For instance, such systems would render the reconciliation of transaction and balance data between banks and a third-party system obsolete. The paradigm seems to have been turned on its head: decentralisation – not centralisation – now appears to promise the greatest efficiency gains. I do not, however, believe that decentralisation will become the ‘new normal’ in all financial market functions and infrastructures. Many existing financial market infrastructures are already highly competitive, and barriers to entry for new technology are correspondingly high. The conventional, centralised model they are built on is already low-cost and meets high safety standards. And improvements are being made all the time. Distributed ledger technology, meanwhile, has yet to prove it can outperform the existing set-up with respect to safety and efficiency. Having said this, there may be some scope for deploying distributed ledgers in certain complex financial market functions or infrastructures. The settlement and safekeeping of securities is one example. In the end, we may well see conventional and new technologies coexisting or blending. Staying with the securities example: it is conceivable that we will see a hybrid scenario. This could entail security-specific information being settled via a distributed ledger, while the payment leg could continue to be effected via a traditional, centralised payment system. 4 5  6  7  Cf. Diana Chan, Florence Fontan, Simonetta Rosati and Daniela Russo, ‘The Securities Custody Industry’, European Central Bank, Occasional Paper Series, No. 68, August 2007.

The digitalisation of payment transactions, for instance, has helped to make cashless payments cheaper and simpler for customers – even if efficiency could still be further improved, especially where cross-border payments are concerned. The advent of dematerialised securities years ago is another example of innovation within the financial industry; this change greatly increased the efficiency of securities settlement and safekeeping. The digital transformation has also added value in another way: it has enabled bank customers to execute transactions with greater temporal flexibility and geographical independence. These days, traditional bank counters have morphed into apps that live on our smartphones. Such useful innovations have the potential to improve aggregate economic welfare. The challenge for regulators and central banks is to make sure they fully understand the effects – and side-effects – of these new mechanisms at an early stage. The same goes for innovations affecting financial market infrastructures – especially those that are systemically important. Such assessments of new technologies are based on a set of internationally accepted guidelines called ‘Principles for financial market infrastructures’. 2 These principles define the criteria that infrastructures must meet, thereby setting standards for innovation in this field. Central banks and regulators have a duty to pass legislation guaranteeing the safety of financial market infrastructures – by protecting their stability, resilience and availability, irrespective of technological change; but they must also take on board the efficiency goals of infrastructure providers and their participants. Regulatory adjustments may be needed to catalyse the positive effects of certain innovations.