19  For example, Knack and Keefer (1997), La Porta et al (1997) and Boulila et al (2006). 20  Guiso et al (2008) and Zingales (2015). 4  information  please  see  http://www.financial-  BIS central bankers’ speeches  and protracted erosion of social capital. It puts finance on notice for losing its social licence. And, unaddressed, that jeopardises future wealth and well-being. The trust problem If this trust in finance problem is to be tackled, it needs first to be understood. Why trust is important, and what determines it, are issues that have occupied the world’s greatest minds for centuries, perhaps millennia. The philosopher Baroness O’Neill from Cambridge University often draws an important distinction between “trust” and “trustworthiness”. 21 Although this may sound subtle, it carries important implications. Seeking to maximise trust may be an unrealistic and, indeed, undesirable objective for society. In a world of risks and uncertainties, including about individuals’ trustworthiness, people need sometimes to mistrust if they are to avoid bad choices. If the principle of caveat emptor – buyer beware – is to work effectively, not just in financial services but more broadly, it requires a constructively sceptical public. Like cholesterol, there is such a thing as too much trust, as well as too little. A plausible objective of public policy, then, is not to maximise trust among consumers of financial services, but to maximise trustworthiness among its producers.
Similarly, many euro-sceptics characterize the euro as a pure “political” or geopolitical, project – clearly implying that it has no economic rationale. It will come as no surprise to you that I do not share this view. Obviously, the creation of the euro has been underpinned by a broad political vision and ambition. But there was – and still is – a strong economic rationale in solidifying economic and financial integration in Western Europe by the creation of a single currency. This economic rationale is clearly perceived by investors and market participants who have made the euro the second world currency for investing in financial assets and holding foreign exchange reserves. This being said, history has also shown that the geography of the international monetary system may undergo fast and abrupt changes. Over decades and centuries, new currencies emerge and existing ones disappear as major vehicles for international trade and investment. Geopolitical changes may trigger such evolutions. But some endogenous dynamics are also at work. Past some stages, or “tipping points”, the use of a currency may expand or shrink quickly due to network and scale effects: the more people use a currency, the more attractive it becomes. This begs the question of possible “spheres of influence” appearing in the future with significant evolutions in the respective role and weight of existing currencies. In my remarks, I will simply define such “spheres of influence” as parts of the world economic system where the use of a specific currency might dominate.