(A) The digitalisation of finance is prospering thanks to cutting-edge technologies (big data analytics, cloud computing, artificial intelligence and blockchain) that beyond the promise of better consumer experiences is lowering the entry barriers to the financial sector for new players, the tech firms, and make it possible to unbundle financial services into an array of distinct core functions such as channelling payments and money, providing financing, sharing risk, and allocating capital. Balance-sheet-light payment services have so far been the main gateway to the financial sector for tech firms, but after doing so tech firms may then expand their business further along the value chain, from payment to retail and commercial banking, wealth management and insurance. Among these tech firms, the Fintechs and the Bigtechs will have a different impact on financial intermediation. Fintech startups have already been a game changer in the financial sector: they have imported from the internet industry a customer-centric culture into the financial sector and they have targeted and called into question many of the long-standing financial rents. However, Fintech start-ups do not have the capital resources to disrupt incumbent banks and their future role is likely to be shaped by two main alternatives: to be acquired by an incumbent bank or to compete on niche segments such as equity crowdfunding or market place lending. It could be different with Bigtechs. The market capitalisation of the GAFA companies Google, Amazon, Facebook, Apple- is 25 times higher than that of the whole Fintech 3/9  universe.
The Deutsche Bundesbank and the rest of today’s Eurozone members (the former Exchange Rate Mechanism members) may serve as a useful example. By imposing the uncovered interest rate parity predicts that the pegging central bank either follows the interest rate policy of the leading central bank or faces significant pressure on its exchange rate. Well, this is exactly what happened, for instance, in the 1980s when the Banque de France tried to lower its interest rate below that of the Deutsche Bundesbank, and again at the beginning of the 1990s when the Bank of England and Banca d’Italia did not want to follow the policy tightening of the Deutsche Bundesbank. In both cases the opening of a negative interest rate differential created depreciation pressures on the exchange rate. As you may well know, the British pound and Italia lira were subsequently forced to abandon the Exchange Rate Mechanism. The existence of exchange rate crises and speculative attacks thus serves as clear empirical evidence in favour of the uncovered interest rate parity. In addition, recent empirical studies based on advanced econometric techniques and using intraday data have shown that when the historical data are used properly the result may support the uncovered interest rate parity concept. The exchange rate plays a crucial role for the Czech economy as well and is therefore an important part of our forecasting devices. And yes, the core forecasting model we use relies on the uncovered interest rate parity equation.