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The Future of Money – The Money of Future 2.0 —— Remarks by Mihály Patai, Deputy Governor of the Magyar Nemzeti Bank at the Roundtable on Ecosystem Building and Digital Development of Financial Inclusion in Asia
Origin:Boao Forum for Asia      Time:2020-07-08 15:21:30    Views:163

(July 2, 2020)

It's an honor for us, from the Central Bank of Hungary, to greet you. Good afternoon in Asia and good morning here in Europe. On the outset, let me just wish our Chinese colleagues a happy Dragon Boat Festival, wish you be healthy and happy. I would like to share the experience of Magyar Nemzeti Bank.

There is a proverb saying, "Do not put your trust in money, but put your money in trust". Central banks take the responsibility to secure the trust of financial markets. In the digital era, facing challenges of technology evolution, the innovation of central banks is as critical as ever. The innovation of central banks happens as history moves onwards, like the inventions and introductions of many unconventional monetary policies. One typical example of innovation in the digital era is the appearance of central bank digital currencies. Central banks have to adjust themselves to technological developments instead of letting the private sector deal with digital currencies alone.

The role of the central bank has changed a lot in the past two or three hundred years. The classic tasks include ensuring price stability, providing financial infrastructure, and managing currency. In the past decade, we have seen that the role of the central bank has been greatly expanded. Today, almost all central banks are supporting the government's economic policies and supporting full employment. They are also conducting financial supervision, protecting consumers, and trying to encourage financial innovations. In the meanwhile, the function of central bank evolves consistently to the pendulum of economic mainstream thoughts. Until the First World War Adam Smith’s “invisible hand” has been the mantra of general economic thinking.In the 1920s, new practical economic thinking was introduced, which was to give more room for the government, more room for the state. The central bank practically became part of the government thinking, so it got closer to the government. And then, in the middle of 1970s, the market became very popular, and again, the central banks became independent from the government. This has changed in 2008, when some unconventional methods were introduced.

I would like to show you a picture of a hybrid financial system that I believe our future is likely to be. Today and in the past 200 years, we were living in a two-tier banking system. The first tier is the central bank, which is securing the trust of the whole system, and then the second tier is the commercial banking system. So I do believe that the challenge of the development of digital currency will definitely happen because the new generations will push us to incorporate this thinking into the central bank system. It will have an effect on two-tier banking system.

I don't think we'll go back to the one-tier banking system, yet it will appear one with 1.6 or 1.8 tiers. The definite issue is there will be a fast track between the central bank and the customers, which means the central bank will have direct contact with them, with the small and medium sized enterprises (SMEs), and maybe households. For instance, the central bank may issue loans to SMEs directly, and these enterprises will have experience with the central bank policies. And my second idea is that probably some rich people will prefer to have an account in the central bank instead of some commercial banks. Even without interest rates, they could enjoy the security which the central bank guarantees.

So I do believe that the transition from a two-tier banking system towards a hybrid one, and building a fast track to let the central bank connect with customers directly consist of the future blueprint. This will be exemplified with digital currency, which will come into being in the foreseeable future.

Thank you very much for your attention!

 

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