Indeed, in that same LINK survey, 76% of respondents said that the Coronavirus crisis will affect their future cash use. Internationally, COVID-19 has also exacerbated challenges in sending remittances.7 And many countries, advanced and developing, has necessitated sharp increases in government to person payments – raising new challenges.8  4 LINK: Coronavirus Crisis means cash use down but UK still withdrawing £ from ATMs each week:  https://www.link.co.uk/about/news/coronavirus-cash-usage-data/ 5 See LINK article above. 6 ONS: Internet Sales as a percentage of total retail sales: https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi 7 BBC News: Coronavirus: Migrants struggle to send money home: https://www.bbc.co.uk/news/business-52506797 8 World Bank blogs: Responding to crisis with digital payments for social protection: Short-term measures with long-term benefits: https://blogs.worldbank.org/voices/responding-crisis-digital-payments-social-protection-short-term-measures-long-term-benefits 4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4  The private sector is responding. Central banks and other regulators will need to respond too. All this – combined with regulatory changes9 has led to an explosion of innovation in payments. Given these challenges, safe forms of payments innovation are welcome. They could meet unfulfilled customer needs, widen access to financial services, lower costs, and facilitate better payments integration. Innovation could also support financial stability by increasing diversity in payment methods. And innovation could potentially address the longstanding challenges in international payments by making them less costly and cumbersome. But even though some new technology seems cutting edge, recent innovation has largely been focused on the ‘front’ or consumer-facing end, sitting on top of existing card or bank-to-bank payment systems.

It is likely that regulatory policy would need to be in a constant state of alert for risks emerging in the financial shadows, which could trip up regulators and the financial system. In other words, regulatory fine-tuning could become the rule, not the exception. In this world, macro-prudential policy to lean against the financial cycle could become more, not less, important over time. With more risk residing on non-bank balance sheets that are marked-to-market, it is possible that cycles in financial assets would be amplified, not dampened, relative to the old world. Their transmission to the wider economy may also be more potent and frequent. The demands on macro-prudential policy, to stabilise these financial fluctuations and hence the macro-economy, could thereby grow. In this world, central banks’ operational policies would be likely to remain expansive. Nonbank counterparties would grow in importance, not shrink. So too, potentially, would more exotic forms of collateral taken in central banks’ operations. Market-making, in a wider class of financial instruments, could become a more standard part of the central bank toolkit, to mitigate the effects of temporary market illiquidity droughts in the non-bank sector. In this world, central banks’ words and actions would be unlikely to diminish in importance. Their role in shaping the fortunes of financial markets and financial firms more likely would rise. Central banks’ every word would remain forensically scrutinised. And there would be an accompanying demand for ever-greater amounts of central bank transparency. Central banks would rarely be far from the front pages. Which path?