March 15, 2019
Bank of Japan
Toward Inclusive and Sustainable Development
Remarks at the B20 Tokyo Summit hosted by
Nippon Keidanren (Japan Business Federation)
Haruhiko Kuroda
Governor of the Bank of Japan
Introduction
It is a great honor for me to have the opportunity to give a speech at the B20 Tokyo Summit
today. This year, with Deputy Prime Minister and Finance Minister Aso, I co-chair the G20
Finance Ministers and Central Bank Governors Meetings. We are discussing a wide range of
issues at the G20, including those related to the Sustainable Development Goals (SDGs).1 To
tackle global challenges such as the SDGs, it is essential for the private and public sectors to
cooperate with each other. Therefore, I find it very meaningful for business leaders from the
G20 member countries to meet together and have discussions, in parallel with the G20
processes.
This year the B20, under the theme of "Realizing Society 5.0 for SDGs," has been discussing
innovations in various areas, changes in the business environment, and how to tackle global
challenges. Society 5.0 has been proposed by the Japanese government. It is defined as a
society that balances economic advancement with the resolution of social
human-centered
problems by a system that highly integrates cyberspace and physical space.2 In such a society,
the current problems in various areas will be expected to be resolved by cooperation between
the private and public sectors through new technologies and innovations.
Today, I will first talk about some recent developments toward achieving the SDGs, and then
discuss how innovation could be used to pursue inclusive growth under which "no one is left
behind," mainly focusing on the financial aspects.
I. Recent Trends toward Sustainable Development
Since the Industrial Revolution in the 18th century, global economic productivity has been
boosted and people's living standards have been drastically enhanced. This rapid economic
growth was supported by advancements in industrial technologies such as the internal
combustion engine, and by the realization of a large-scale industrial society incorporating
new technologies. It is also true, however, that economic development has had some negative
impact globally. Even during the Industrial Revolution, people were troubled by pollution in
industrial areas and by poor living conditions in rapidly expanding urban areas. These
problems became widespread as industrialization advanced globally. As a result, the modern
society, which has developed dynamically based on economic principles such as profit
motivation and price mechanisms, is now confronted with a situation of "external
diseconomies," a kind of market failure, in economics terminology. It is not easy to resolve
this situation. For instance, in the case of climate change due to global warming, an increase
in the consumption of fossil fuels in one country now affects other countries, and indeed the
entire globe, thereby causing "spatial external diseconomies." Moreover, today's massive
consumption of fossil fuels may negatively affect future generations, thereby causing
"intertemporal external diseconomies."
One solution to external diseconomies may be direct government regulation. However, this
might not necessarily be effective enough as all kinds of problems have become increasingly
complicated and globalized. In recent years, many positive developments have been made by
private companies, public organizations, and international organizations toward solving such
problems.
First, mechanisms have been used more widely to encourage economic agents to act in
accordance with the goals of sustainable development. In regard to environmental issues, for
instance, carbon tax and renewable energy subsidies give incentives for private agents to save
energy and reduce greenhouse gas emissions. Some countries and companies have started
emissions trading through market mechanisms based on allocated amounts of permits to
discharge greenhouse gases, thereby internalizing the social costs of external diseconomies.
Moreover, many private companies have made public commitments to address climate
change as part of their corporate social responsibility (CSR), and their stakeholders, including
shareholders, are keenly interested in such commitments. If this trend becomes more
common, sustainable development could be realized by not only relying on compulsory
measures such as direct control of emissions but also using those mechanisms I mentioned.
Second, recent technological innovations have potential to address problems in a way that
could not have been considered before. Regarding energy and the environment, industrial
products that reduce energy consumption have been developed for a long time, especially in
the wake of the oil shock in the 1970s and since concerns over pollution became more
widespread. Moreover, dramatic recent developments in digital technologies such as artificial
intelligence (AI) and the internet of things (IoT) now allow for the detailed management of
energy demand, forecasts of local climate, etc., and are thereby contributing to the further
enhancement of energy efficiency. As for emissions trading mentioned earlier, distributed
ledger technology has started being used to reduce trading costs and expand markets. In
Society 5.0, we are expected to tackle global challenges and realize a sustainable society
using these new technologies.
II. Inclusive Growth and Technological Innovations from a Financial Perspective
--
Needless to say, technological innovations have also brought significant changes to the
financial sector, which is closely related to central banks. These changes are important in
achieving inclusive growth, one of the key objectives of SDGs. The concept of inclusive
growth is that the dividends of economic growth should be distributed fairly across all
members of society, leaving no one behind. While the global economy has grown rapidly
since the Industrial Revolution, there have been many people who have not been able to enjoy
the benefits of growth. Some people have had access to opportunities such as employment,
education, and new technologies in various areas, while others have not. Eliminating such
disparities has also become an important global concern.
