randal k quarles : progress on the transition to risk - free rates speech by mr randal k quarles, vice chairman for supervision of the board of governors of the federal reserve system, at the financial stability board roundtable on reforming major interest rate benchmarks, washington dc, 10 april 2019. * * * i am pleased that we have this opportunity to meet with many of the institutions active in helping to achieve a transition from libor to the risk - free rates identified by working groups in each of our jurisdictions. the financial stability board ( fsb ) has coordinated the international effort to reform interest rate benchmarks at the direction of the g - 20. this is an important effort across the globe, but nowhere is it of more importance than in the jurisdictions relying on libor. let ’ s review the reasons that we are here. by the time of the financial crisis, much of the global financial system had come to rely on libor. and yet libor was a very poorly structured rate ; contributing banks were asked to submit quotes without any requirement of evidence of transactions or other facts to back them up, which made them susceptible to manipulation. thanks to subsequent reforms, contributors now provide this type of evidence where possible, but libor is based on an underlying market with so few transactions that there is relatively little direct evidence they can provide. many submitting banks are uncomfortable with this situation, and some sought to stop their participation. as a result, the official sector has had to step in to support libor by securing a voluntary agreement with the remaining banks to continue submitting through 2021. at the same time, the official sector has convened national working groups to help develop alternative risk - free rates and navigate a very complicated transition. many people have used reference rates with little thought. the experience with libor should teach us that this has to change and that we cannot risk making this kind of mistake again. banks should conduct at least as much due diligence on the reference rates that they use as they conduct on the creditworthiness of their borrowers. the national working groups convened by many of the fsb member authorities have performed that type of diligence with the secured overnight funding rate, or sofr, and the risk - free rates identified in other jurisdictions. that effort has been a clear and positive example of public - private sector cooperation. these alternative risk - free rates have been created or substantially reformed to ensure that robust, transaction - based rates that accurately represent well

preserved the stability of the monetary system. their respective roles are clearly assigned : central bank money anchors the stability of the financial system while the multiplicity of issuers of commercial bank money preserves competition and innovation. their interplay and their interchangeability at par value ensures the safety and efficiency of the monetary and financial system. neither one is better than the other, but in a joint venture each partner needs the other : a digital euro should never mean disappearance of commercial bank money ; conversely, digitalisation cannot mean the disappearance of central bank money. indeed these foundations – and especially the role of central bank money – are increasingly threatened by the digital revolution of the financial sector. first, it results in the decline in the use of cash in transactions, which calls into question the availability of central bank money for the public. increased reliance on digital payment solutions also shows how our european ecosystem has become critically dependant on non - european players ( eg international card schemes and bigtechs ). meanwhile, the emergence of crypto - assets and so - called stablecoins may compete against both commercial and central bank money, even though they do not offer the same guarantees in terms of credit risk and safety : the recent collapse of the terra - luna ecosystems or the sudden liquidity shortage of celsius network are necessary wake - up calls. i strongly welcome here, on the last days of a fruitful french presidency of the eu, the successful trilogues on transfer fund regulation ( travel rule ) and markets in cryptoassets ( mica ). 2. even if the precise use cases are not yet definitively fixed, there are several material reasons to consider the issuance of a digital euro the main rationale for a digital euro is therefore to preserve the role of public money in a digital economy. such means of payment, adapted to the demand of users in the digital age, would ( i ) preserve the accessibility and usability of page 3 sur 7 central bank money, ( ii ) support our monetary sovereignty, and limit the risk that “ external ” digital assets – be they cryptos or non - european cbdc – would be used as settlement assets in the euro area, ( iii ) support the strategic autonomy of the european continent – and hopefully contribute to the emergence of a pan - european payment solution e. g. the european payments initiative, which could be used as a vehicle for the distribution of a digital euro. in the light of these challenges, and under the leadership of my board colleague