social cost in terms of low economic growth. there is no guarantee that somewhere down the road our economy will not be tested again by the increasing volatility of an integrated world financial market system. it is therefore important that we shall all learn from the two experiences of the past three years, and shall prepare our economy to prosper even within the environment of volatile international capital movements. we have learnt that sound macroeconomic policies at all times make it easier to absorb the fluctuations in the financial markets. countries that do not apply sound macroeconomic policies are punished more severely during times of international currency turmoil. we have learnt that flexibility in domestic financial and other markets makes it easier to absorb the shocks of the periodic global financial market disturbances. in particular, we have learnt that prices as determined by market forces must be allowed to respond quickly and decisively to changes in underlying market conditions. we have learnt that government policies are important, but that government actions alone cannot solve the problem once it has infiltrated into our markets. the disciplines of the market economy must be allowed to function in a flexible way. we have learnt above all that sound, well - managed, and healthy banking institutions can form a major bastion against total economic collapse in a situation of large capital outflows. in a number of east asian countries, the economies collapsed completely because weak banking systems could not survive in the adverse climate of sudden large outflows of capital. south africa must be grateful for the strength of our banking system, and must protect it to make sure that we shall also be able to withstand the future storms of a volatile global financial market environment. weak banking systems lead to weak economies.

and cheaper banking services for customers, giving more people access to financial services. but new technology and increased competition can also disrupt the very key role banks play in the financial system. the changes we are observing raise big questions : are we headed towards a monetary system that is fundamentally different from the one we have today? will tech giants and cryptocurrrencies outcompete banks and national currencies in a few years? chart : today ’ s topics to shed light on these questions i will look at what actually characterises the role of banks, how competition from new participants might influence the financial system and finally the implications of the changes underway for norges bank ’ s role and responsibilities. 1 / 7 bis central bankers'speeches the role of banks in the financial system the financial system should deliver a number of very basic services. we want to be able to borrow in order to study or buy a home today, while paying out of future income. we also want to be able to borrow long - term to finance investment projects with high expected returns. in addition, we need a means of payment that provides fast, safe and reasonably priced settlement services for both domestic and cross - border transactions. the means of payment should also be a savings vehicle. a pre - condition is that we have confidence in the current and future value of money. in today ’ s system, banks have a key role in providing these services. they offer credit, savings products and payment services. chart : banks provide credit banks are often described as agents that provide credit by taking deposits from savers and lending part of that money to borrowers. this description of banks is not entirely wrong, but overlooks an essential component of banking and a function that distinguishes banks from nonfinancial firms. chart : banks create money the description does not explain where the deposits originate. the deposit placed in one bank can come from another bank. but what if we take banks as a whole? the answer is that banks create deposits when they extend loans to their customers. when a bank grants a loan, money that did not exist before is credited to the customer ’ s account. the bank does not have to find someone who wants to save before it can make a loan. the bank creates its own funding in the act of lending. banks thereby also create the money we all use. no other financial firm can do that. 5 non - bank financial institutions must hold deposits in a bank for them to be able to pay another party. almost