions that haven't been even put into words yet. Today is an attempt to look at some of them, because asking the right questions is half of the solution..
New developments open brand new opportunities, but also bring in risks. Some of such risks is data protection at an individual level and geopolitical concerns at the community level. Convenient financial services provided by say BigTechs, probably also their digital currencies, may seem quite tempting to all of us. But can we expect such global companies always act in the interests of our people? How would such actors act in a crisis when monetary policy is supposed to help us getting through the storm? Can we risk putting our future in the hands of somebody else? I do not think so.
There are many other topical issues to be considered: Are the payment systems resilient to technological failure or cyber-attacks? How to close digital skills gaps? What is the role of cash? Is cash about to disappear? Do we need a digital euro?
These are some of the questions that central banks cannot and should not be answering on their own. Discussions with citizens and the private sector are important. Involvement of citizens and private sector is critical.. Private sector initiatives should be able to integrate with central bank solutions, including central bank digital currencies (when they come). They are complements, not substitutes.
Monetary policy, payment systems and digital currencies are complicated mechanisms, and only a small part of population do understand them. But all of us use them.
This is exactly why central banks have a duty to engage and find the ways of addressing a wide audience. They must speak about those subjects in a way that is easy to understand. And central banks are in a good position: they enjoy high reputation and public trust because of their independence, which means that they can speak up and be heard.
And more importantly, listen to those affected by the change. We must find the best solutions together with the population, public institutions and the private sector.
The field of payments is one of Latvijas Banka's strengths. My sincerest compliments to my colleagues who have made it into the backbone of Latvia's payment system. Saying that in certain segments we are at the cutting edge of payment innovations in Latvia and Europe in general, is no exaggeration. Our instant links that enables payments by indicated mobile phone number only is used also by the Estonian banks.
At the same time, I would like to make it clear that cash and digital currency are by no means mutually exclusive. It's an "and" rather than an "or". Cash and non-cash are equally important. They are complements, not substitutes. At least for the time being. Cash will remain an important factor of economic gravity and public security in a foreseeable future. This means that availability of cash will be an essential issue.
And finally,
I would like to dwell briefly on the concept of a public good. What is the public contribution of Latvijas Banka, as we perceive it?
We are using our in-depth economic expertise to help decision-makers. We are educating the general public about sound management of personal finances. Among many other tasks, we are providing cash and payment systems, enabling the economy at large to feel safer and reduce turbulences.
Monetary policy is a public good, although sometimes not exactly self-evident. People do not always notice the foundation of things. But a strong and resilient foundation helps the society to be better prepared for future challenges and makes Latvia and the euro area as a whole stronger.
The euro is Latvia's currency. The euro is a global currency. We must make the full use of it, as it lets Europe to maintain its sovereignty and be globally competitive.
I would like to thank all speakers and participants of this conference for finding the time to join us. Your contribution is highly appreciated, and I know that the many truly high-level participants joining us today will help us to make progress in this long, sometimes bumpy, but always exciting journey. Let us switch on the high beams, illuminating the road far ahead and enabling safe trip forward!
Growth, sovereignty, security - these are big concepts and ambitious goals of national significance that might be only achieved by joint effort of all stakeholders. I am honoured to give the floor to His Excellency Prime Minister Artūrs Krišjānis Kariņš.