andreas dombret : remarks on current developments in europe speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the reception of the bundesbank representative office, new york, 1 november 2012. * * * introduction dear governor dudley ladies and gentlemen it is a pleasure for me to be here with you today in new york and to welcome you all. due to “ sandy ” it was not easy for me to get over to new york, but i can imagine it was much more uncomfortable for all of you staying in the area over the last couple of days. and please let me express my deepest sympathies for the hardships new yorkers are facing right now. bill dudley will speak to you in a couple of minutes about cooperation between central banks. in the long tradition of this cooperation, trust and mutual understanding have been established among central banks worldwide. and joerg stephan, the head of our representative office, has already mentioned the history of the cooperation between our two central banks. i am proud of this history, and we are committed to upholding it with the same degree of trust and mutual understanding in the future. i will come back to this later. before doing so i would like to make a few brief remarks on developments in europe. remarks on current developments in europe from abroad, i must admit that developments in europe are hard to follow and may well appear complicated. this can result in risks being overstated and the progress already made being neglected. as regards the european monetary union, significant steps in the right direction have been taken to overcome the crisis. in this context i will briefly comment on three topics tonight. first, adjustments in the periphery countries are unavoidable, but they are under way. for example, wage moderation has gained some momentum, exports in some of the crisis countries have been rising, and current account as well as budget deficits are shrinking. my favourite example is ireland, which shows that trust can be regained if the agreed measures are adopted and implemented. as concerns the specific case of greece, we are way behind the programme goals due to the standstill in consolidation and basic structural reforms in this member state. politicians and the eu are willing to assist greece, but greece must, first and foremost, help itself. announcing and passing laws is not enough if the administration and the general public undermine them. it is now the task of the troika to decide impartially whether greece meets the

initiative has touched a nerve in today ’ s payments landscape. by this i am mainly talking about the shortcomings in cross - border payment transactions. costly and slow, cross - border payments still have not really arrived in the digital era. and worldwide, around 1. 7 billion adults remain unbanked. [ 7 ] this is another challenge we need to tackle with even greater rigour than hitherto. possible answers and conclusions how do we respond to the challenges presented by digitalisation in payments in general, and in particular to the growing importance of bigtech firms, the libra project being just one example? calls for central bank digital currency have been increasing of late. various central banks are analysing the opportunities and risks of central bank digital currency for the general public. china ’ s central bank has apparently already decided to introduce a digital alternative to cash soon, even if some of the technical features are still unknown. in europe, sweden is currently investigating various aspects of a potential launch of a digital currency – the e - krona. it would still be a swedish krona, only in digital form. one key motivation here, it would appear, is that physical banknotes are gradually disappearing from economic life in sweden and sometimes are not even accepted in shops any more. as a member of the eurosystem, the bundesbank is following these developments very closely, and we have been investigating what central bank digital currency really could achieve by assessing its opportunities and risks. a distinction must be made here about what is intended. should central bank digital currency only be issued to current monetary policy counterparties or to the general public as well? besides the question of why the introduction and issuance of digital central bank currency is necessary or advisable in the first place, there is also the matter of the possible implications. the main thoughts that spring to mind here are the possible effects on the banking system, financial stability and monetary policy. currently, we simply know far too little to be able to single out central bank digital currency as an appropriate answer to the challenges that lie ahead in the payments space. consider, for instance, that competition with central bank digital currency might make customer deposits a more expensive source of bank funding and thus continue to squeeze banks ’ profitability, with potential implications for bank lending. or the concern that the introduction of central bank digital currency for the general public would create a safe store of value, making it easier for people to “ flee to safety ”. depending on the