Mark Carney: Speech at the Mansion House Bankers and Merchants Dinner Speech by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, at the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House, London, 12 June 2014. *  *  *  Introduction My Lord Mayor, Ladies and Gentlemen. A year ago when my predecessor Lord King delivered his final Mansion House speech, he noted “clear signs that a recovery in the UK, albeit modest, [was] underway.” That recovery was due in no small part to measures he and his colleagues had initiated including extraordinary monetary stimulus, recapitalisation of the banking system and innovative support for lending. The task a year ago was to secure that recovery in the face of continued domestic frailties and ongoing international weaknesses. At home, unemployment and underemployment remained elevated, productivity growth was anaemic, and debt levels were high. Abroad, the European crisis had moved only from its acute to its chronic phase and financial markets were demonstrating their fragility during the “taper tantrum”. With this backdrop and with real wages around 10% below their pre-crisis levels, it was not surprising that consumer confidence, though improved, remained low. Business confidence was similarly shaken by past shocks and current scepticism about the ongoing strength of demand. The Bank responded to these challenges.
Before I give you my answer to this question, let me briefly touch upon the question of the risks of introducing the digital euro and the potential downsides of its deployment. RISKS First, and this is something central bankers are concerned with the most - the potential of the digital euro for disintermediation. The story goes like this: if we deprive banks of their funding sources in the form of deposits and people then move those deposits with us instead, aren't we going to destabilise the system, suppress credit activity and eventually cause the decline of the economic activity? The ECB and the central banks first identified this risk in 2020, and now we believe there is a solution to it. With the right design of the digital euro that places a limit on the amount of digital euro per holder, we can successfully mitigate that risk and not allow the digital euro to become a source of instability. Another risk is a potential for market distortion that lies in the introduction of the digital euro when a public institution enters the private market, disrupts it and even competes with both current and future market participants. Why do that when we already have an innovative and well-functioning payment system in the EU? And isn't it that the markets always do things better and more efficiently driven by the invisible hand, with the regulators' task being only to level the playing field by providing an adequate legal framework?