BIS Review 7/2000  12  4.3.2. The importance of “proper” incentives  It is important to have incentives which reflect the real costs connected to various payment services if participants are to come up with their own solutions balancing risk against efficiency. A pertinent example may be the regulations concerning loans in the central bank. It is a basic responsibility of the banks to ensure that liquidity is sufficient to cover settlement. The main rule for settlement in Norges Bank is that there shall be adequate cover in the account. If, for one reason or another, a bank does not have sufficient cover, it must turn to the market for financing. If necessary, the settlement should in part or in its entirety be delayed so as to give the institution enough time to obtain sufficient liquidity. Too easy access to loans in the central bank in situations where financial stability is not at risk involves costs in that it weakens banks’ incentives to address elements of risk in the payment systems and presents the customer with prices which do not reflect the risk attached to various payment services. 4.3.3. The importance of competition  The stipulated regulatory framework affects competition, such as who is allowed to initiate new payment services. Competition is important, both for improving the use of known, reliable payment services and for the development of new services.
I could talk about r-star at great length, but you may be relieved to hear that for the purpose of this speech, there’s just one point I want to make: r-star has fallen, not only in the U.S., but around the world. 1/4  BIS central bankers' speeches  Fundamental shifts have been occurring in the two main drivers of r-star over the past two decades: demographics and productivity growth. Lower fertility rates and aging populations, as well as slower productivity growth, have pushed down r-star by as much as two percentage points in a number of developed nations. These structural shifts are having fundamental effects on real interest rates, growth, and inflation. A number of advanced economies have inflation below desired levels and longer-term interest rates that are well below where they were a decade ago. There are, of course, a few outliers, but the commonalities between the world’s developed economies are becoming more and more apparent. There’s no doubt that the U.S. is experiencing first-hand the effects of the structural shifts in demographics and productivity growth. But the fact that these changes are a common experience for so many developed economies creates challenges to our economic prospects at home. Slowing Global Growth Which brings me to the second trend I highlighted: slowing global growth. This story—of low interest rates, low inflation, and slow growth—is showing up in the data. The latest numbers from the International Monetary Fund (IMF) follow the recent trend of steady downward revisions of growth estimates.