six weeks, the remaining member, known as the group chairperson, receives his or her loan – of course provided all goes well. in the beginning the group was typically seen as a source of solidarity. for example, when one member could not repay the loan, the group chairman could help out. in this way the credit record of the defaulted borrower would remain clean, and thereby also that of the group as a whole. over time, formal sanctions by the bank became more common. if one or more group members failed to repay, all group members would be cut off from future loans. the incentive to help each other out in times of need, but also to check on each others repayment record, became stronger through this joint liability system. in practice the group lending methodology functioned well, as repayment rates were generally high. group lending is not only beneficial for the poor people as they gain access to credit, it is also an advantage for the microfinance institution that is providing the loans. part of the responsibilities of the microfinance institution, such as monitoring loans and enforcing repayments, are taken care of through the group ’ s own checks and balances. in this way the operational costs of microfinance have reduced and it becomes possible to give poor people loans that would otherwise not be available or at least would not be available at such low interest rates. the group lending methodology thus increases social capital and efficiency. effect on poverty and economic development with innovative concepts such as group lending it is possible to give poor people access to credit. an obvious next question is : what does this credit do for them? can people actually improve their living standards with the help of micro credit? there are basically two ways to answer this question. the first way is to look at the data and the available scientific studies and carefully assess the results. this is how central bankers typically approach economic questions. the second way is to pack your bags, hop on an airplane, and see for your self how microcredit affects the lives of people in developing countries. let ’ s start with the second approach, which is not so common for central bankers, but undoubtedly no less illuminating. my personal experience with microfinance in ghana has been very positive. and this holds for many observers who have witnessed the activities of microfinance institutions on the ground. but is microcredit really an effective means to alleviate poverty? are the high expectations justified and can we establish a clear causality between microfinance and higher

that a modern central bank provides. its success may also have been the bank ’ s undoing. in the late 1770s, the bank started granting larger and larger overdrafts to the dutch east india company, while never disclosing them. over time, the bank had accumulated large credit exposures which soon became non - performing. the full extent of lending exposures remained hidden from public view for a further decade. however, the demise of the amsterdam bank came through a run on its gold and silver in 1795, following the invasion of the french revolutionary army. what lessons can we draw from this chapter in monetary history? for one, financial innovation is common to all ages. so, too, are financial risks. adequate risk management, sound governance, financial regulation, supervision, deposit insurance, crisis management – they are all necessary to safeguard confidence in the financial system. second, this episode points to a fundamental dilemma that lies behind privately issued stablecoins. having a full backing requirement creates trust, but also implies limited settlement liquidity. 6 credit is needed to ‘ oil the wheels ’, especially in wholesale payments. for the netherlands, payment values are in excess of 100 times gdp. issuers of stablecoins may therefore have an incentive to start lending. but doing so is at odds with their stated objective. which is to stabilise the value of the coin through full backing. and lending exposes the issuer to credit risk and to potential runs when confidence falls away. not to mention a whole range of relevant issues around legal certainty, financial integrity and data protection identified by the g7 and the financial stability board. careful consideration of regulatory and supervisory implications is therefore needed before any global stablecoin - type initiative can be launched successfully. 7 with these lessons in mind, let ’ s have a closer look at the risks and benefits of modern financial technology. the past few years have seen the growing application of technology - driven innovation in financial services. this is the result of a combination of drivers. 8 evolving technology related to big data, artificial intelligence, distributed ledgers and computing power has increased the rate of fintech adoption exponentially. customer preferences regarding convenience, speed and costs are becoming increasingly important. especially among the younger demographic of digital natives. business opportunities have emerged in areas that traditional financial institutions may have overlooked. opening up the way for new entrants. and there is no doubt that fintech brings significant potential for societal good and welfare, especially in the developing