François Villeroy de Galhau: The role of central banks in the heart of the ecosystem

Keynote address (virtual) by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Official Monetary and Financial Institutions Forum webinar, 25 September 2020.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Good morning and welcome to this webinar, jointly organized by the Official Monetary and Financial Institutions Forum and the Banque de France. What better way to demonstrate the digital transformation than holding an event in cyberspace. It has been common in recent years to hear about disruptive technologies but over the past 6 months, information technology has instead been a crucial source of continuity in a highly disrupted world.

Digitalization is one among many factors transforming central banking and this will be my broader theme this morning. The ECB Strategic Review rightly launched by Christine Lagarde, with an explicit list of challenges, is the opportunity to reflect on how the Eurosystem should respond to them.

The shocks that have hit the economy in the past decade have been unprecedented, but in hindsight, many long-term structural shifts were occurring that have caused the unstable and complex situation we face today. Global natural interest rates had already been falling since the early 1980s driven by the demographic transition and risk-aversion in key emerging markets. Digitalisation and globalisation, combined, have been pressing for "lowflation". Financial vulnerabilities were also steadily, but invisibly, rising since the so-called Great Moderation. Indeed, it seems that excess demand now shows up in asset prices before wages or inflation, complicating the trade-offs between price stability and financial stability.