SPEECH  Demystifying wholesale central bank digital currency Speech by Fabio Panetta, Member of the Executive Board of the ECB, at the Symposium on “Payments and Securities Settlement in Europe – today and tomorrow” hosted by the Deutsche Bundesbank Frankfurt am Main, 26 September 2022 Let me first thank the Deutsche Bundesbank, and President Nagel in particular, for inviting me to speak at today’s symposium. I would like to use this opportunity to discuss the implications of rapid technological change for our payment systems. I will focus not on people’s daily transactions, but on the infrastructure that underpins the smooth functioning and stability of our financial system. Payments have long been an underestimated aspect of the monetary system, running reliably in the background and allowing the smooth implementation of policies in other areas, which took the spotlight. But a burst of creative digital innovation is now breaking this perception. This is most visible in the area of retail payments. The digitalisation of finance has broadened the available payment options. Fintech start-ups have emerged. Big techs have entered the payments market, capitalising on the networks they operate. The crypto universe has boomed and burst. These disruptions show that we need to preserve – at all times – an anchor of stability for the monetary and payments systems. Safeguarding this anchor is what our digital euro project is about.
If given enough authority, rules can induce symmetric behaviour. It remains to be seen how the discretionary fiscal measures adopted in response to the crisis can be wound down and reversed to support fiscal sustainability in the longer run. Since the ECB has started to gradually phase out its extraordinary liquidity support measures, fiscal authorities should also start to withdraw stimulus to safeguard public solvency over the medium term. To support this, we have the right mechanisms in place in Europe. Governments will have to comply with and, as experience shows, even re-enforce the fiscal rules enshrined in the Stability and Growth Pact. Concluding remarks: some lessons From this quick overview, I draw two lessons for monetary policy. The first lesson to be learned is that central banks need to broaden – not restrict – their overview of the economy. Monetary data are critical in warning against risks that are slow to appear in inflation forecasts. Monetary analysis at the ECB consistently sent early signals that risk was broadly under-priced, when inflation was quiescent and measures of slack were moderate. BIS Review 22/2010  3  The second lesson is that price stability is the only anchor which can pin down the economy in turbulent times. It is not sufficient to guarantee financial stability, but it is certainly necessary to prevent financial instability. Increasing the level of inflation that central banks should aim at would be a step in the wrong direction.