253-66. BIS Review 17/2005  5  Consequently, derivatives markets contribute to the predictability cash flows of economic agents and their profits or losses arising from risk or volatility by reducing excessive volatility in spot markets, on one hand, and by offering an opportunity to economic agents for risk management, on the other hand. In this way, fragilities in the firms sector arising from deteriorations in balance sheets are restored and the economy as a whole strengthens itself against shocks. At this stage, I would like to highlight one more point about the floating exchange rate regime. In Turkey, firms have to be cautious about imbalances in foreign exchange denominated assets and liabilities on their balance sheets. Under the floating exchange rate regime, firms with foreign currency-denominated income and domestic currency-denominated expenditure, or vice versa, should restore the imbalances on their balance sheets, in other words, eliminate the exchange rate risk they are faced with. In order to achieve this, firms should observe risk management principles and employ derivatives market instruments. Firms, especially production firms, can allocate more resources for production by reducing the financial risks on their balance sheets. This also makes an important contribution to enhancing the competitiveness of firms. As of 2003, 92 percent of world’s largest 500 non-financial firms are protected against risk through derivatives instruments and this further reinforces the importance of such instruments6. Moreover, I would like to point out that the benefits of derivatives instruments do not depend on the size of the firms they are used by.

In a hyper-connected, capital-light world, the future may increasingly belong to small and medium-sized firms, with platforms (such as taskrabbit, Amazon, Etsy, Shopify, and SamaHub) giving them direct stakes in local and global markets. The financial implications of these developments are only beginning to be realised, but they are likely to be immense. In anticipation, the Bank is already creating the new hard and soft infrastructure that the new finance will require. For example, the Bank of England is in the midst of an ambitious rebuild of the Real Time Gross Settlement (RTGS) system – the backbone of every payment in the UK. There are three ways the Bank’s new RTGS will provide a platform for private innovation. Each will make it easier for people to plug in and pay, even across borders. First, RTGS is being re-built so that new private payment systems, including those using distributed ledger, can simply plug into our system. Our new, hard infrastructure will be future-proofed to your imaginations, opening up a range of potential innovations in wholesale markets, and corporate banking and retail services. We have just opened up direct access to RTGS to a new generation of non-bank payment service providers (PSPs). No longer will access to central bank money be the exclusive preserve of banks. Several non-bank PSPs, focused on retail and corporate services, are applying currently. The electronic money flowing through their systems will become more like its physical relative. Electronic payments are becoming instantaneous by using QR codes or mobile phone numbers.