what libra will look like in detail. provided libra goes ahead as announced by the consortium, a whole range of scenarios are conceivable : libra could stir up the global financial system as we know it today. however, it could also become a niche product, confined to the realm of person - toperson ( p2p ) transactions. i do not want to speculate about the future. instead, let us focus for today on the very idea of the social network that is behind both libra as well as payments more generally. 1 / 3 bis central bankers'speeches 2 cash as a social network monetary economies work on trust. building trust takes time and it requires credibility. in the world of central banking, the bundesbank has built up a considerable reputation and amassed a significant amount of technical expertise over its more than 60 years of existence. trust is of particular importance when it comes to monetary policy. consumers and businesses will only carry on using a fiat currency if they are convinced that its value will remain stable. hence, general acceptance of a currency strongly rests on credible monetary policy. more generally, trust is born out of social interaction. this relates to personal relationships or – from a more abstract point of view – the interactions between economic agents. the importance of social networks is particularly evident in payment systems. for example, people want to give monetary reward to others. this could be for charitable reasons or simply to settle an “ open tab ” with friends in the pub around the corner. households value the fact that cash is universally accepted. as a central bank, it is one of our main operational tasks to provide an adequate supply of physical euro banknotes and coins in line with household demand. we ensure that the cash handled by households and businesses on a day - to - day basis is of high quality. that means banknotes are clean and fit for use. this also involves research into new production techniques. we collaborate closely with other central banks in the euro area to continuously optimise processes relating to the production and distribution of cash. this is of particular importance in view of the fact that the payments landscape in europe remains fragmented. cash remains the only truly universal means of payment in the euro area. this makes cash the obvious choice for payments from person to person, at least domestically. a bundesbank study on payment behaviour in germany suggests that nine out of ten p2p transactions in euro are made in cash. 1 3 cash and remittances ladies and gentlemen

has failed to live up to this ideal. all along, politicians have enjoyed having a stake in the game ; the landesbanken are just one example of this. but one thing became clear when the crisis began – if not before : the financial sector setting was only partially suited to ensuring a competitive environment that was consistent with market economy principles. in retrospect, a great deal of trust, probably too much at times, was invested in market forces and market discipline. after the crisis erupted, there was a sharp increase in government bis central bankers ’ speeches interventions to stabilise the financial system. in many countries, banks were propped up by the state or even taken into national ownership. this government response was motivated, among other things, by a distinctive feature of the financial sector. relative to other industries, players in the financial sector are very highly interconnected. this high degree of interconnectedness means that if one participant exits the market, it can potentially bring down others as well. in extremis, this might cause the entire market to collapse and endanger financial stability. what this means, therefore, is that the financial sector is lacking a key aspect of an effective competitive environment – the possibility of businesses exiting the market. a major financial institution exiting the market can ignite a systemic crisis, leaving the state with little choice but to intervene in order to prevent matters going from bad to worse. and then the taxpayer is left to foot the bill. the no bail - out principle has lost all effect. as walter eucken might have put it, those who benefited did not bear the costs. this very phenomenon has come into play during the crisis. the state no longer merely sets the rules, it has also joined the game, whether by choice or otherwise, because the markets anticipated that it would be forced to intervene in an emergency. naturally, this no longer fits the ideal of the state envisaged in our political order. if the state wants to get back off the playing field, it will have to adapt the rules of the game. what we need is improved financial sector regulation. 3. financial sector regulation however, as i see it, we should not go from occasionally placing too much trust in market forces to making excessive demands of state regulation. regulation is designed to prevent market failure, but it shouldn ’ t put market mechanisms out of action. our aim should still be to use regulation to create an appropriate setting which provides the right incentives for risk - aware behaviour. so the