steven maijoor : public trust - the litmus test of financial innovation speech by mr steven maijoor, executive director of supervision of the netherlands bank, at the institutional digital assets and crypto regulation symposium, london, 17 november 2022. * * * hello everyone. it is great to be back in london – one of the great financial centres in today's globalised world. before i delve into the developments of the day, i'd like to draw some parallels between crypto - asset markets and a key historic financial innovation. i'll argue that the lessons we learned in the past remain relevant for our regulatory efforts today. i'll also argue that successful financial innovations must be underpinned by public trust if they are to stand the test of time. to illustrate, let's go back to 17th and 18th century amsterdam, which became a staging ground for significant financial innovation. after a long and arduous struggle, the netherlands was able to gain independence from the spanish empire. this kickstarted a period of rapid economic growth. one of the developments that proved instrumental to the dutch economic and financial success was the emergence of a stablecoin avant la lettre. my colleagues from the bank for international settlements ( bis ) and the dutch central bank ( dnb ) have written a very thoughtful piece on the bank of amsterdam and its proto - stablecoin, the guilder, but allow me to summarize. 1 four centuries ago, many different metal coins circulated in the netherlands. and exchanging one coin for the other happened in the streets. you can imagine how cumbersome trading was. but then, in 1609, the bank of amsterdam was founded. and its services were simple. the bank of amsterdam allowed merchants to deposit their metal coins – any coins that were in circulation – into a deposit account. it would then value these coins against each other and credit merchants with bank guilders. and this would allow for easy transactions between deposit accounts. this is a great example of human innovation. just as the entire financial system is indeed proof of our immense human creativity. the reason that today, after so many centuries, we still have a well - functioning financial system – a system that, i dare say, has generally improved over the course of many years – is because, sooner or later, the litmus test for any financial innovation is the public's trust. that trust is the true bedrock of our financial system. that trust allows for innovations

pointing in opposite directions, and in particular that central banks have the necessary operational tools and can use them at all times if required. recent experiences indicate the larger role of the financial stability objective in modern central banking in contrast to the orthodoxy of the post - 1970s era when monetary policy alone came to the fore. this rebalancing in some ways takes us back to the earlier classical gold standard era of central banking. but in modern central banking, the separation principle is much more important than it was in the classical era. by this i mean distinguishing between, and communicating the distinction between, monetary policy and financial stability actions. public looking at recent experience in the uk, the so - called ldi event was clearly a financial stability not monetary policy one, and the challenge was to structure the intervention and communicate it in a way that reinforced this point. the march 2020 “ dash for cash ” was more complicated because it arose in the context of both financial stability and monetary policy events ( the latter in the sense of the severe and unexpected recession ). how to structure and communicate the policy response by central banks in this – hopefully highly unusual - situation deserves more attention. that said, in the normal state of affairs we are moving to a world where our standard operations meet the system ’ s demand for liquidity in normal times, and not more than that. against this backdrop, monetary policy can most effectively set the official interest rate. in normal conditions, meeting the demand for liquidity – most obviously through the level of reserves banks choose to hold – should also support financial stability. beyond that, we must then have a set of effective and usable exceptional tools for financial stability stresses including when they arise in the non - bank part of the financial sector. the classical gold standard was an era of prolonged monetary stability punctuated by the need to respond rapidly and forcefully to financial stability shocks, and in doing so preserve monetary stability. walter bagehot ’ s critique of the bank of england in the classical gold standard era was for not responding in a timely and forceful way to financial stability shocks. in the covid - ukraine era central banks did respond rapidly and forcefully. some would still say we did too much. i disagree with that assessment. but i do think that going forwards – and as we experienced positively with the ldi crisis – rediscovering the distinctive roles of monetary and financial stability actions will help us. financial stability issues themselves create macroeconomic trade - offs which can affect monetary policy. but these will