april 16, 2018 bank of japan central banking in the digital age closing remarks at the imf - jfsa - boj conference on fintech masayoshi amamiya deputy governor of the bank of japan introduction i would like to express my sincere gratitude to all the participants. it was a great pleasure for us, the international monetary fund, the financial services agency, and the bank of japan, to hold such a large conference on financial innovation in asia. indeed, this conference symbolizes how the world has changed in this decade. it innovation and changes in finance and economy looking back on 2008, a decade ago, the biggest challenge to the imf and financial authorities all over the world was how to tackle the global financial crisis. smartphones were still in their very early stage. crypto - currencies had not yet appeared. since then the world economic landscape has dramatically changed. the global economy has overcome the crisis and regained its growth momentum. with the rapid innovation of information technologies, the movement described as the " information revolution " or " data revolution " has developed globally, bringing new growth opportunities for financial services and economic activities. asia has been particularly influenced by such it innovation. let me pick up the issue of " financial inclusion " for example. this was a global social issue already as early as 2008. since then the number of smartphones has skyrocketed, and many people, including those in emerging economies in asia, have become able to access financial services via smartphones. it innovation has promoted " financial inclusion " in a way which was not expected a decade ago. such wider access to financial services is also stimulating various new economic activities. smartphones also produce a gigantic amount of data as people use smartphones everywhere in their daily lives. such " big data " are becoming more and more important as intangible assets in a broad range of economic activities. global " data - giant " companies, which have grown rapidly in recent years, often provide various services including financial ones free of charge, while utilizing big data gathered through these services for multiple purposes. moreover, it innovation has created new business models, such as " the sharing economy. " new policy challenges it innovation also raises various new challenges to financial authorities, including central banks. among them, let me point out four issues. ( i ) impacts on financial markets first, high - frequency trading, or hft, utilizing algorithms and ai has recently increased its role in various financial markets. financial authorities need to carefully examine

of markets assumed critical significance. the financial markets - in particular the stock market, the money market and the forex market – reflected the heat of the global contagion. liquidity pressure global liquidity scare and credit squeeze led to constrained access to funds for indian entities, and some of the corporates shifted their demand for funds to local markets. the pressure on the balance of payments, led by net capital outflows in the third quarter of 200809 and the associated intervention sales by the rbi in the forex market also implied corresponding withdrawal of domestic liquidity from the banking system, which the rbi had to more than offset by expanding liquidity against domestic assets in its balance sheet. net capital flows declined from us $ 108. 0 billion in 2007 - 08 to us $ 9. 1 billion in 2008 - 09. india's foreign exchange reserves declined by us $ 58. 0 billion, of which us $ 37. 9 billion was on account of valuation changes, and the remaining us $ 20. 1 billion decline reflected the financing needs of the bop. thus, with less than 10 per cent of the available stock of forex reserves, the balance of payments pressures from a severe global contagion could be contained. the liquidity demand, however, increased in general after the lehman incident in september 2008. in view of the funding inter - linkages between nbfcs ( non - banking financial companies ), mutual funds and commercial banks, when the contagion from the global financial crisis created selling pressures in the stock markets in india, the liquidity needs of the financial system as a whole had to be addressed by the reserve bank. the global deleveraging process created selling pressures, as foreign investors could meet liquidity needs in the advanced markets by selling in domestic markets. heavy redemption pressure on mutual funds started in september 2008, as several investors, especially institutional investors, started redeeming their investments in liquid funds / money market funds. mutual funds are major subscribers to cps and debentures issued by the nbfcs, besides cds issued by banks. the rollover of maturing short - term instruments floated by nbfcs for having regular access to market funding became difficult. the tightening liquidity conditions also made banks somewhat reluctant to lend to nbfcs. the financial market pressures global illiquidity spiral increased volatility in the financial markets, and restoring orderly conditions in the financial markets became critical to contain the spread of contagion into other sectors