( reflecting global macro imbalances ), “ carry trade ” and currency misalignments. although, monetary conditions had begun to tighten, the sub - prime mortgage crisis caused liquidity squeeze that resulted in loss of confidence and panic among investors and lenders ( and now central banks ) as they could not offload the complex risky assets and structured financial products. since banks turned to rescue and bought off chunks of these papers, with low mark - to market valuations these resulted in losses to a number of financial institutions and write offs required capital injections. this fortunately was possible given the growth in sovereign funds which are waiting for acquisition and other deals. could it be possible that by accommodating the oil and food prices and ( attempting ) to revive the economy, us is setting the stage for another round of easy monetary policy and liquidity situation. in my opinion, the key issue for central banks is to differentiate between need for short - term liquidity to rescue troubled financial entities and need for adoption of a credible monetary policy stance which aims to calibrate liquidity management in a way that it does not aggravate inflationary risks which in turn would trigger further complication and protract the global economic recovery. while lowering interest rates, central banks have to weigh inflationary risks against the risk of recession and financial instability. in bailing financial entities, the central banks have to be concerned with “ moral hazard ” associated with such policy response as it often encourage more risky endeavors by salvaging institutions whose sole purpose of existence is risk taking and profit making. not only is pakistan facing different sets of complex challenges, but the emerging global economic scenario itself underscores that country does not mimic the policy response of advanced economies. advanced countries that are selectively lowering interest rates are those that have enjoyed low inflation for sometime but are now facing steeper risks of downturn. as such, there trade off for growth supportive policies relative to inflation is understandable as risks associated with us slowdown would threaten global economic outlook and financial vulnerabilities. pakistan on the other hand has relatively stable financial system, but mounting aggregate demand pressures are now visible in rising inflation and rising inflationary expectations. tightening of monetary stance and flexible exchange rate management are the two key central bank policy responses. these however will have more distinct impact if the government reverts to fiscal prudence and efforts to this count are visible through recent reduction in oil and other subsidies. turning to the domestic front structural reforms :

ecb ’ s new payments survey, cash remains the most common way of making small retail payments, with cash payments accounting for 73 % of all physical retail payments in 2019. but almost half of consumers said they prefer to pay digitally, and this has increased further during the pandemic. this trend is unlikely to be reversed once the pandemic is over. a survey conducted by a consulting firm in 17 european countries shows that a vast majority of consumers expect to continue to use digital services as often as they do now or even more often. in other words, the pandemic has served as a catalyst, accelerating the transition towards a digital new normal. the second major trend is the competition to dominate payments on a global scale. payments are subject to strong network effects : the more users a payment system has, the more attractive it becomes to new users. scale matters - this limits the field and inevitably leads to just a few service providers dominating the payments market. europe has fallen behind in this competition. the lack of payments integration in europe means that foreign providers have taken the lead. this is not necessarily a concern, as long as foreign firms are accountable and subject to appropriate regulation and oversight, in accordance with the principle of same business, same risk, same regulation. but the evolving global context and rapid technological progress are changing the nature of the risks that we are exposed to. we are seeing an increase in protectionist policies, as sanctions and even exclusion from payment systems in recent years have shown. this presents new risks of payment disruption – especially for jurisdictions that are overdependent on dominant system providers. europe had a taste of the potential risks in the summer of 2018 : outages at international card providers left millions of europeans temporarily unable to pay for goods and services. european payments are also being affected by technology firms driving the digital transformation of global payments. these firms ’ well - established user networks give them a unique advantage in the payments industry. more than a quarter of the world ’ s population are active users of facebook, which could give its libra project a global footprint from the outset. and it is not unlikely that other large technology firms enter the playing field, too. this has great potential to drive competition, improve payment solutions and support financial inclusion. but it could also magnify a host of issues, ranging from abuse of market power to ownership of critical data. it could also make it more difficult to combat illicit activities and ensure operational resilience. and more importantly – but