philip r lane : globalisation and innovation in finance - policy challenges address by mr philip r lane, governor of the central bank of ireland, at the european financial forum, dublin, 24 january 2017. * * * acknowledgements : i thank camille blackburn and laura moretti for their assistance in preparing this speech. i am delighted to have the opportunity to speak at today ’ s european financial forum. the agenda for today ’ s event is quite broad but globalisation and innovation are two primary themes that are set to recur throughout today ’ s sessions. of course, the forces of globalisation and technological disruption have wide - ranging economic, social and political implications but i will focus more narrowly on the analysis of these themes in the context of the financial sector and the challenges for financial regulators and central bankers. i will first discuss financial globalisation before turning to financial innovation in the second part of this speech. while i discuss these topics sequentially, it is also clear that these forces interact. in one direction, information technology is a primary facilitator of financial globalisation. in the other direction, an integrated global financial system increases the potential rewards to financial innovation, in view of the importance of scale economies in the rollout of new technologies. in addition, internationally - diversified investors are an important source of risk - absorbing funding for innovating firms. 1 financial globalisation in the aftermath of the global financial crisis, the nature of financial globalisation has shifted. 2 international financial flows to and from advanced economies have been weaker than during the pre - crisis period, especially in relation to cross - border banking activity. in contrast, international financial flows to and from emerging economies have increased in importance, which is reinforced by the expanding share of emerging economies in global gdp. foreign direct investment ( fdi ) positions have continued to expand, in contrast to the portfolio equity, portfolio debt and non - portfolio debt categories. a striking pattern is that the recent expansion in fdi has been concentrated in positions vis - a - vis international financial centres, suggesting that the increased complexity of the corporate structures of multinational enterprises is playing an important role in determining the pattern and composition of direct investment flows. more generally, the global intermediation role of international financial centres poses analytical challenges in understanding the implications of measured international financial flows for the real economies of individual countries. for instance, the role of international financial centres makes it trickier to assess the underlying interconnections between national macro - financial conditions, national macro - financial

on two conditions : first, that the institutional structures put in place were flawless ; and second, that there was irrefutable evidence of the monetary convergence of the countries invited to merge their currencies. as far as our two countries were concerned, that meant the complete convergence of the deutsche mark and the french franc even before the introduction of the single currency. we had concluded that an essential precondition for the creation of the single currency was that the new currency had to be at least as solid and at least as credible and retain its value at least as well as the national currencies that preceded it. and finally, of course, there was that crisis meeting at a washington hotel in september 1992, at the end of which our two central banks found a way to save the european exchange rate mechanism by preserving the link between our two currencies. several of us here today took part in that particularly tense – and particularly successful – meeting. mr president, you can be sure that the european central bank and its executive board, governing council and staff will – while remaining completely independent – continue to be faithful to the primary objective assigned to us by the treaty. this is what the european democracies that ratified the treaty expect of us. this is what our 320 million fellow citizens of the euro area expect of us. they want price stability. medium - term price stability is a necessary precondition for sustainable growth and strong job creation. and as regards the latter, it should be noted that the euro area has, on a net basis, seen the creation of a remarkable 15. 7 million new jobs in the nine years since 1 january 1999 – more than three times the total for the nine years prior to the euro and considerably more than have been created in the united states over the same nine - year period. now, more than ever, we have numerous challenges to face. the central banks of industrialised countries have to ensure price stability in their individual economies, which are characterised not only by extremely rapid progress in science and technology, but also by both globalisation and significant demographic change, particularly population - aging. but we also face challenges at the european level, having to implement the necessary structural reforms, deepen and strengthen the single market, particularly in the euro area, and pursue, with the utmost rigour and credibility, the enlargement of the euro area. mr president, thank you again for this great honour. the institution over which i preside is very grateful indeed