 Thank you for the invitation and honor I'm truly delighted to be here today at the conference honoring Benoit our common friend He has already been showered with compliments. I have nothing to add. I share all of them. So it's just wonderful Instead I would like to share with you a few thoughts about current challenges For central banking. Let me say right away that it's not incumbent upon me to give good and bad grades to the departing team or to Pontificate in front of the new one. I Selected four challenges two policy related ones and two more institutional ones on which I'm going to spend more time So let me start with the boring stuff while you are eating Which are the challenges for? Traditional central banking most of you in this room and myself have rearsed the various challenges that confront central banks The need to resist the sirens call for banking deregulation when the situation Comes down The need to undo doom loops which logically developed in the wake of the open crisis and have been tolerated since and Relatedly the inefficient resharing and the disconnect between a single monetary policy and Banks which are still largely national the challenge posed by Shadow banking not by central banking by shadow banking which naturally benefits from the migration of economic activity as supervisors tighten regulatory constraints on commercial banks The need for a greater international collaboration in supervision and resolution at a time when Multilateralism doesn't fly high anymore the completion of the banking union and the exit From low interest rates on the latter point. Let me know that central banks had no choice, but run unconventional monetary policies Yet these have very well known cost Low interest rates are conducive to the emergence of bubbles to risk takings through search for yield they imply a massive transfer of wealth from Savers to borrowers. They also increase inequality by making owners of asset richer They are an addictive drug for governments which can painlessly expand their balance sheet at least in a short run and They are of course have their own limitation when they eat the lower bound when the natural rate of interest lies below zero and We economists of course have to work hard and anticipate more Fine concrete and more effective ways of addressing these complex issues and in this respect I'm delighted to see that some central banks in Europe have beefed up their research capabilities Both internally and in collaboration with top research universities This suddenly will contribute to keeping talent in Europe and making European Economics research and policy making more innovative So that was the obvious stuff Let me move on to the second challenge, which is a digital economy It's hard to speak at an event honoring Benoit Without mentioning digital money Of course, I'm going to cover some of the same seems as well earlier Many central banks including the ECB have correctly pointed out the high potential of new technologies such as blockchain at least if we succeed in moving away from energy intensive proof proof of work and perhaps finding Reliable proof-of-stake approaches, but they also have insisted on the drawbacks of cryptocurrencies Pushing at open doors. I'll just remind you of those drawbacks The facilitation of money laundering crime and tax evasion the waste or prioritization of senior age The challenges cryptocurrency is posed for capital controls the handling of rents on a traditional currency and the conduct of counter cyclical monetary policy and The possible blaming of authorities as small investors are exposed to hacking on cryptocurrency exchanges Forking birth of the cryptocurrency bubble and finally in the case of stable coins misrepresentation about their backing on the last point teaser is a salutary reminder That stable coins like Libra may lack collateral in safe assets It more generally raises a question of who will prudentially supervise and act as a land of last resort for such global currencies As been wise emphasize cryptocurrencies and stable coins offer a wake-up call to central banks Which has honestly been outpaced Economic agents are looking for cheap and first payment devices and Of course central banks can create their own digital currency the question still remains as to whether central banks Digital currencies will offer narrow or broad access The latter option in which access is granted to also And retail depositor not just financial institution Creates a risk of disintermediation of the banking system This will seem to go against the standard precepts that not all deposits are meant to be safe safe That is protected from belin ability or Short-term that is being demandable It also runs counter to the observation that banks perform transformation and Come delegated monitoring function that the central bank doesn't have the expertise to duplicate Now the central the people's Bank of China seems to have opted for the narrow option With its share stating that the new digital currency is not meant to replace deposit L in bank accounts and Balances L by payment apps such as Alipay and WeChat What options will be selected in the rest of the world? I don't know But with Benoit's BIS appointment. This dossier is in the best possible ends Next I would like to share with you. Yeah, you're so calm. This is wonderful Thank you. This is the worst possible thing to be giving a talk while the people are having lunch, but you know You're admirable to be honest Next I would like to share with you some concern about two institutional challenges for central bank The loss of independence and a possible mission creep