could cause. i can also assure you that we are aware of the risk. in particular, we are aware that it is difficult to put the deflation genie back in the bottle once it has come out. if signs of widespread problems emerge, we will act swiftly to counter them. an advantage of our measured monetary policy response to date is that we have plenty of policy room available to react if necessary. is there a risk to financial stability closely related to the question of deflation is the issue of financial stability. a period of deflation could be caused by, or contribute to, financial stability problems as real debt burdens rise and borrowers struggle to service their debt commitments. again, i expect that you know more about this than i do. however, let me give you my interpretation of recent developments in europe and their implications for financial stability. asset price declines one concern has been that recent stock price declines could trigger financial instability by weakening balance sheets across the economy. clearly there has been a significant adjustment in stock prices around the world over the past year or so. europe has also been affected. european stock prices are now back around the levels seen in 1998 and have fallen by around 30 % since the beginning of this year. nevertheless, to put this fall in perspective, stock prices remain well above 1996 levels, which was when chairman greenspan made his comments on irrational exuberance. this holds true even when you adjust for inflation. regardless of whether or not stock prices are too high, a decline of the magnitude we have seen is bound to have some impact on the macroeconomy. at the dutch central bank we have estimated that a sustained decline of 30 % would have a cumulative negative impact of just over ½ % on european growth over three years. our model implies that there will be an insignificant impact on prices. however, these estimates are for the direct influence of lower stock prices only and abstract from confidence effects. as an aside, it is interesting to note that the wealth effects from changing share prices are considerably stronger in the united states. for example, a fall of 30 % in us share prices results in a cumulative negative impact of over 3½ percent of gdp over the same three year period. there would also be a negative impact on consumer prices of a little over ½ % over three years. the different impacts stem largely from the lower extent of share ownership in europe than in the us. although direct share ownership is gradually spreading in europe, it remains considerably less widespread than in the

fast to the principles that innovation, competition and consumer choice are good, and that disruption is not the enemy. but it is essential to understand and manage the risks to individuals, businesses and the entire financial system that arise from any product offered to the public. contingency planning for a central bank digital currency all of this leads me to my final area of focus. in the context of the issues i ’ ve raised today, there has been increasing discussion around a central bank digital currency ( cbdc ). we can think of this as a digital version of cash. digital currencies are designed to provide the same benefits as cash — safety, universal access, resilience, privacy and competition — but in an electronic format that could be used for online transactions or at the point of sale, using a mobile phone or a special card or device. 4 / 8 bis central bankers'speeches it would be truly equivalent to cash. today we have released a comprehensive document that outlines in greater detail our recommendations with respect to a cbdc. i encourage you to visit our website and read some of our thinking, but i ’ ll share the highlights with you. we have concluded that there is not a compelling case to issue a cbdc at this time. canadians will continue to be well - served by the existing payment ecosystem, provided it is modernized and remains fit for purpose. this means that : bank notes remain available to canadians who want to use them, including marginalized populations in our society ; the canadian payment system is brought up to date and problems with cross - border payments are addressed ; and an appropriate regulatory framework for stablecoins and other private digital currencies is established, both in canada and globally. all this being said, the world can change very quickly. the bank of canada can imagine scenarios in which we would consider issuing a cbdc so we can continue to provide canadians with trustworthy methods of payment. one scenario would be if we ever reach the tipping point where cash could no longer be used for a sufficiently wide range of transactions. that scenario would raise several potential concerns : payment services offered by large financial institutions could become the only game in town, giving them increased market power ; people without adequate banking services would find it even more difficult to participate fully in the economy ; people would lose the ability to conduct transactions privately ; and the system could have a single point of failure, making it more vulnerable to computer system breakdowns and power outages. of course, even such a shift toward