There will, of course, be circumstances when a cut in interest rates is compatible with the sustainability of the peg. When this is the case, the Central Bank will not hesitate to reduce interest rates, as it did recently. But those who argue in favour of pursuing growth through monetary expansion should remember that investment is not interest-rate sensitive. Investment decisions are based on a range of factors of which the cost of money is but one. Similarly, bank interest represents only a small fraction of production costs. Finally, some people would have us devalue the currency in an attempt to stimulate growth by improving export price competitiveness. This option carries with it the real prospect of higher import prices and, therefore, a significant cut in real wages and wealth. To the extent that this is not followed by compensatory measures, it would indeed help to increase exports and restrain consumption demand and hence, imports. But it would also imply a decline in living standards. The extent to which the benefits of improvements in cost competitiveness would be reaped in a situation where the export sector is already operating close to full capacity is also doubtful. Past experience, however, suggests that a devaluation would be followed by a nation-wide rise in wage levels as the partial wage indexation system came into play, and this would generate price inflation and erode competitiveness. In Malta, therefore, devaluation would impose immediate costs and leave no long-term benefits, besides weakening the credibility of the lira.

The minutes from each of the quarterly AIPPF meetings are publically available and the AIPPF will produce a final report upon its conclusion later this year. As we, and industry, learn more from this soft support around AI, it may be that harder forms of public infrastructure will be needed, provided either by the Bank, another authority or as a collaboration between different authorities. Those decisions will be taken at the appropriate time. If that means that the Bank’s direct involvement in these areas passes over to another institution, then that’s fine: we will have played our role at the right time. PRA regulation on outsourcing and third-party risk management  A further business model-related change we need to think carefully about as digital finance becomes more prevalent is the relationships between financial firms and the technology companies that deliver their business services. That is particularly the case where those services are critically important to firms’ operational resilience or where they are involved in processing of confidential or sensitive firm data. 13  https://www.bankofengland.co.uk/minutes/2020/artificial-intelligence-public-private-forum-minutes 5  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  5  Reflecting this the PRA has updated its regulation on outsourcing and third-party risk management to complement and strengthen its new policy framework on operational resilience. 14 And we plan to analyse further whether we need even stronger tools to manage the risk that critical third parties, including potentially cloud and other major technology providers, may pose to the Bank’s and PRA’s objectives.