They apparently are opposite concerns. You know loss of independence means less control mission creep means more control But they actually are related if the latter is a strategy to avert the former So let me start with independence There's been a number of recent suggestions to reaffirm the primacy of politics in public decision-making Officially in India the US Italy and more general Europe Turkey and other countries have questioned their central banks independence and by the way No authority in the pen agency is really independent not fully independent their mission is always defined by the politics by politicians so as Periodic reviews Now for central banks a facilitating factor for this attack on independence is of course at the line between fiscal and monetary policy has become very seen But this is part of a more general trend The independence of competition authorities and of the judiciary is also being questioned in some countries Maybe we should remind ourselves of why we have independent agencies in the first place Historically the rise of independent agencies grew out of a discontent with a political process Politics indeed are subject to heavy lobbying capture and lecture nearing For instance, central banks were made independent to tame inflation and later on to avoid lack supervision tax-prudential supervision Relatedly independent regulatory authorities set up to oversee the KTECOMS electricity and other network industries and the judicial review Applied since the early 20th century To us public utilities, which by the way are pride companies We're meant to protect private investors in those utilities from an expropriation through low prices Or conversely to protect consumers from abusive tariffs Or lack of competition in non-natural monopies segments A corollary to independence is its great greater acceptance of evidence-based public decision-making Consequently consequently independent agencies are more often populated with high expertise staff for example PhDs or the like Now the broader context is a population and politicians disarray People dismiss experts they won't change they look for someone who has a plan low and be low and behold The political market responds to that demand And the politicians response is not always glamorous They may pass the buck Asking corporations to substitute for government Of course, there is nothing wrong with socially responsible investment But socially responsible investment inherently follows a decentralized approach And I cannot help noting the incongruity that arises when governments do not dare to price carbon Yet ask businesses to To act as if Governments may also pretend to act when not acting as when they engage in window dressing or greenwashing The acclaim COP 21 agreement embodied only vague promises And a collective one for the green fund Follow following a deliberate deliberate strategy to build a consensus among 196 countries on the least common denominator Of course politicians cannot claim a monopoly on so do 86 and malls a pride counterpart to COP 21 is a business roundtable 2019 statement which doesn't offer much in terms of concrete actions and Finally when acting governments often favor administered approach and la labyrinthine systems Which gives impression they know what they are doing and are in control I have in mind common and control in environmental matters He guided industrial policy that doesn't obey best practice administratively of controls etc What all those targeted policies have in common is that they require information that officials do not have Finally, I would like to say a few words about mission creep the second institutional hazard for an agency Is a loss of its scent of mission again, we must go back to the basic principles Governments are the ultimate stakeholder society Their missions their mission is multiple and possibly fuzzy what objective function are they trying to optimize? this is unavoidable and There should not be a sign blamed for it Yet this complex mission together with limited voter understanding and information Makes it difficult for the actual process to hold officials accountable for their performance Agency by contrast I have the ability to develop a sense of mission and Professional and narrow specialist I insist narrow specialist professionals are instrumental in creating this sense of mission internally and Inter-temporal consistency and legal certainty externally As agency series shows clear missions and advocacy create focus and accountability They also reduce the likelihood of challenge to the agency's independence This sense of mission should not be tainted by each and every consideration It should not be polluted through consideration that can be dealt with other proper instruments For example in equality, which is one of the great challenges of our time is best best address through fiscal redistribution better Education universal health care and other instruments But the carbon price which is by far the best known instrument to address global warming or Tobacco taxation should not go through the window on the ground that they may utter poor All the more that compensation for example an energy check Can address the distributional concern basically Not to mention the fact that many popular Climate micro policies are more regressive than a carbon price PV panel can be installed only if you are homeowner Electric cars are not free purchased by the poor There recently have been many calls to make the ECB greener. I Assume that prudential supervision and collateral definition is what most people have in mind Here there is a good the bad and the uncertain