Speech by Gediminas Šimkus at the international
conference "Future of Central Banking"
2022-09-29
Welcome speech by Gediminas Šimkus, Chairman
of the Board of the Bank of Lithuania, at the
international conference "Future of Central
Banking" organised by the Bank of Lithuania and
the Bank for International Settlements (BIS) on the
occasion of the centenary of the Bank of Lithuania.
The Future of Central Banking
Welcome speech
29 September 2022
Palace of the Grand Dukes of Lithuania
Thank you, Your Excellency President Gitanas
Nausėda, for opening this International Conference
on the Future of Central Banking.
Since its ocial establishment on 27 September 1922, the objective of Lietuvos bankas has been
developing a sound and sustainable monetary system that contributes to the resilience of the Lithuanian
economy.
Reestablished 1 March 1990, the Lietuvos bankas continues to contribute to sustainable economic
growth and the improvement of resident welfare. The fundamental principle that underlies all our
activities is creating value for society.
While we are all gathered here today in celebration of the centenary of Lietuvos bankas, the focus of our
discussions will not be reection on what has already been accomplished. Rather, we will talk about the
challenges, opportunities, and changes that await Lietuvos bankas - and central banking in general -
over the next hundred years.
Dear Governors, Distinguished Guests, Ladies and Gentlemen,
We root our decisions in data, and as the world becomes increasingly digital, we are shifting from data-
centric to data-driven policy making. In the course of this shift, we have been hearing legitimate
questions as to whether central bankers will be replaced by algorithms - computers, so to speak - in the
foreseeable future, given that computers can make better decisions than humans when those decisions
are purely data-driven.
So how will Lietuvos bankas - or generally speaking, a central bank - look a hundred years from today?
Central banks were always data-dependent in their decision-making. But nowadays - and going forward
- it no longer suces just to have a hypothesis and validate it with data. Banks must become data-driven
and adept at data wrangling in order to generate useful insights. A lesson we central banks learned from
the crises of the recent decades is that we don't know enough, but those who are performing the best are
always the ones who know the most.
With the power of increasingly advanced computers and near-instant access to data, it is almost certain
that in a hundred years, articial intelligence and machine learning will do most of the heavy lifting in
predicting economic indicators upon which to base central bank policies. We will undoubtedly rely on
technology to obtain real-time forecasts.
We will also undoubtedly use big data analysis to detect bubbles in the nancial markets and to identify
and analyze complex macro-nancial linkages. Central banks are already seeking to obtain more micro-
level data by becoming data warehouses and to develop-data based supervisory tools which will improve
risk mitigation.
Will this technology replace us - central bankers - in making policy decisions?
My answer is: certainly not!
Let me elaborate.
First, a great deal of uncertainty exists as to how basic economic relations evolve over time. Economics,
though increasingly xated on mathematics, econometric tools, and applications is a social science
focusing on how humans make decisions. It does not, and never has been, a homogenous body with a
rm canon of knowledge.
Fundamental structural features of the economy, known by more familiar names such as the "natural rate
of unemployment", "potential output growth", "neutral real interest rate" - what FED Chairman Mr. Jerome
Powell called the "stars"[1] - change location signicantly over time, making "navigating by the stars"
rather challenging. Furthermore, even seemingly simple issues, such as establishing causal links rather
than merely nding correlations among various economic variables, require lengthy discussion and often
lead to clashes of opinions.
Second, the effectiveness of central bank policies is based on adequate communication. And
communication boils down to presenting stories that shape the expectations of market participants
regarding future monetary policy. To date, the ability to present such nuances associated with the
conduct of monetary policy has been exclusively human.
Finally, it may also happen that policy objectives are not achieved, due to unforeseeable crises - so-called
black swans. Central banks during "black swan" episodes must behave differently than in normal times -
and rightly so. Deciding the best way forward when circumstances are rapidly changing and the future is
clouded by enormous uncertainty is a task which no computer is able to cope with, today or quite
possibly ever.
It is thus my rm conviction that, in a hundred years' time, there will still be some central bankers around
to gather and celebrate two hundred years of Lietuvos bankas.
Dear Colleagues,
Central banks must embrace the revolution underway in digital money to ensure that they remain at the
heart of the global payments system. While the private sector excels at customer-facing activity, central
banks provide the basis for trust, ensure liquidity, and set standards.
Central banks, while independent institutions, are accountable to the general public. This accountability
necessitates building public condence through intensive communication, namely, explaining the specic
policy decisions taken by decision-makers under specic economic conditions. Shifting to data-driven
decision-making and evolving together with changing technologies will ensure that central banks remain
effective and credible, in turn enabling us to fulll our mission of creating value for society.
Distinguished Guests,
Lietuvos bankas is pleased to organize this Centenary Conference in cooperation with our colleagues
from the Bank for International Settlements (BIS), an institution that serves as a central bank for central
banks.
Lietuvos bankas' relationship with the BIS is almost as old as both these institutions! The BIS
commenced operation in 1930, and in March of 1931, Lietuvos bankas became its shareholder.
Please allow me to give the oor to Mr. Luiz Pereira da Silva, Deputy General Manager of the Bank for
International Settlements.
Luiz, the oor is yours.
[1] From the speech "Monetary Policy in a Changing Economy", delivered 24 August 2018 at "Changing
Market Structure and Implications for Monetary Policy" symposium sponsored by the Federal Reserve
Bank of Kansas City, in Jackson Hole, Wyoming.