financial stability. 11 central banks will also have to deal with issues of regulation and supervision of digital lenders ; observance of fair practices code by the stakeholders ; data security and privacy ; and third party service providers, etc. 19. the fifth challenge relates to the advent of artificial intelligence and machine learning ( ai / ml ) tools in financial services. while its application and usage in central banking and financial services has tremendous scope, it also poses challenges of data privacy, algorithmic bias and discrimination, cyber security and ethical issues. 12 central banks and other players in the financial services ecosystem have to enhance their own capacities to deal with these challenges. 20. to sum up, central banks in the 21st century will have to gear up for all these challenges. while climate change and geopolitics may work as supply shocks to fuel inflationary pressures and slowdown global growth and trade ; innovation and artificial intelligence, if well supervised and properly channelised, can help in enhancing productivity and reducing costs. the net effect will depend, to a great extent, upon central banks ’ own capabilities in harnessing the potential while managing the transition. this in turn will determine the financial landscape of the 21st century. silva l. a. p. ( 2023 ), “ central banks at the crossroads ” bis speech, august. acemoglu, daron ( 2024 ). “ harms of ai ”. in : the oxford handbook of ai governance. ed. by justin b. bullock, yu - che chen, johannes himmelreich, valerie m. hudson, anton korinek, matthew m. young, and baobao zhang. oxford university press. concluding observations 21. every crisis brings with it new lessons and ideas. the frontier of knowledge and ideas in economics have advanced with each crisis in the past. for example, the great depression of the 1930s underlined the importance of fiscal and demand management policies ; the great inflation of the 1970s brought to focus the need for credibility and consistency in policy frameworks ; the global financial crisis of 2008 underscored that financial stability can not be separated from overall macroeconomic stability ; and now the sequence of unprecedented shocks since the pandemic have driven home the need for policymakers to be agile, proactive, innovative and prudent in their policy responses, without being constrained by orthodoxies or dogmas. thus, economic theory and policies have evolved over the years with experience gained and lessons learnt from each crisis. in fact, this

to an inflation target, maintaining buffers in the form of reserves, and following a prudent and forward looking approach in financial sector policies. this approach, together with prudence in fiscal management, will go a long way in enhancing the resilience of emes. some of these drivers include global slowdown, high inflation and concomitant high interest rates in aes, strong dollar, bank failures in aes and associated contagion risk, high commodity prices, tapering of quantitative easing and associated capital outflows from emes. the indian context 12. let me now turn to the indian context. i wish to highlight some aspects of the reserve bank ’ s approach that have worked well for us. we have not only managed to shield the indian economy from multiple shocks in the last few years but have also enabled it to emerge stronger from the crisis. the indian economy today demonstrates vastly improved macroeconomic fundamentals and buffers. 13. unlike many central banks which are narrowly focused on price stability using monetary policy, the reserve bank has a wider canvas of functions. it is not just responsible for maintaining price stability, but also has the larger responsibility of maintaining financial stability as the regulator and supervisor of banks and other financial sector entities, financial markets and payment systems. 7 this helps us to take a holistic view of the economy, appreciate the synergy and trade - offs involved in various objectives, and act appropriately using multiple instruments at our disposal. 14. the flexible inflation targeting ( fit ) framework which got embedded into the law in 2016, established the primacy of price stability among the objectives of monetary policy, but not unconditionally. it defined the objective as maintaining price stability, while keeping in mind the objective of growth. the fit framework retained the essence of the earlier multiple indicator approach without any ambiguity about the hierarchy of objectives. fit provides flexibility to support growth if the situation so the preamble to the rbi act 1934 describes rbi ’ s main functions as : “ … …. to regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in india and generally to operate the currency and credit system of the country to its advantage ; to have a modern monetary policy framework to meet the challenge of an increasingly complex economy, to maintain price stability while keeping in mind the objective of growth. ” demands. financial stability which is a pre - condition for price stability and sustained growth is thus implicitly embedded as part of the broader mandate of the