Podcast: Fintech and the question of central bank autonomy

Fintech is unlikely pose a fundamental issue for the institutional or personal autonomy of central banks, Central Banking’s latest TechTalk podcast guests say.    

However, they warn a central bank’s functional and financial autonomy might be at risk.

As public institutions, central banks have to ensure they have robust governance structures in place to ensure that they act in the public interest. A recent paper published by the International Monetary Fund took a deep dive into whether current governance structures stand up in the face of fintech developments.

“Some central banks have started to adapt their decision-making structures, to financial technology or have adapted another part of their governance – their mandates,” says Arthur Rossi, one of the paper’s authors.

Fintech will likely have the biggest impact on the autonomy of a handful of key central bank functions. Wouter Bossu – like Rossi, a member of the IMF’s legal department – says one prime example is weak ethics rules, which tend to result in a high risk of conflicts of interest among senior central bank officials.

“What this means is the central bank leadership is vulnerable to private sector capture,” he says. “If that is the case with the broad financial sector, it might also be the case with fintech firms.”

Private forms of digital money – stablecoins for example – could also pose a threat to central bank autonomy. Bossu says these could crowd out banknotes and cause central banks to experience a loss of seigniorage.

“This may first hurt the profit and loss account, and then ultimately the equity. Basically [central banks] can become undercapitalised,” Bossu says.

However, Rossi and Bossu caveat the risks with the argument that central banks do not need uniformly high levels of functional autonomy across all business lines.

Index

00:00 Introduction

00:56 Defining governance

02:38 Governance questions for CBDCs

07:34 Impact of fintech on central bank autonomy

11:11 Need for full autonomy?

14:15 Balancing government relationships

17:50 Delineating responsibilities