Should central banks lower interest rates below this bound, the effect on the economy may be contractionary rather than expansionary, owing to the adverse effects on the financial system as a whole.10 The level of this lower bound on interest rates is not directly observable and varies over time according to the financial sector’s situation. In any event, it represents the floor for central bank interest rate cuts. In Europe, the ECB’s deposit facility rate was already set at -0.5% before the COVID-19 crisis.11 In our statements, we have stressed that this rate could be further lowered in the future. Yet, taking a longer perspective, it seems clear that conventional monetary policy — i.e. that based on controlling the short-term interest rate — has less scope for action in the current context than, for example, a few decades ago. 10  See, for example, Brunnermeier and Koby (2018) for a discussion of the effect of interest rates on banks’ profitability and their ability to lend. 11  Arce et al. (2018) estimate that this level of negative rates does not necessarily reduce the supply of credit by European banks and in particular by Spanish ones. 14  The lower bound on interest rates generates significant asymmetry in monetary policy conduct. As I commented earlier, if inflation rises above its target, central banks may increase interest rates as much as necessary in order to “cool” the economy and reduce inflation to levels compatible with their target.
This market power might also lead to high fees for payment transactions that could reduce the revenues – and hence the innovative capabilities – of partner banks. C. Consolidate European integration and sovereignty in the area of payments  The limits of Europe’s integration and sovereignty in the area of payments have been highlighted once again by the entry of tech giants into the field of payments and the emergence of a systemically important project such as the Libra/Diem initiative, which could see non-European participants providing new solutions on the European market. Although implementation of the Single Euro Payments Area (SEPA) project was beneficial in supporting defragmentation for credit transfers and direct debits, non-European participants have been able to leverage regulatory harmonisation in their efforts to conquer the entire European market, whereas domestic participants have struggled to expand beyond their country of origin. Meanwhile, European integration in the area of card payments has failed. The so called international card schemes exclusively manage all cross-border payments within the European Union, not to mention a large share of domestic payments. This situation has created a dependency with multiple consequences. I am talking particularly about the definition and control of technical standards, financial aspects, but also challenges related to payment data, i.e. our capacity to protect these data and enforce compliance with European standards such as the GDPR, if decision-making centres are based outside Europe. II/ What is the Banque de France doing?