How FinTech could impact the central€¦ · The importance of harmonisation . 4 . and the...
Transcript of How FinTech could impact the central€¦ · The importance of harmonisation . 4 . and the...
How FinTech could impact the central bank roles in market infrastructures
36th ESCB/SSM Social Dialogue meeting (in ESCB composition) Frankfurt am Main 16-17 March 2017
Michael Diemer Chief Services Officer Dirk Bullmann Adviser Directorate General Market Infrastructure and Payments
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The FinTech challenge: focus on blockchain 1
Can FinTech and blockchain impact the central bank operator role? 2
The importance of harmonisation and the oversight perspective 4
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Should a central bank issue digital central bank currency? 3
Conclusions 5
How FinTech could impact the central
bank roles in market
infrastructures
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The FinTech challenge: focus on blockchain
Life on the fast lane: technological innovation as constant game changer
What is FinTech?: innovation that could result in new business models or products with disruptive potential in the financial sector
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Source: Fintech Control Tower, Expand, November 2016
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Source: Fintech Control Tower, Expand, November 2016
The FinTech challenge: focus on blockchain ECB-UNRESTRICTED
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What is blockchain / DLT? • A distributed ledger is a shared database to record either transactions or
account balances for a given set of assets and users • DLT users can modify accounts in the distributed ledger and consider it
as authoritative even without central management system
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DLTs BLOCKCHAINS
BITCOIN
CONSENSUS
LEDGERS
SMART
CONTRACTS
Focal point: Blockchain and distributed ledger technologies (DLT)
The FinTech challenge: focus on blockchain
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Source: World Economic Forum, 2016
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The DLT race: rapid growth of awareness and investments
Focal point: Blockchain and distributed ledger technologies
The FinTech challenge: focus on blockchain
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Operations Oversight Catalyst
Cash
Securities Collateral Financial integration
Impact of FinTech / DLT on central bank roles?
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Can FinTech and blockchain impact the central bank operator role? 2
The FinTech challenge: focus on blockchain 1
The importance of harmonisation and the oversight perspective 4
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Should a central bank issue digital central bank currency? 3
Conclusions 5
How FinTech could impact the central
bank roles in market
infrastructures
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Could DLT become an integral part of the future Eurosystem market infrastructure?
DLT impact depends on how market players decide to
embrace it
In-house solutions of individual
market player
Group of core market players
adopt DLT based service
P2P solution based on DLT
Can FinTech and DLT impact the central bank operator role?
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What potential use cases to be studied?
Potential areas of application (according to market players)?
• Cross-border payments / faster payments
• Securities issuance/ clearing/ settlement
• Collateral management
Implications on efficiency
Implications on safety
• Reduced reconciliation costs • Automation (smart contracts) • Credit / liquidity needs
• Legal and regulatory aspects • Operational aspects (e.g. cyber resilience) • Governance (e.g. crisis management)
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General analysis: • Could current Eurosystem services (TARGET2 / T2S) safely and
efficiently run on DLT? • Joint assessment with Bank of Japan has been launched
Concrete feasibility study: • Could potential new services be based on DLT (e.g. offering issuance
service to CSDs)?
Holistic perspective: • Should central banks support DLT-based market solutions (for efficiency
of ecosystem) and would this maybe even alter the central bank role?
What potential use cases to be studied?
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• Eurosystem market infrastructure services are currently
being rolled out (TARGET2-Securities) and further review is
ongoing (“Vision 2020”).
• Distributed ledger technologies (DLT) cannot be the solution
at this stage of development but benefit of possible future
use is being explored.
Hammer (DLT) looking for a nail (Eurosystem market infrastructures)?
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Should a central bank issue digital central bank currency? 3
Can FinTech and blockchain impact the central bank operator role? 2
The importance of harmonisation and the oversight perspective 4
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The FinTech challenge: focus on blockchain 1
Conclusions 5
How FinTech could impact the central
bank roles in market
infrastructures
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ECB-RESTRICTED Should a central bank issue digital central bank currency?
Central bank digital currency (CBDC)
Granting central bank money access to non-banks
Should a central bank issue digital central bank money?
= CBDC definition (“what”)
CBDC objectives (“why”)
CBDC implementation (“how”)
The journey
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Non-banks holding balances with central bank
(similar to TARGET2 accounts)
Dematerialised (tokenised) cash
Due to low volumes, no current material risk for the central bank’s tasks pertaining to monetary policy, price stability and financial stability
Central bank digital currency (CBDC)
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Considerations around CBDC (examples):
• Ongoing market-led initiatives around issuance of digital coins
• Restricted or unrestricted convertibility of digital central bank money into commercial bank deposits and cash (if conversion was unrestricted, bank runs may evolve faster and impact funding base of banks)
• Possible impact on banknotes (e.g. production costs)
• Possible impact on monetary policy transmission and (unconventional) monetary policy measures
Central bank digital currency (CBDC)
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The importance of harmonisation and the oversight perspective 4
Can FinTech and blockchain impact the central bank operator role? 2
Should a central bank issue digital central bank currency? 3
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The FinTech challenge: focus on blockchain 1
Conclusions 5
How FinTech could impact the central
bank roles in market
infrastructures
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The importance of harmonisation and the oversight perspective
Standardisation and harmonisation
Two dimensions: • Different DLT solutions need to smoothly interact • DLT world needs to interoperate with legacy systems
Financial market integration efforts must not be jeopardised by new technologies (Eurosystem market infrastructures facilitate financial market integration in Europe and supports Capital Markets Union [CMU])
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Coordinated efforts are necessary to harmonise potentially DLT-enabled business processes at the industry level and with public authorities
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DLT and regulatory aspects: not stifle innovation
Impact on regulation (e.g. oversight frameworks)? For example:
Assess how FinTech could help cover data requirements (“RegTech”)
Regulation agnostic to underlying technology? Need for dedicated regulation or adapting existing regulation?
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Conclusions 5
Can FinTech and blockchain impact the central bank operator role? 2
Should a central bank issue digital central bank currency? 3
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The FinTech challenge: focus on blockchain 1
The importance of harmonisation and the oversight perspective 4
How FinTech could impact the central
bank roles in market
infrastructures
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• FinTech bears disruptive potential
• FinTech/DLT could impact and potentially even alter the central bank roles in market infrastructures
• Current DLT cannot be the solution in the ongoing review on the future of Eurosystem market infrastructures but potential future role and impact is being explored
Conclusions
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ECB has established an internal organisational structure around FinTech
ECB FinTech Steering / Coordination • Market participants • Academia • Standard-setting
bodies (e.g. CPMI)
Study of the impact of technological innovation on Eurosystem market infrastructures
Monitoring of market developments in the field of FinTech
ECB-internal Fin-Tech network (internal communication and talent management)
Analysis of aspects surrounding the issuance of digital central bank money
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Operator / Catalyst Overseer Research
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Thank you for the attention! Questions?
How FinTech could impact the central
bank roles in market
infrastructures