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.

The MPC’s minutes also explained that the Bank would be taking forward operational work to assess the feasibility of implementing negative interest rates, should this be required in future. Commencing that operational work underlines the MPC’s commitment to having negative rates as a potential tool in the monetary policy toolbox. Some commentators have interpreted the start of this work as conveying a signal about the likelihood of the MPC introducing negative rates in the near-term. The minutes contained no such signal. The operational work necessary to assess the feasibility of negative rates is likely to take a number of months. After that work is complete, judgements on negative rates will depend on the economic outlook at the time and in particular on whether that necessitates further monetary stimulus. If that condition was satisfied, any decision on negative rates would then depend on whether the balance of costs and benefits from using this tool was positive and whether this cost/benefit balance favoured negative rates over other monetary tools. All three of these conditions would need to be satisfied before negative rates became a reality. At present, none of those conditions is in my view satisfied. Conclusions The economy faces uncertainties that are extraordinarily large and risks that are skewed to the downside. In this environment, caution is natural and understandable. It is important policymakers are vigilant to these risks and uncertainties and responsive to them with their policy actions.