So if FinTech is currently getting hotter, does that mean that central banking is not?
The FinTech branch has brought us quite numerous examples of relatively young, ambitious companies with revolutionary ideas, that eventually, would appear to be so groundbreaking, that they disrupted the banking market. This is the power of the current outlook, that allows these revolutionary firms to thrive, and the pace of their development has been nothing but impressive.
They in a way resemble Facebook’s ideas from the first years of their operations, with Mark Zuckerberg being the face of the “move fast and break things” movement. Although the tech giants have since moved on from this rather edgy outlook, this represents really well the events from the current neo banking branch. Currently, a lot of companies have the goal of challenging the status quo. And there is always balance needed in the universe. Does this mean that while some try to be as disruptive as possible, others (the central banks for that matter) should be the bastions of stability? And does it mean that these bastions can’t take part in the development process?
What is the current role of central banks?
Just like everywhere, the priorities have been shifted by the pandemic. So while some try to stay on the surface, and maybe keep on disrupting the market with their innovations, the central banks have the burden of keeping the economies on a relatively sound level. So in the light of the Covid-19 crisis, this should be a surprise to nobody that Central Banking has to tackle this uncertainty regarding the future. In a period like this, special circumspection is needed in the most, as the markets have become really vulnerable to small disruptions.
Back in 2020, Benoît Cœuré, the BIS (Bank for International Settlements) Innovation Hub’s Head, gave a speech, where he pointed out, why exactly he thinks that the stereotype of the stiffness of central banks is false. To put it all in perspective, Cœuré has become the Innovation Hub at BIS right after he quit his job as a member of the ECB’s (the European Central Bank) Executive Board. His department has been established back in 2019, and its mission is to back central banks up in the process of tightening the cooperation on the innovations.
He pointed out that central banks have always been innovative, for example when tackling a crisis so big like the one we’re witnessing today, or the one we’ve seen over a decade ago. But there is no doubt that their innovations have rather different characteristics to the ones presented by the cutting-edge tech companies. The acceleration of the development means that the central banks indeed have to find the flexibility within themselves to properly respond to modern times and solutions.
What’s the BIS Innovation Hub working on?
Because the innovations, as the expert describes it, are currently disruptive. Its purpose is not only to develop, but also to tackle reality, and break the current system. BIS’s job is to ensure the fast movement of central banks so that they are not left behind and caught off-guard.
The Cœuré’s department revealed their program at the beginning of the year 2021. The list of topics important for the development of central banking that they presented includes the central bank digital currencies (the CBDCs), or the shift towards green finance. Other topics, such as suptech/regtech, cybersecurity, open finance, and more, have also been put on the agenda.
We can observe BIS Innovation Hub’s efforts in the ‘Project Helvetia’, which is a form of an experiment conducted by Cœuré, the Swiss National Bank, and the SIX operators of the financial market infrastructure. The most widely-spoken point of their endeavor is establishing the first fully operating central bank digitally issued currency.
Should you want to get to know more about the topic of the innovations in the field of central banking, as well as read the great analysis of BIS Innovation Hub’s plans and actions, visit the Disruption Banking website and find a great piece by Ian Hall: https://disruptionbanking.com/2021/05/04/as-fintech-gets-hot-is-central-banking-becoming-cool/.