yves mersch : the future started yesterday keynote speech by mr yves mersch, member of the executive board of the european central bank, at the bank of latvia conference “ payments in the 22nd century : future starts today? ”, riga, 3 october 2018. * * * predicting what payments will look like in the 22nd century is perhaps better left to science fiction writers than to central bankers. still, at least one thing i can be sure of is that payments will be instant or cash - like. and we don ’ t need to wait for the 22nd century to see this happen. non - cash instant payments are a reality today in several places around the world. this includes europe : last year already saw the launch of the sepa instant credit transfer ( sct inst ) scheme, developed by the european payments council at the request of the euro retail payments board. banks from the baltic countries were among the first to embrace instant payments, with a number of them joining the scheme from day one. however, we are now at a critical stage for implementing instant payments. the number of banks offering instant payment services to their clients is steadily increasing, as is the use of such services by european people and businesses. in november we will launch target instant payment settlement ( tips ) : the eurosystem service for instant payment settlement across europe in central bank money. with this service, the eurosystem is addressing the evolving needs of market participants and supporting market integration by facilitating pan - european reach at a time when the issuance of its new series of safe and widely - trusted banknotes is nearing completion. an opportunity for the european payments industry the move towards instant payments is not just good news for end users ; it is also good news for the european payments industry. cards are now the most popular and fastest - growing non - cash payment instrument in europe, and many of the most prominent innovations in payments are card - based. think of contactless payments and mobile wallets, as well as many online payment solutions. this area is dominated by non - european players, with international card schemes taking the lead. european players are lagging behind, not least because of the lack of a pan - european card scheme or even interoperable card networks. in this context, we should strive for a truly paneuropean instant solution rather than repeat past shortcomings. thanks to instant payments, european market players can now become leaders in innovation, based on european standards. the sct inst scheme and the

likely to rise more quickly over the next couple of years in response to the strength of the labor market. whether faster increases in nominal compensation create additional cost pressures for firms depends in part on the extent to which they are offset by continuing productivity gains. profit margins are currently relatively wide, and the effect of a possible acceleration in compensation on price inflation would thus also depend on the extent to which competitive pressures force firms to reduce margins rather than pass on higher costs. the public's inflation expectations are another important determinant of inflation. the federal reserve must guard against the emergence of an inflationary psychology that could impart greater persistence to what would otherwise be a transitory increase in inflation. after rising earlier this year, measures of longer - term inflation expectations, based on surveys and on a comparison of yields on nominal and inflation - indexed government debt, have edged down and remain contained. these developments bear watching, however. finally, the extent to which aggregate demand is aligned with the economy's underlying productive potential also influences inflation. as i noted earlier, fomc participants project that the growth in economic activity should moderate to a pace close to that of the growth of potential both this year and next. should that moderation occur as anticipated, it should help to limit inflation pressures over time. the projections of the members of the board of governors and the presidents of the federal reserve banks, which are based on information available at the time of the last fomc meeting, are for a gradual decline in inflation in coming quarters. as measured by the price index for personal consumption expenditures excluding food and energy, inflation is projected to be 2 - 1 / 4 percent to 21 / 2 percent this year and then to edge lower, to 2 percent to 2 - 1 / 4 percent next year. the fomc projections, which now anticipate slightly lower growth in real output and higher core inflation than expected in our february report, mirror the somewhat more adverse circumstances facing our economy, which have resulted from the recent steep run - up in energy costs and higherthan - expected inflation more generally. but they also reflect our assessment that, with appropriate monetary policy and in the absence of significant unforeseen developments, the economy should continue to expand at a solid and sustainable pace and core inflation should decline from its recent level over the medium term. although our baseline forecast is for moderating inflation, the committee judges that some inflation risks remain. in particular, the high prices of energy and other commodities, in conjunction