are continuing to look at the pros and cons. at the same time, we are also looking at how settlement arrangements with central bank money might evolve as new technologies emerge. as we have worked through the issues, we have developed a series of working hypotheses. i would like to use this opportunity to outline these hypotheses and then discuss each of them briefly. as you will see, we have more confidence in some of these than others. there will be a further significant shift to electronic payments, but there will still be a place for banknotes, although they will be used less frequently. it is likely that this shift to electronic payments will occur largely through products offered by the banking system. this is not a given, though. it will require financial institutions to offer customers low - cost solutions that meet their needs. an electronic form of banknotes could coexist with the electronic payment systems operated by the banks, although the case for this new form of money is not yet established. if an electronic form of australian dollar banknotes was to become a commonly used payment method, it would probably best be issued by the rba and distributed by financial institutions, 1 / 11 bis central bankers'speeches just as physical banknotes are today. another possibility that is sometimes suggested for encouraging the shift to electronic payments would be for the rba to offer every australian an exchange settlement account with easy, low - cost payments functionality. to be clear, we see no case for doing this. it is possible that the rba might, in time, issue a new form of digital money – a variation on exchange settlement accounts – perhaps using distributed ledger technology. this money could then be used in specific settlement systems. the case for doing this has not yet been established, but we are open to the idea. so these are our five working hypotheses. i would now like to expand on each of these. 1. the shift to electronic payments an appropriate starting point is to recognise that most money is already digital or electronic. only 3½ per cent of what is known as ‘ broad money ’ in australia is in the form of physical currency. the rest is in the form of deposits, which, most of the time, can be accessed electronically. so the vast majority of what we know today as money is a liability of the private sector, and not the central bank, and is already electronic. with most money available electronically, there has been a substantial shift to electronic forms of

higher interest payments are squeezing the budgets of many households. and, while around one million borrowers have already transitioned from low fixed - rate loans to loans with higher interest rates, a similar number will make that transition over the next 18 months. consumer confidence is low and rents are increasing quickly as vacancy rates are very low across the country. so, it is a complicated picture and there are scenarios in which consumption is weaker than our central case and others in which it is stronger, with implications for the trajectory of inflation. we are watching developments here very carefully. the second risk is that services price inflation may stay high, prolonging the period of inflation being above target. the high services price inflation reflects a combination of factors, including strong demand for services in the wake of the pandemic, stronger growth in nominal wages and incomes, and weak productivity growth. this weak productivity growth is a particular problem for many reasons. amongst these is that, in combination with a high level of aggregate demand, it is adding to the upward pressure on prices. the rba's forecasts have been prepared on the basis that growth in productivity picks up to be close to the rate in the years before the pandemic, which would contribute to a 3 / 5 bis - central bankers'speeches moderation in growth in unit labour costs and thus inflation. if this pick - up in productivity does not occur, all else constant, high inflation is likely to persist, which would be problematic. one related concern is that persistent high inflation could see inflation expectations adjust upwards. at the moment, medium - term inflation expectations remain well anchored, which is positive. but the longer inflation stays high, the greater the likelihood that businesses and workers will come to doubt that inflation will return to target and, in response, they will adjust their behaviour. this would make the task of controlling inflation more difficult and likely lead to a sharper slowing in output and a greater loss of jobs. the board is seeking to establish a credible path back to the inflation target over the next couple of years to avoid a damaging shift in inflation expectations. it is also seeking to strike the right balance between getting inflation down in a timely way and preserving as many of the gains in the labour market as possible. with inflation having been significantly above target for some time now, the board wants to have reasonable confidence that inflation will return to target over the current forecast period. we will do what is necessary to achieve that outcome. the rba review i would now