In the context of the financial sector, many countries have recognized financial inclusion as
an important policy agenda, the idea that no one should be left behind in having access to and
getting benefits from formal financial services. What is remarkable here is that the latest
advancements in technologies in the financial sector, so-called FinTech, can help to promote
financial inclusion.3 The diffusion of mobile payments in emerging and developing countries
is perhaps a typical example of the contribution of FinTech to financial inclusion. New
financial services such as cashless payment using smartphones sometimes spread rapidly in
regions without the necessary social infrastructure of bank branches and wired
communication. This is a phenomenon, known as "leapfrogging," in which people who do
not have access to conventional financial services can obtain immediate access to convenient
services through new technologies.
For instance, in China, payment and settlement services using smartphones offered by
e-commerce and social network services (SNS) companies have spread rapidly since around
2013. In major cities, the cashless society has progressed to such an extent that people can
quite easily lead their daily lives without cash. Online loan services based on credit risk
analysis using AI and big data have also been rapidly deployed so that individuals and small
and medium-sized enterprises can access them easily. In Africa, where the holding of bank
accounts and access to financial services is limited due to underdeveloped banking industries,
financial services such as cash withdrawal and short-term loans using mobile devices have
become increasingly accessible. Other examples include mobile payment spreading in small
island developing states where the development of financial infrastructure had been
constrained. Also, in big cities in Southeast Asia with heavy traffic congestion, mobile
payment has developed from services. In this way, FinTech has been applied in
ride-hailing
accordance with each country's or region's situations.
FinTech can therefore contribute not only to economic growth through enhancing
convenience and financial intermediation, but also to the resolution of social problems such
as financial inclusion.
At the same time, there are some notes of caution in regard to the rapid diffusion of FinTech.
First, it is necessary to ensure the security of transactions, including cyber security and the
protection of personal information. The risks of abuse of these technologies for money
laundering and terrorist financing must also be addressed. Moreover, securing the stability of
the financial system is important. In particular, the diffusion of FinTech that expands access
to credit in countries with weak financial supervision may increase financial stability risks,
even though it contributes to financial inclusion.4
III. Role of the Public Sector
As I have explained, technological advancements can play a significant role in tackling global
challenges such as environmental protection and financial inclusion. What role, then, can the
public sector play in addressing these challenges while taking advantage of new
technologies? I would like to point out three important roles of the public sector, based on the
issues I have raised so far and recent discussions in the G20.
First, it is important to support people who cannot fully or readily enjoy the benefits of new
technologies. Recently, concerns have been expressed that AI and robots may take over
certain occupations. As discussed at the G20 under Argentina's presidency last year, one
important role of the public sector is to provide a safety net and opportunities for education
and training to those who would be negatively affected by new technologies.5 We should also
pay attention to the possibility that people who are less familiar with digital technologies may
be left behind. While FinTech can significantly expand access to financial services, people in
certain conditions or circumstances may suffer disadvantages from new technologies such as
automated credit examination, for instance. In this regard, we have raised the issue of aging
and financial inclusion at the G20 under Japan's presidency this year. We will discuss whether
the development and diffusion of digital technologies might impede the access to financial
services by the elderly, and how to provide convenient and accessible financial services for
all.
Second, we need to secure economic, financial, and social stability. If unemployment
increases and investment declines due to an economic recession or financial instability, it
would become harder to address a variety of economic and social issues by introducing new
technologies. If the abuse of new technologies leads to social disruption and widespread
suspicion of technology, the deployment of new technologies would become more difficult.
Regarding technological innovations in the financial sector, the G20 has especially focused
on crypto-assets and their underlying technology, and has discussed how to contain the
various types of risks while harnessing their potential benefits.
Third, international cooperation is important. As various issues have become globalized, it is
essential for financial authorities to cooperate across regions. For instance, regarding
environmental issues, the Financial Stability Board (FSB), comprising central banks and
financial authorities from many countries, established an industry-led task force on
disclosures of companies' financial risks and strategies. The task force has
climate-related
made recommendations for consistent company disclosures.6 The G20 has also introduced
various multinational initiatives related to environmental issues, including the promotion of
infrastructure investment highlighting environmental, social, and governance (ESG) factors.
Concluding Remarks
Today I have talked about how new technologies can contribute to tackling global challenges
such as environmental protection and financial inclusion, and what role the public sector can
play. As stressed by Schumpeter about 100 years ago, innovation is driven by entrepreneurs.
However, the public sector can play an important role as well in tackling modern global
challenges related to the SDGs. The Bank of Japan would like to contribute through taking
initiatives toward the healthy development of FinTech, supporting financial institutions
which contribute to regional vitalization, promoting financial literacy, as well as securing
economic, price, and financial stability.
I would like to conclude my remarks here, with the hope that today's discussion at the B20
will stimulate further cooperation between the private and public sectors toward achieving
the SDGs.
Thank you for your attention.