The growing size of international capital flows associated with globalisation of financial markets has made the analysis of monetary aggregates, for the purpose of extracting information for assessing price stability, increasingly more complex. BIS Review 149/2007  3  This brings me to discuss the third point: the implications of globalisation and of international capital flows for monetary policy. If globalisation and, specifically, cross-border capital flows can affect the dynamics of monetary aggregates, how can we conduct monetary policy? An improved shared understanding of the influence of global liquidity and cross-border capital flows on the monetary policy transmission mechanism is necessary to enhance the analysis underlying our decisions. Our role and responsibilities as central bankers remain intact in the globalised economy, but the performance of our task may be becoming more challenging. Certainly, there is a need for timely and open exchange of information among central banks and for further collaborative research efforts. Still, let me stress that the globalisation of financial markets does not affect the central role and overriding responsibility of central banks, which is to preserve price stability within their respective jurisdictions. Central banks throughout the world have been assigned responsibility for keeping domestic inflation at low and stable rates. Cross-border capital flows may affect the velocity of money, but the basic principle for anchoring monetary policy – that is the Friedman’s view that “…in the long run, inflation is always and everywhere a monetary phenomenon” – remains valid.
Faster clearing, especially with a balance check at initiation and immediate posting or credit at the receiving end could reduce the amount of credit involved in managing commerce or a payments business, credit that arises today from returned checks, for example. Customers that are relying more on their balances and less on float or credit may borrow less but may need to be more liquid. The possibility that future payments might rely somewhat less on a firm’s economic capital and its liquidity could also contribute to efficiency. Along with enabling innovation, technology drives new risk. Reports of denial of service attacks and data breaches have raised data security concerns across the payments industry. Concern is growing about the potential to corporate and or other bank account takeovers. Any of these disruptions has the potential for undermining confidence in the payments system, particularly given that it is difficult for end-users to assess the security of payment services. Security and resiliency have always been paramount concerns across the payments system. The impact of a significant outage or fraud on the public’s confidence may adversely impact increasingly electronic or “digital” commerce. New ways of making payments and the entry of non-traditional payments system participants create change that presents new risks and challenges to assess. The sophistication of some recent frauds introduces the potential for material risk.