Traditional distinctions between regulated and unregulated activities, retail and wholesale, on-shore and off-shore, will blur as conventional models of intermediation are progressively ‘unbundled’. And new networks will emerge to change the way economic agents interact. Some of these developments will be positive. Some may not be. Either way, central banks cannot afford to stand on the sidelines if they are to continue to deliver their mission of monetary and financial stability. 3  See http://www.bankofengland.co.uk/pra/nbsu/Pages/default.aspx and http://www.bankofengland.co.uk/publications/Pages/news/2017/048.aspx respectively. 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  Many of the most profound policy questions central banks will have to answer relate to financial stability. Would a financial system based around narrower, more specialist payments, lending or asset management entities be more or less safe than one based around universal banks? If banks themselves increasingly morph into utility providers, acting as platforms for others to sell their wares, what does that mean for the distribution of risks in the system? How does one judge the appropriate positioning of the regulatory perimeter to ensure that risks are appropriately overseen whilst allowing valuable innovation to flourish? Do financial intermediaries and market participants understand the operational and financial risks posed by new models of service provision, communications and technologies, and can they control them effectively? What does the introduction of ever-faster trading and banking systems, and the increasing use of algorithm-based trading and financial advice mean for market dynamics? But FinTech also poses practical opportunities and challenges for central banks’ own operations.

On the one hand, the transmission of shocks has been speeded up – a generation ago, for example, who would have supposed that devaluation in Thailand would have set off a chain reaction that rippled through financial markets from New York to Tokyo? On the other hand, the absorptive capacity of financial markets has massively increased. This has helped to cushion the impact of major shocks on the wider economy. But it has also facilitated the financing of huge current account imbalances. These have been the number one issue on the IMF’s worry list for the past few years and now constitute a significant source of risk to the world economic outlook. So you might expect the MPC’s policy rate to respond to changes in the world economic outlook, though you might speculate that the relationship could be quite complex. What does recent experience show? Between 2000 and 2004, there was, on the face of it, a very close relationship between fluctuations in world GDP and the policy rate; as all main regions of the world slowed after the stock market crash and the ending of the IT boom, the MPC first cut its policy rate sharply – and then held it down until the world economy had clearly turned the corner in the second half of 2003. But it would be quite wrong to infer that the MPC ignored domestic demand during this period – though the data have now been so heavily revised it is difficult to generalise about past decisions.