As the time bomb of demographics continues to tick, it will become increasingly obvious that this process is not a luxury our society can contemplate. It is a necessity! 5. Monetary Implications of Globalization  Let me now return to monetary policy. I have attempted to sketch out how after the “Great Inflation of the 1970s”, global financial and economic integration boosted competition, raised productivity growth rates and ultimately helped bring about an extraordinary reduction in global inflation and along with it a reduction in output volatility. As I have mentioned earlier, there is no doubt that good central banking itself has made an important contribution. But ultimately central banks have also benefited from the process. With inflation receding, many central banks have been able to focus increasingly on what typically constitutes a subordinate element of their legislative mandate: stabilization of output. In other words, a structural decline in the rate of inflation has increased the margins of manoeuvre for central banks. This does not alter the fact that central banks have no ability to fine-tune the real economy. Moreover, an important body of academic literature suggests that monetary policy has also become more effective as markets shed regulatory impediments.10 Monetary policy is therefore not only one of the forces behind the dramatic decline of inflation since the early 1980s. Perhaps more importantly, it has been one of the main beneficiaries of the globalization process.

Banks are thus facing a challenge with regard to a further scaling back of the physical distribution network. In general, financial institutions are facing considerable challenges in adapting to new technologies, intensified competition and globalisation. Substantial investments will probably be required to keep them competitive. Both management and employees will have to devote considerable attention to these aspects. The wrong solution or approach could weaken banks’ competitive position, profitability and financial strength. This may also have negative implications for financial stability. However, I don’t want to give you the impression it’s all doom and gloom. New technologies offer great opportunities for streamlining operations and improving efficiency. There should also be new business opportunities. Although the financial sector is undergoing fundamental changes, competent market participants should have every opportunity to thrive in a changing environment. 6. Consequences for the authorities  Developments in the financial sector also pose challenges for the authorities. Let me give you a few examples. The growth of complex financial conglomerates represents considerable challenges for supervision and crisis resolution. The international trend towards one national supervisory authority is probably advantageous in this respect. The Nordic countries have led the way here. The growth of institutions with a significant presence in several countries has increased the need for cooperation between the authorities of different countries. Bilateral and multilateral memorandums of BIS Review 78/2000  10  understanding are an important tool in this respect. The Nordic supervisory authorities have recently signed a joint memorandum of understanding. The activities of central banks are also influenced.