purchasing power of money relatively constant and predictable. yes, sometimes it required unorthodox policies. in conservative societies, people tend to fret about too much money being “ created ”, but they typically have no idea whatsoever about how much money there actually is in circulation, how large the effective money supply is. when i ask about the size of the money supply even in front of well - educated audiences, i often get estimates that are wildly off the mark. in contrast, i obtain very precise answers on the rate of inflation. price stability, not money supply, matters. bitcoin nicely illustrates the very essence of the current monetary policy, which relies on elastic money. it is a policy of nominal stabilisation of prices, of the purchasing power of money. in consequence, the impact of shocks does not require tough adjustments through wages and employment. so, as long as central bankers abide by the principle of purchasing power stabilisation, i ’ m not afraid that any newly invented fixed money system will spontaneously prevail and become dominant. the fact that current money is fiat, not really in line with my libertarian friends ’ dreams, is less important than price stability, i would say. what is really interesting and potentially useful about cryptocurrencies ( beyond the mere intellectual stimulus, of course ) is distributed ledger technology and the idea of digital money being issued by mainstream central banks themselves. the two are bound together by a common feature : a reduction of the importance of intermediaries. the distributed ledger technology behind bitcoin brings the attractive notion that, in principle, we don ’ t need any centralised settlement systems, any standardised systems that settle payments. the settlement system can be decentralised, thus potentially saving time. but let ’ s not forget how the system of payment confirmation works when distributed ledger technology is in play. bitcoin makes many users confirm that a transaction has taken place. the process is very energy - demanding, akin to actual mining : it resembles all the processes employed in the past when we were dealing with physical money. using classical commodity money requires physical investment ; using bitcoin requires energy investment. so far it seems that distributed ledger technology would consume much more energy than standardised central clearing houses. that ’ s why we now use non - physical money without any intrinsic value – it is more efficient. going back to any physical money would be like going back from pcs to typewriters. maybe this is one of the reasons

that while the recent experience may have made us a bit more confident about detecting bubbles, it has not resolved the problem of doing so in a timely manner, nor has it shown that small - to - modest policy actions will reliably and materially dampen speculation. an extra policy reaction to changes in asset prices thus still remains questionable. the second frontier to be mentioned tonight is related to the monetary policy implementation, current situation on the money market and financial stability of the banking sector. for years the monetary policy implementation was not an issue and central banks were able to tighten the short - term money market interest rates such as for instance 3m pribor closely to the key policy rate. unfortunately, this changed in august 2007 for the us interest rates when the 3m libor for the us dollar denominated funds started to deviate significantly from the federal reserve target for funds. a year later following the second round of the financial crises that peaked during the bankruptcy of lehman brothers also the czech short - term money market rates started to elevate well above our policy rate, the two week repo rate. quoted from speech of vice chairman donald l. kohn : “ monetary policy and asset prices revisited ” at the cato ’ s institute 26th annual monetary policy conference, washington, d. c., on november 19, 2008. what we know is that all these movements were caused by principal uncertainty among the commercial banks worrying about their solvency and financial stability. the banks were not sure among themselves about to what extent they were hit by the collapse of the market with asset - backed securities and consequently about their counterparts ’ ability to stay in the business over a longer period than one day. central banks reacted and extended the money market operations in order to narrow spreads between the market rates and key policy rates. for instance, the czech national bank introduced a new liquidity providing repo operation despite the fact that the money market as a whole operates with huge surplus and on average the czech national bank has to withdraw roughly 400 billions czech crowns from the money market to be able to control the market interest rates. while introduction of this new operation made the money market participants less nervous, unusual spread between the market rates and the key policy rate still persists. this is not only the case of the czech economy or other central european economies but we observe the same also in the eurozone. commercial banks operating in the eurozone are willing to borrow around 250 billions euro from the european central bank paying the key policy