The Federal Reserve is an active participant in international efforts regarding payment systems via the Committee on Payments and Markets Infrastructures (CPMI) at the BIS. The CMPI collects best practices and issues recommendations for managing payments, clearing, and settlement risk across financial market utilities. At present, a high-priority area of study for the CMPI is coordinating the development of 24/365 RTGS systems – like FedNow – globally. Innovation in cross-border settlements will reduce liquidity outlays and settlement risks, leading in turn to cheaper cross-border payments. The New York Innovation Center and Project Cedar In the remainder of my remarks, I'd like to focus on an example of ongoing innovation research that is currently underway at the Federal Reserve Bank of New York. To further enhance our ability to contribute to financial innovation globally, the New York Innovation Center, or NYIC, was established in 2021. The NYIC bridges the worlds of finance, technology, and innovation. Through technical research, experimentation, and prototyping, our team generates insights into high-value central-bank-related opportunities, enabling stakeholders and the central bank community to enhance the functioning of the global financial system. 3/5  BIS - Central bankers' speeches  Project Cedar is the inaugural project of the NYIC and represents the first stage of the NYIC's research efforts into CBDCs, the NYIC's biggest focus area in 2022. A goal of the NYIC is to progress CBDC research with an objective of defining a technical design for a CBDC addressing the wholesale market in the Federal Reserve context.

And it can also be relevant from our monetary policy perspective, since the transmission of our monetary policy actions to economic activity and inflation operates mainly through the financial system. Indeed, a sound financial sector is a prerequisite for a smooth transmission of monetary policy measures to the financing conditions faced by economic agents and, ultimately, to economic activity and inflation. In particular, climate change poses two types of risks for the financial sector: physical risks and transition risks. Physical risks are those that would materialise as permanent alterations of the climate, if we do not act to prevent global warming. Natural disasters would then become more frequent and their economic damage probably greater. In fact, there is evidence that such risks are already materialising to some extent: according to the FSB1, global economic losses associated with weather-related catastrophes have doubled since the 1990s, up to USD1.6 trillion over the last ten years. The financial sector is exposed to these physical risks through several channels. Physical risks are of course relevant for the valuation of real estate assets, the main collateral for bank loans. Physical risks also matter when assessing the ability to pay of borrowers in sectors that could be particularly affected, such as agriculture or tourism. Capital destruction could also be very important. Furthermore, since not all geographies would be equally affected, the migration of activities and of the population in some areas might increase, generating an impact on the financial sector as well.