staying in the mid - 60 - cent range, given the rise in oil prices. as i ’ ve said before, there is a loose but predictable relationship between oil prices and our currency – like a dog and its master, when connected by one of those leashes that stretch and rewind. but let ’ s just suppose we had tried to stop the canadian dollar from rising once it reached around 85 cents, sometime in 2005. the obvious way to limit the rise in the dollar would have been for the bank to cut interest rates. given the underlying upward pressure on the dollar coming from rising oil prices, we estimate that holding the loonie at around 85 cents back in 2005 would have required cutting interest rates from 4 per cent to almost zero. as you would expect, the economy would then have two sources of stimulus – higher prices for oil exports and ultra - low interest rates, which would have boosted borrowing and spending. this combination would have overheated our economy during 2006 – 08, and inflation would have begun to rise above our target. we estimate that inflation would have been approaching 4 per cent by 2008. as an aside, let ’ s talk about what actually happened in 2008 – the global financial crisis. while it ’ s tricky to introduce a slice of reality into a hypothetical scenario, it is worth noting that if our interest rates were already near zero, we clearly would have had no room to manoeuvre. but let ’ s set aside that complication, and finish our “ what - if? ” scenario. by 2008, inflation would have been approaching 4 per cent and still be rising. your companies ’ costs of production would have been rising by 4 per cent or more, and export competitiveness would be eroding steadily, even though we would be holding the exchange rate steady at 85 cents. and that would not be the end of the story. with its anti - inflationary credibility increasingly at risk, the bank would be forced into action – it would abandon its hypothetical attempt to control the dollar, interest rates would rise significantly to slow the excessive growth in the economy, unemployment would increase and inflation would eventually make its way back down to target. the exchange rate would have to find its own level at that point, because the bank could not both target inflation and hold the exchange rate constant at the same time. bis central bankers ’ speeches although this is just a counterfactual thought experiment, it is informed by hard analysis. trying to hold the dollar constant would

decided to develop an instant payments settlement system in central bank money, the target instant payment settlement ( tips ). bank of italy will be deeply involved in its development. dramatic technological advances in the financial system are creating new opportunities for payment users. however, they also pose new challenges for traditional intermediaries who are now exposed to heightened competition from digital platforms that also offer payment services. banks no longer compete ( only ) with each other but also with non - banks and must deal with the challenges that stem from the developments in financial technology ( fintech ). in the european context, technology driven transformations in the payment system are also supported by regulatory interventions that increase competition and innovation. in 2007, the payment service directive ( psd ) introduced a new category of payment service providers, the “ payment institution ”. the new directive ( psd2 ), which will take effect in january 2018, paves a stable path towards further innovation by regulating the activity of “ third parties providers ” ( tpp ). these are fintech firms that offer payment initiation and account information services by exploiting the new business opportunities provided by technological innovation, positioning themselves between payment service providers and final customers. the psd2, while requiring banks to share customer information with tpps, provides that the activity of the latter be authorized and monitored by the supervisory authorities. thus, by fostering innovation and competition, the directive aims at ensuring a level playing field in the payment services sector and protecting consumers. moreover, it focuses on the security of payment services, with the objective of achieving a high level of harmonization through a common regulatory approach within the european banking authority ( eba ) : under the psd2, the eba has been tasked with developing standards and guidelines that enhance cooperation among all national competent authorities. the bank of italy actively participated in the adoption of the new directive, supporting the government since the start of the italian eu presidency in the second half of 2014 when the text of the psd2 took shape. we are now fully cooperating at european level, where we also chair the european banking authority ’ s standing committee on payment services, and will continue to share our experience, both as regulator and supervisor, to help ensure an appropriate balance between the public interest, security, innovation and competition. the ongoing digital transformation in the payment ecosystem and the new regulatory approach are posing new challenges. oversight of the new payments systems will have to be carried out while new technologies and business models are introduced. the risks associated with