Over the past four years, the payment-related costs that your publican or bookseller pay (and ultimately pass on to you) have come down by 40% to around 8 pence per transaction. While these are small – and much better than Bitcoin – they remain non-negligible. That’s partly because there is limited scope for them to be competed away by innovators offering lower costs, faster speeds and more convenience, due to rigidities in the existing payments landscape, including restricted access to the UK’s major bank-to-bank payment system, Faster Payments (FPS). To put a number on it, indirect members of FPS face relatively high fees of around 37 pence per transaction. 31  In 2016, the Bank announced arrangements under which non-bank payment service providers (PSPs) could access RTGS, and therefore FPS directly, and we expect the first will join this spring. PSPs that make the most of this development and reach critical mass could see their per transaction costs fall below those of debit and credit card providers. And the competition provided by the PSPs should incentivise existing providers to innovate as well. Moreover, innovative PSPs could deliver a world where you can split a round in the pub electronically and instantaneously, needing nothing more from your friends than a QR code on their phone or their phone number. By so doing, electronic money will become more like its physical relative, allowing genuine, immediate peer-to-peer transactions, without the need for a middleman.
I am not sure if this is a dimension covered in Professor Genberg's paper on Endogenous Dollarisation, but it is of particular relevance to Hong Kong. The third paper, to be presented by Professor Kumhof, deals with issues regarding price dynamics. Professor Kumhof's paper focuses on pricing policies and inflation inertia, at a time when we are experiencing deflation in Hong Kong: I am sure, however, that there are insights that we can derive from the paper and the discussion. Research on price formation is high on the agenda of the HKIMR and the HKMA, and possibly in academic and other organisations active in economic research in Hong Kong. We have had deflation for some five years now and we are still debating the relative importance of cyclical and structural factors behind that deflation. There is also debate on whether measures could and should be taken to limit the damaging effects of deflation, notwithstanding the fact that Hong Kong is a highly externally oriented economy. Views on price dynamics will contribute to these debates. As you know, the HKIMR was established by the HKMA. This reflects the importance we attach to thorough analysis of monetary and financial issues that Hong Kong is facing. Developments in the local, regional and global economies provide many opportunities for Hong Kong, but also serve as potential sources of risks. It is therefore critical that we actively seek to understand these developments.