? how will monetary policy and financial stability change if perfectly safe central bank cash were to disappear? if physical cash were to become obsolete, should central banks still be involved in providing central bank money to the public – perhaps in a digital form? these are indeed relevant questions, even if the issuance of euro cash still continues to grow. this seminar aims to contribute to the contemporary debate and increase our understanding of these questions. against this background, let me focus on three topics that the central banks must in my view carefully analyse. 1. what is the role and meaning of legal tender and the need for some form of generally 1 / 3 bis central bankers'speeches available and usable central bank money for members of the public? the historical background of legal tender lies in times when different monies circulated and, for the sake of stability, one of them had to be classed as legal. that gave central banks the power to create unlimited liquidity in their own currency, useful for financial stability. however, as the bank of finland legal unit concluded in its survey, this concept is surprisingly vague today, at least in retail payments. there are several reasons for this. in some countries, legal tender stands for the common fallback, if no other payment instrument is agreed upon. in some countries legal tender means the mandatory acceptance of cash for payment e. g. in retail. in the u. s., where it reads on dollar bills that they are “ legal tender for all debts ”, there is no mandatory requirement to accept them in the purchase of goods and services. 2. how can we maintain the ability of official oversight to ensure the safety and – under the dual threats of fragmentation and monopolization – the efficiency of payment systems? as i mentioned earlier, the payments market is in turmoil with all the new initiatives. some of them are just user interfaces, but also completely new transmission mechanisms are being introduced to the market. this development entails some potential problems for the oversight of payment systems. first, while consumer choice is a positive thing, fragmentation may increase uncertainty about trustworthy services. it may become impossible for supervisors to monitor all players, and for the overseers to ensure the robustness of the overall payment system. another problem may arise from the fact that more and more service providers are non - banks that are not accustomed to regulatory requirements and may prefer to stay outside the oversight domain. the end - game may look like the free banking era, when competing private banks were printing their own

should not have quelled it, nor could it have done so. the real challenge as i mentioned in my speech at bis central bankers ’ speeches the annual general meeting of 2010, was to allow the adjustment to take place without permitting inflation or unemployment to become entrenched afterward. second, inflation rose temporarily as a result of rising global oil and commodity prices. monetary policy should not react to these either – and it didn ’ t. on the other hand, it is the task of monetary policy to prevent such increases from turning into a persistent inflation episode through a reaction of wages and other domestic cost factors. it is the third type of inflation that is a home - grown product. in increasing measure, the current bout of inflation falls into this category, as can be seen in the wage increases of the past year. monetary policy must take action to impede this type of inflation, particularly when inflation expectations are well above target, as they currently are. a key question in this regard is why this inflation episode has occurred in spite of unemployment figures and other measures suggesting a considerable slack in the economy. of course, a number of explanations are possible : that there is a lack of confidence in the will and ability to apply policy tools as needed to attain the inflation target ; that the tradable sector, which enjoys good operating conditions due to the low exchange rate, is a driver of wage developments ; and that the exchange rate is temporarily low because of the repayment of foreign debt, which is to some extent forced and is occurring more rapidly than is desirable. it is interesting, too, to ponder whether the slack in the economy is actually smaller than current assessments indicate. this question is one that the central bank and the monetary policy committee must grapple with at all times. in the recent term, monetary policy has been conditioned by the private sector debt crisis, which stems from years of overheating and the subsequent financial crisis. as the debt situation improves and the slack in the economy diminishes, it will become more important to tackle inflation aggressively. historical and international experience shows that this cannot be done without temporary sacrifices in economic activity and employment levels. we must therefore hope that inflation subsides as forecast in the near future. lifting the restrictions on capital outflows is one of the most complex tasks facing the icelandic authorities at present. the controls probably prevented further depreciation of the krona after the banks collapsed, although no one knows how long the depreciation would have persisted.