in times of trouble, sovereigns, like financial institutions can be either illiquid, or insolvent, or both. in many cases, the distinction is blurred. when uncertainty is high, sovereigns face liquidity shortages, and they can only issue new debt at constantly higher interest rates. this, in turn, creates doubts about their ultimate solvency, triggering a negative spiral. this process is clearly at work in peripheral europe, especially spain and italy, since the beginning of august. bis central bankers ’ speeches in short, sovereign solvency is partly endogenous. good fundamentals are an absolute necessity, but not always a sufficient condition. liquidity spirals, when allowed to develop, can lock a country, just like a financial institution, into a bad equilibrium. what is therefore the appropriate policy reaction? we had a continuing debate on that question in 2009 – 2010 when dealing with financial institutions. we are faced with the same question now regarding sovereign risk. the standard answer is twofold. first, get the fundamentals right. for european countries, it means reverting to a sustainable fiscal position which, in most cases, necessitates a significant primary surplus. necessary efforts are greater now since doubts have been created about sovereigns ’ ability to meet their obligations. and second, when solvency is achieved, there is a need for a liquidity backstop to ensure that bad equilibria will not be allowed to develop. where that backstop is coming from is a key question in the current debate. in most jurisdictions, but crucially not in the euro area, unconventional monetary policies have led central banks to purchase significant amounts of government debt : those purchases amount to 51 % of the total debt issued since 2009 in the uk, 21 % in the us and 7. 6 % in the euro area – where they were fully sterilized. although this was not the primary purpose, this policy stance has contributed to giving markets an insurance, or even an assurance, against a potential dry - up in liquidity. in all countries where significant amounts of debt have been purchased by monetary authorities, long - term interest rates have been kept at very low levels, irrespective of their fiscal situation. by contrast, purchases of sovereign debt by the eurosystem have remained extremely limited and will stay so. our objectives are very circumscribed : avoid disruptions in the monetary policy transmission mechanism. any lasting liquidity backstop has to come from

faster and smoother transmission of monetary policy to the economy. but digitalization also raises new risks. a major one is to jeopardize the central role, as anchor and stabilizer, of the national central bank currency of a country ’ s financial and monetary system. this risk stems from the possible development of alternative systems whose settlement asset is not solidly linked to the national central bank money. for instance, tokenized financial assets are booming with the risk that transactions involving them settle with other settlement assets than central bank money, including crypto - assets. in the retail payment space, new players such as bigtechs with huge financial resources and benefitting from worldwide network effects, are making inroads into the payments industry and may provide dominant payment solutions with settlement coins with loose links, if any to central bank money. 2. let me now turn to the consequences from a more macroeconomic perspective that are relevant for the conduct of monetary policy digitalization affects the measurement of the price index. it exacerbates measurement issues well - known to price indices, such as dealing with frequent product replacements and 1 / 4 bis central bankers'speeches adjusting for product quality, or dealing with changes in the structure of the economy and hence the weight of new technologies in the economy. digitalization also influences inflation dynamics via firms ’ pricing behavior, market power and concentration, as well as firms ’ productivity and marginal costs. on the one hand, it reduces search costs and increases price transparency – think of how e - commerce renders price comparison easy - thereby reducing mark - ups. on the other hand, it increases the degree of market power and mark - ups by increasing entry costs for competitors of “ superstar ” firms especially due to a strong network and platform effect. the overall impact is therefore ambiguous. hence, digitalization should not only influence price level, but also its dynamics and its relation to real activities. b. policy responses and the role of a cbdc the macro financial and macroeconomic possible positive and negative impacts of the spread of digital technologies create challenges to central banks ’ roles and missions. three of them are of particular relevance in the case of europe : i ) a risk to european sovereignty in payments with the emergence of digital solutions offered by non - european - players, being private or public ; ii ) a threat to monetary and financial stability, notably through the risk of a disanchoring of the role of central bank money both in the retail and wholesale space ; and iii ) a threat