However, you would be mistaken in assuming that managing financial risks has no role in the Eurosystem’s monetary policy implementation – especially in the light of the significant balance sheet expansion over the past few years. On the contrary, we have applied the guiding principles of our financial risk management framework in a stable manner. We established these principles long before we embarked on non-conventional policies, not least because we have a statutory obligation to lend only against adequate collateral. We continue to apply them to standard as well as non-standard policy measures. Broadly speaking, these principles are protection, consistency, simplicity and transparency. This means that – if multiple monetary policy options exist to fulfil our mandate – we should select the measures that minimise our own exposure to financial risks. This idea is sometimes referred to as risk efficiency. These principles also imply that we aim to avoid undue distortions in the markets in which we operate. We trade at market prices and we adopt a risk-equivalent approach in setting our risk control measures. In addition, the principles require risk management to be an integral part of decision-making in the institution. So we are compelled to measure risk in an objective and consistent way across different types of operation. Lastly, our frameworks promote transparency and simplicity, and we champion adherence to these principles by being rules-based ourselves and as predictable as possible in our operations. We have come together here to discuss risk management for central banks and the lessons from the crisis.

As a global messaging standard with richer data content, ISO 20022 has the potential to drive greater payments efficiency, facilitate risk management and compliance with regulations as well as facilitate cross-border connectivity. This move towards a common global standard will address issues relating to diverging regulatory and technical standards which have increased friction in making payments and made the cross-border payments landscape more complex. Embracing financial innovation to enhance cross-border payments efficiency Aside from the global pandemic, the other key disruption to our established view of cross-border payments is financial innovation. There has been growing awareness that the underlying technology for digital assets such as distributed ledger technology (DLT) may have the potential to improve payments efficiency, particularly from the cross-border payments perspective. Some central banks have made significant strides in exploring the potential of this technology, including testing the use of blockchain and DLT for clearing and settlement of payments and securities. The rapid shift from cash towards other payment platforms, has also intensified calls for central banks to issue Central Bank Digital Currency (CBDC) to protect the country’s monetary sovereignty. Many central banks, including BNM, are exploring the merits and feasibility of issuing CBDC. Preliminary findings highlighted that this may offer some solution to the challenges associated with cross-border payments (e.g. synchronised cross-border transaction between different currencies across different platforms, reduced number of intermediaries and improved transparency of payment status).