At stake is our ability to preserve public confidence in the financial system, and seize an unprecedented opportunity to come within striking distance of at least six of the Sustainable Development Goals: no poverty, zero hunger, good health and well-being, quality education, gender equality and reducing inequality. This Conference, themed “Empowering financial consumers in the digital age”, aims to help us untangle and develop sensible responses to the myriad of issues associated with the rapid digitalisation of financial services. Digital financial services adoption in Asia-Pacific The financial services industry has long been at the forefront of the digital revolution, benefitting from efficiency gains, cost savings and wider outreach. For traditional financial institutions, it has also been a matter of survival against an onslaught of highly innovative and nimbler competitors. In recent years, industry players – both traditional and non-traditional – have rapidly scaled up their use of technology to create better customer experiences by making financial products and services more accessible, flexible and competitive. As adoption rates rise, online banking, e-insurance and e-payments are quickly approaching a tipping point at which they will eclipse physical branches, ATMs and cash as conduits for financial transactions. In some markets, this is already a reality. It has been reported that nearly two-thirds of consumers in the Asia-Pacific region are active fintech users. The adoption rates are even higher in trailblazer markets such as China and India, where the share of active fintech users is estimated to be about 87%.

In countries where GDP is more volatile, bank leverage is lower, and banks (by either choice or regulation) put more capital aside to deal with uncertainty. 4 This being the case, it is not hard to imagine that a period of declining volatility in prices and output leads to increased risk taking across several economies. By stating this, I am not suggesting that we should aim at higher volatility. However, we need to recognize the impact that price stability has on financial vulnerabilities (financial fragility), and adjust financial regulation accordingly. Let me now turn to a second source of conflict between interest rate policies that target PS and FS: an innovation that simultaneously leads to increased aggregate demand becoming a risk for FS that coincides with a positive aggregate supply shock. Two examples come to mind. The first is the current concern regarding capital inflows and financial stability. Many have argued – rightly, I think – that large capital inflows could simultaneously lead to increasing financial vulnerabilities without posing an inflationary problem because of the appreciation of the local currency. The correct reaction for PS – keeping loose monetary conditions – is not necessarily the correct reaction from an FS standpoint. The second is the build up to the global financial crisis in the US and Europe. One of the reasons that monetary policy did not react to rising household debt, was that global supply factors had been contributing to drive prices down. Central banks need to oversee price stability and financial stability.