a Fully concur with another few in this room and in particular Francois Villarrois With this observation that climate change should be embodied in an economic forecast a stress test And our assessment of collateral accepted by the central bank Climate change will create macro shocks damages energy transition iCarbon prices and Stranded assets whose likely size grows every day as we keep substituting Green posturing for actual action It is useful to consider As the Bank of France does and other central banks do There are scenarios in order to predict the evolution of banking and insurance liabilities as a fight again global warming and falls On the dark side, let's set aside the environmental version of modern monetary theory EMMT is provides a narrative and motivated beliefs to those who care about the environment that refuse to pay for it More relevant is you vice-president Dombrovsky's proposal to cut the capital charges imposed on banks Climate friendly lending This is well-meaning But to me it seems misguided for a couple of reasons The first is the obvious point that Europe can avail itself of a much more efficient instrument a high enough carbon price and refuse To employ this instrument at least on a sufficient scale and scope I Think that Europe and policy in this respect is wrong But one may feel uneasy about the central banks use of an inferior instrument and taking charge of a policy climate change Mitigation that was officially endorsed but implicitly rejected by Europe European politicians Second green projects are individual risky and especially subject to macro risk One cannot help being concerned that such a policy might create a banking crisis So the prime with green project is not the availability of financing But rather the lack of income prospects Associated with our failure to give a proper price to carbon emissions Force it is important to identify what is green and what is not and I will return to that topic in a minute In the gray zone Stands stand calls for the cb to commit to gradually eliminating carbon incentive intensive assets from its portfolio Starting with immediate divestment from correlated assets put differently such core remind the ECB of its social responsibility in front of the twin market and political failure Some will object to this position for one of the reasons I use to criticize a relaxation of Prudential standard for green landing The central banks takes over prerogatives that traditionally belong to the political realm Well taken but it's also hard to disagree with policies that stigmatize coal Regardless of how we see it we should remember that our moral duty is to limit coal not to pretend we do While a modest carbon price of 40 euros per ton of co2 Will by itself implies that you see disappearance of much European coal immediately replaced by gas Which pollutes a lot, but only half of coal We must acknowledge that while divestment as expressive content Expressive content its efficacy is limited by the leakage prime It has little impact if other investor jump at the opportunity of undervalued fossil fuel stocks and bonds This was expressed in perhaps a too extreme a form by Bill Gates Who argues that campaigns to ditch fossil fuel stocks are to the waste of time It also has no impact divestment also has no impact either plants already exist as they do not need financing In such cases only a carbon price will do so I'm not against this policy But we have to realize as it's reassert best kind of approach Another issue is that we need to develop a better understanding of the exclusion versus the best in class Choice so I mentioned gas gas is dirty But it may make sense in the transition Right and what about nuclear? Okay nuclear is not meant to be green But it's an essential component of the transition and limit the damages that would occur before we have better solutions and even about oil companies if you think about it If we exclude them, they will have no incentive to actually invest in technology that reduce their emissions during extraction and refining Now I'm not saying we should do that and the bottom line and the big bottom line is that I just don't know I Just don't know So anyone who has certainties about the topic I would like to have a discussion and I would like to learn more about this This brings me to a broader point Ethical looking investment are still too often unrelated to impact As an economist, I feel that ethical actions are those who make a difference Posture should not be part of our moral compass the predictable discoveries act like able pride policies such as carbon offsets and Public ones such as the clean development mechanisms, but whether clean development mechanisms Anticipated that and had an emphasis on additionality those policies often failed to reduce carbon emissions and This is a warning call Such policies too often create a windfall gain for projects, which will have taken place anyway Always direct impact is nullified by carbon leakage on the more positive side, I think that a Key challenge of which governments central banks the finance sector and academics We need to define ECG criteria ESG criteria. I'm sorry that reflect actual impact and not narratives and In the end our greatest social responsibility is perhaps to aid to educate populations and to put pressure on governments To start behaving in a responsible manner To conclude, let me thank you again for having me on this special occasion Thank you, Benoit for all you did for a country Europe during the last eight years And we are delighted that you will remain engaged in public service and I wanted to wish you bon vent