Moreover, the optimal monetary policy in these models looks rather like flexible inflation targeting: the central bank aims to offset completely shocks to aggregate demand, but accepts temporary movements in inflation in the face of shocks to supply so as to limit the volatility in output. Financial intermediaries are conspicuous by their absence in these models. That is not to say that mainstream macroeconomists and monetary policy makers ignored financial considerations altogether. It had been long understood that financial frictions could affect both the evolution of the economy and the monetary transmission mechanism. But these frictions typically served merely as modest amplification and propagation mechanisms, rather than a potential source of fundamental disturbance to the economy. One example is the “financial accelerator” arising from monitoring costs which give rise to a relationship between the external finance premium paid by a borrower and their financial health (see Ben Bernanke, 1983). The behaviour of intermediaries was thus seen as being of marginal relevance to the understanding of macroeconomic fluctuations. And many analyses ignored financial imperfections altogether, assuming that that the transfer of funds from savers to borrowers was both frictionless and efficient. To see why the behaviour of financial intermediaries is potentially so important, note that most financial crises have been characterised by two features. The first is an excessive expansion of credit during the prelude to a crisis, perhaps prompted in the first instance by some innovation4 or other beneficial economic development.

This phase focuses on making the financial sector even more competitive, more inclusive, with improved regional connectivity and greater sustainability. All of this is to serve the diverse needs from fast changing technology as well as to support rising trade, investment, and financial linkages in the region. This leads to two themes that I want to highlight, namely digitization and regionalization. 4 Figure as of November 2016. Source: PDMO and NESDB  6  First, digitization has geared many countries towards less costly cash transactions, which benefit everyone. The concept of “financial services anywhere, anytime” cannot be achieved without developing the necessary infrastructure that fosters more efficient as well as safer electronic transactions. Successful implementation will lower transaction costs for businesses as well as for the banking sector. The Bank of Thailand and the Ministry of Finance have initiated the National e-Payment Master Plan to support this digitization trend. The plan consists of five parts aiming at (1) promoting a fast payment system, or PromptPay, at very low costs; (2) advocating the widely use of electronic debit cards; (3) developing an efficient e-Tax system; (4) improving the Government e-Payment System to make all government’s payment especially welfare transfers electronic; and lastly, creating greater e-Payment literacy. It is important to note that the benefit of e-Payment extends beyond lowering transaction cost; it can also encourage payment transparency, which limits potential leakages and corruption in the payment process and provide e-commerce opportunities for SMEs.