carl - ludwig thiele : dinner speech - international cash conference dinner speech by mr carl - ludwig thiele, member of the executive board of the deutsche bundesbank, at the international cash conference 2017, island of mainau, 25 april 2017. * * * ladies and gentlemen it gives me great pleasure to welcome you to montfort castle this evening. i hope you enjoyed today ’ s conference proceedings. i am particularly honoured to welcome dr kurt pribil, member of the governing board of the oesterreichische nationalbank responsible for payment systems. our day has been both informative and enlightening, and what better place to end it than in these historic surroundings. montfort castle, in its present form, was built in the 19th century by king william i of wurttemberg on the site of count william ii of montfort ’ s castle ruins. the castle is thus named after its first inhabitant, who lived here back in the 14th century. throughout the years, this moorish - style building has been a palace, a villa, a guest house, a spa house and even an office building. among the special features of the castle are the moorish details, such as the striped effect created by the yellow and red coloured brickwork and the terracotta relief design on the outside of the building. the building is a significant example of the orientalised architectural art of the 19th century. montfort castle now belongs to the municipality of langenargen, which had the castle thoroughly renovated and remodelled in 1978. this hall of mirrors is a rather special setting for the official dinner of our third cash conference. this conference once again brings together central bankers and the academic community of cash researchers. like previous conferences, this one will cover a wide range of current topics, with renowned experts discussing interesting aspects. the title this year is : “ war on cash – is there a future for cash? " cash is an exciting and important field of research, which has been the subject of extensive debate, especially of late. for various reasons, academics, policymakers, but also other market players, such as commercial banks, card - issuing companies and internet firms, have been speaking out against cash, with the latter possibly hoping to increase the popularity of cashless payment instruments for their own benefit. this criticism was also a topic of discussion at the deutsche bundesbank ’ s third cash symposium last year. the former president of the german federal constitutional court, professor hans - jurgen pa

should forgive sovereign debt. this demand will no doubt sound extreme and misguided, particularly since it is a violation of the european treaties. however, it underscores the fact that the fundamental danger of ﬁscal dominance should not be ignored. when two parties are wrestling for the upper hand, game theory can model a variety of interactions. for example, the interplay between monetary and ﬁscal policy can be modelled as unfolding like a game of chicken, [ 13 ] as i have already mentioned. the musical ﬁlm “ footloose ” ( released in 1984 ) shows us one way in which an unfavourable outcome can be avoided in a particular variation on this game. a young kevin bacon and his opponent are driving tractors towards each other on a narrow dirt road. kevin bacon decides to jump from the tractor to save himself from harm. however, his shoelace becomes tangled around the pedal. luckily, his opponent realises that he can no longer win and he jumps instead. even though chance is at play here, the shoelace still makes one thing clear : players can avoid undesirable outcomes by making a credible commitment. in this context, central banks need to be committed to the objective of price stability. in order to avoid fuelling false expectations, central banks therefore need to make the following clear today : if the inﬂation outlook calls for monetary policy normalisation, there can be no avoiding it out of consideration for government borrowing costs. furthermore, game theory can also demonstrate that ﬁscal policy needs to be committed in a credible manner. [ 14 ] this is because, for the reasons just mentioned, monetary policy is dependent on sound ﬁscal policy in order to be able to safeguard price stability in the long term. this is why credible ﬁscal rules are so important and an integral part of monetary union. monetary policy therefore requires a solid foundation that it cannot lay itself. the second cornerstone of this foundation – in addition to sustainable public ﬁnances – is the independence and the clear mandate of monetary policymakers. 3. 3 independence and mandate of central banks 3. 3. 1 problem of time inconsistency whilst a government - controlled central bank could also make a pledge to safeguard price stability, it might have an incentive to deviate from its promise at a later date and pursue other political objectives. in particular, the inﬂuenced central bank could try to reduce unemployment by means of unanticipated inﬂation. but