. for this vision to become a reality, a key enabler is that retail payment infrastructures become interoperable and consolidate. the outcome of theses changes on retail payment systems is uncertain. it may lead to various structures, ranging from a natural monopoly exercised by one infrastructure that would encompass most national and cross - border payment flows, to the competition between several systems. however, whatever the structure, the challenge will be to find the right balance between two objectives : reaping economies of scale and scope and ( 2 ) fostering competitive market conditions and behaviours. 1. 2. keeping pace with technological progress the second issue for payment infrastructures consists in keeping pace with technological progress. payment systems are made up of it networks, hardware and software. as a consequence, technological progress is a key driver for enhancing the way payment systems are designed, operated and used. i will highlight a few significant examples of recent technological developments. the first half of the nineties experienced a major transformation in the design of large - value payment systems with the widespread introduction of real - time gross settlement ( rtgs ) systems. in a second step, further advances in information technologies have made possible new designs like the so called “ hybrid systems ”, i. e. systems that settle in real - time but, at the same time, minimise liquidity needs thanks to highly sophisticated optimisation mechanisms. in short, advances in information technology allowed large - value payment systems to settle faster, with a lower amount of liquidity and at a lower cost. on the retail payments side, technological progress should also allow safety and efficiency gains beyond those which have resulted, for instance, from the implementation of cheque truncation or those that are expected from introduction of the emv ( europay mastercard visa ) technology for card payments. innovation has definitely an important role to play in order to keep the sepa project futureoriented and promote the use of new delivery channels for retail payments like the internet and mobile devices, or new types of services like electronic invoicing. however, this flow of innovations come together with the entry in the payments market of new actors which do not always offer the same level of security as the traditional suppliers of those services, namely credit institutions. there is obviously a trade - off between, on the one hand, encouraging innovation by facilitating access to the payments market and, on the other hand, ensuring the safety of payments provided by setting prudential requirements on their suppliers. this challenge

encompassing a spectrum of policy choices, which inter alia, include : the appropriate level of reserves ; monetary policy objectives related to liquidity management and interest rates and maintenance of healthy financial market conditions with financial stability. " [ para 3. 1 ( page 56 ) ] the eleventh five - year plan ( 2007 - 2012 ) as approved by the national development council on december 19, 2007 makes several observations in this regard. some of these are reproduced here. " the problem posed by having to manage large inflows has been discussed in chapter - 10. it arises because of the well known " trilemma " that it is not possible to achieve three objectives simultaneously, i. e. free capital mobility, an independent monetary policy and a stable exchange rate. attention should be given to measures to restrain these capital flows and enhanced the absorptive capacity in the economy to avoid running into the classical " dutch disease " situation where non - tradeables become overpriced and erode the competitiveness of the economy in the tradeable sector. " ( para 2. 30 ) " the cautious approach to opening the capital account followed thus far as a conscious act of policy has given the government some leeway in limiting inflows of certain categories. " ( para 2. 33 ) " these problems illustrate the merit of the cautious approach adopted by the government in the matter of liberating capital inflows. the advantages of accessing pool of capital to finance development are recognised in the commitment to move gradually to fuller capital account convertibility. but the move is to be made gradually at a pace which enables the authorities to deal with unexpected volatility. in controlling capital flows it is important to recognise the relative attractiveness of different types of flows. in this regard direct foreign investment is the most preferred form of flow. investments in indian firms through the stock market and by venture capital funds in unlisted companies are also potentially beneficial. external commercial borrowing and other short term flows are areas where one can introduce an element of control to moderate sudden surges. however, even with capital calibration it is not easy to manage a surging capital inflows, if it occurs. in such situations, it is necessary to explore ways of limiting the fiscal cost of sterilising large growth of reserves : either by making these flows less attractive or by means that do not require costly sterilisation. " ( para 13. 72 ) it is noteworthy that there is recognition of the more immediate challenges