Central banks grappling with fast-changing financial technology and companies like Facebook Inc moving into finance are aiming to work together more closely through an innovation hub approved on Sunday by the Bank for International Settlements (BIS).
The BIS said the intention of the hub, which will be based in the Swiss city of Basel, Hong Kong and Singapore, is to improve the functioning of the global financial system, and to identify and develop insights into trends in technology affecting central banking.
Facebook’s plan to expand into payments and launch its own Libra cryptocurrency were not mentioned in the BIS statement, but the social media giant’s move has helped crystallize opinion among central bankers on the urgency of coordinating regulatory responses to financial technology trends.
“The IT revolution knows no borders and therefore has repercussions in multiple locations simultaneously,” BIS chairman Jens Weidmann said in a statement following the decision to create the hub at a BIS board meeting.
The hub is to focus on helping central banks to “identify relevant trends in technology, supporting these developments where this is consistent with their mandate, and keeping abreast of regulatory requirements with the objective of safeguarding financial stability,” he added.
Basel-based BIS, a central bank umbrella group, has already called on politicians to closely scrutinize Big Tech’s incursion into finance, a move that raises questions about data privacy, competition, markets and banking.
Details about the hub were limited and the BIS said it was not able to provide details on investment or staffing levels.
FINTECH SCRUTINY
The Swiss National Bank (SNB), the Hong Kong Monetary Authority and the Monetary Authority of Singapore have all signed up to support the initiative.
SNB Chairman Thomas Jordan said the central bank would step up its efforts in scrutinizing new financial technology.
“The SNB is already keeping very close track of technological innovations in the financial area, and works actively within the central banking community in identifying and assessing relevant developments at an early stage,” Jordan said.
Foreign exchange interventions and macroprudential policy are tools available to emerging-market central banks for coping with hot money flowing through their economies, the BIS said.
Emerging markets are frequently buffeted by inflows and outflows of foreign capital, which can affect exports and asset prices, and feed through to inflation.
That makes them susceptible to shocks if those flows suddenly change.
HIGHER RATES?
“In some places, the debt is already approaching a level where yellow lights are blinking, though not red yet,” BIS general manager Agustin Carstens said in an interview accompanying the institution’s annual economic report.
The BIS has long called for higher interest rates to prevent asset-price bubbles, yet in the publication suggested central banks think about using macroprudential tools to address financial system imbalances.
“The experience of the past two decades indicates that macroprudential measures do help improve the trade-offs monetary policy faces, including those in connection with capital flow and associated exchange rate fluctuations,” the BIS said.
Additional reporting by Bloomberg
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