It is essential to realise that for the most part, the financial system is not an end in itself but a means to an end and the measure of the success of the financial system must relate to its success in accomplishing broader societal functions. Innovations in the financial system that help it perform these tasks better and at lower cost almost surely lead to increased societal well-being, and to the extent that our GDP measures capture these benefits, in higher measured growth. Notwithstanding the benefits of innovation, it is important to note that the opening up to new activities and products, particularly the expansion of the credit portfolio, brings in a myriad of new risks associated with the new activities. Studies have shown that increasing financial innovation and deepening of financial markets brings with it challenges and risks, which if not well addressed, can threaten the health of the financial system and may cause havoc to the stability of a financial system. 2  BIS central bankers’ speeches  4.0  The role of the Bank of Zambia in promoting innovation and competition  The Bank of Zambia (BoZ) acknowledges that a stable, sound and efficient financial sector has to be underpinned by infrastructure development. The BoZ achieves this by creating an enabling environment through the legal and regulatory frameworks that promote financial systems stability and development.
And, of course, our interest in low and stable inflation is not just to create Monetary Stability but more widely to create a stable macroeconomic environment in which firms of all sizes have the confidence to plan ahead with some certainty. Thus there is a strong overlap between our monetary role and our second core purpose, which is to ensure that the financial system remains stable and sound. Our MOU with the Treasury and the FSA provides us with a responsibility for the financial system as a whole, requiring us to look for possible shocks, emanating internally or from overseas, that might disrupt the stability of financial markets. The third of our core purposes is to ensure that the UK financial system works as efficiently and effectively as possible in meeting the needs of the wider economy. One dimension of this is to try to ensure that small and medium-sized businesses in the UK can obtain funding on a competitive basis. In creating an entrepreneurial economy, small companies continue to be one of the vital engines of innovation and growth. The background environment Today you will have heard a great deal about what underpins an entrepreneurial economy. It involves both the public and private sectors, and most importantly successful partnership between the two. A prime example of this is the nurturing of an enterprise culture through an alliance of the higher education system with initiatives, like business incubation, which often involve the private sector.