##tr ). to avoid this confusion about what digital money is and what it is not, we need the central bank to provide one of its own, responding to the demand for digitalisation and providing an anchor of stability in the world of digital finance. protecting the stability of the financial system for the digital euro to play this role, we need to carefully evaluate its potential impact on monetary policy, financial stability and the provision of services by financial intermediaries. a digital euro would of course be issued by the central bank. and unlike potentially dominant private actors in tomorrow ’ s digital payments market – such as big techs – the central bank would pay close attention to financial stability considerations and to preserving a diverse and vibrant ecosystem. this does not imply that the status quo must be maintained. it means that any potential risks emerging from the introduction of a digital euro should be contained in both normal times and times of financial stress. we have been discussing these aspects in detail over the past few months. we are looking very closely at the risks to monetary policy transmission and financial stability that could be associated with the conversion of large parts of euro area bank deposits into digital euro. deposits represent the main source of funding for euro area banks today. [ 14 ] if not well designed, a digital euro could lead to the substitution of an excessive amount of these deposits. banks can respond to these outflows, managing the trade - off between funding cost and liquidity risk. [ 15 ] the attractiveness of commercial bank deposits will also influence the degree of substitution. but any undesirable consequences that may result from the issuance of digital euro for monetary policy, financial stability and the allocation of credit to the real economy should be minimised in advance by design. and it is indeed possible to design a digital euro with effective tools to prevent it from being used as a form of investment rather than solely as a means of payment. one such tool entails quantitative limits on individual holdings. [ 16 ] another involves discouraging its use as a form of investment by applying disincentivising remuneration above a certain threshold, with larger holdings subject to less attractive rates. we intend to embed both types of tool – limits and tiered remuneration – in the design of a digital euro. closer to the possible introduction of a digital euro, we will decide how to combine and calibrate them to preserve financial stability and our monetary policy stance and transmission. [ 18 ] these choices will need to

domestic flexibility to adjust wages and prices to correct lack of competitiveness. we therefore could not maintain the parity for long. it also led to distortion in risk perception that led to excessive foreign exchange risk mismatch, over investment in the non - traded sector and damaging speculation, especially in real estate. when we had to change to the flexible exchange regime, the exchange rate depreciated to a low point of less than 50 % of its pre - crisis value before backing up to above 60. the exchange losses that occurred was, among other things, one of the major factors causing the level of non - performing loans to go up to the peak of 45 %. this was almost one out of every two dollars lent out. what stress test can really prepare us for such an event? the second is to have the right infrastructure for the domestic financial markets. this topic includes many things like ( a ) having the proper market rules, ( b ) having the legal framework that facilitates the enforcement of creditors ’ rights, ( c ) having the laws and procedures to deal with bankruptcy, ( d ) having proper accounting and auditing standards as well as a reliable system of credit information on individual borrowers. i can still recall that during the 1997 crisis, the inter bank market in thailand ceased up for fear of counter party failure. but the problem also extended to the system of commercial trade credit between ordinary companies, the sellers and buyers of goods. today, five years after the event, the system of trade credit still has not regained its full recovery. this problem can be mitigated with the function of credit bureau that reports regularly on payment behavior of commercial firms. third is to ensure that there exists proper supervision of financial institutions. the country has to ensure that the agency entrusted with this task has sufficient power to act. i can still remember that in thailand long ago, when government successions often did not come from elections but through military actions, it was very common for commercial banks to have army generals sitting on their boards. banking supervision under such an environment was a challenge. but the biggest challenge is what to do when banks suffer such losses that they are unable to continue. this happened when thailand went into the crisis in 1997. we closed down two - thirds of our finance companies. as for the commercial banks, we had 15 local banks then. six banks had to be taken over by the authority. the private shareholders were forced to take full losses, and new capital provided by the authority. management