Denis Beau: What European financial sovereignty in a digital world Speech by Mr Denis Beau, First Deputy Governor of the Bank of France, at the conference "Assises de la Technologie Financière", Paris, 17 October 2019. * * * Ladies and Gentlemen, I would like to thank Ms. de la Raudière for her invitation to this conference, which reflects the financial community’s ever growing interest in the ongoing evolution of the banking and financial system. The organisers of this conference asked me to give you my perspective as central banker and supervisor on the complex issues involved in the boom of digitisation in the financial sector. I will attempt to meet this challenge, by first observing that, for some years now, Europe has entered a world where digital technology is profoundly changing the business models of many economic sectors. The banking and financial sector is no exception. New players are entering the market with new proposals, more suited to the uses and requirements of the “digital” consumer. They challenge established players by fragmenting a traditionally highly integrated value chain. The first of these new entrants are FinTechs. These start-ups are able to outperform the historical players on a link in the value chain, providing new services to consumers or reducing costs. The second are BigTechs.
Taken at face value, these patterns are both striking and puzzling. Not only do they sit oddly with Classical growth theory. They are also at odds with the evidence of history, which has been that rates of technological diffusion have been rising rather than falling over time, and with secular trends in international flows of factors of production. At the very time we would have expected it to be firing on all cylinders, the technological diffusion engine globally has been misfiring. This adds to the productivity puzzle. Sectoral Productivity Trends  Some further insight into these puzzles comes from looking at the productivity data in more granular detail. 42  We start by considering sectoral patterns of productivity among UK companies. Sectoral shifts in the economy could plausibly account for some of the fall in productivity growth. There has been a secular shift over time away from manufacturing and towards services, with the employment share in 39  Rodrik (2011). Based on the following equation: 𝑃𝑖𝑡 − 𝑃𝑓𝑡 = 𝑎𝑖 + 𝑏𝑖 ∗ 𝐺𝐴𝑃𝑖 where 𝑃𝑖𝑡 is growth in TFP for country i in year t, Pft is the growth in TFP for the frontier country (US) in year t, GAPi is the gap between the level of TFP in country i and the US as a percentage, ai is a constant capturing the average pace of convergence and bi captures how much of the speed of convergence depends on the TFP gap.