Lithuania Central Bank Statement

Author: | Published: 5 Sep 2017
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The rapidly changing and dynamic financial system environment is a day-to-day challenge for any modern central bank. But at the Bank of Lithuania we take it even further: not only aiming to constantly stay side by side but to be one step ahead of the market – we do this through building new regulatory and supervisory skills. Our goal is to function as an accelerator of innovative solutions.

What do we – as a central bank – do to maximise the benefits of innovation? The Bank of Lithuania has set a strategic goal of establishing itself not only as a watchdog, but also as a partner for the financial sector. In practice this means putting the right infrastructure in place – facilitating innovation, while ensuring system stability.

We have launched a 'newcomer program', which works as a one-stop shop for new market entrants. We are among the pioneering central banks in establishing a regulatory sandbox regime, which operates as a safe space for market participants to test their innovative ideas. From the supervisory perspective, this is a crucial instrument, as it allows building the necessary know-how and designing adequate instruments in advance.

The Bank of Lithuania has also designed and implemented measures to facilitate widespread adoption of innovative payment methods, concentrating particularly on instant mobile payments. We believe that efficient and easy-to-use payment methods at a competitive price are key to improving the overall competitiveness of the economy and decreasing social or regional exclusion.

Among the most important steps taken so far is the provision of open access to our payments infrastructure for both banks and non-bank service providers. We have already witnessed substantial interest from new and innovative market players, with dozens of them applying for a licence.

Such an open-access infrastructure reduces new players' dependence on banks, providing them with a level playing field and creating an additional source of competition to the established banking sector.

This comes hand in hand with standardisation of payment schemes – creating a one-stop shop for both firms and consumers. This allows eliminating intermediaries and increasing the efficiency and speed of payment chains. Standardisation helps to ensure that individual service providers do not develop incompatible separate systems, which would fragment the market and reduce their competitiveness.

Questions of artificial intelligence or even quantum computing may seem far removed from central banking. But, again, authorities cannot fall behind faced with the critical changes taking place. Trading and investment activities have decisively shifted toward systemic quantitative decision-making and minimisation of the human factor. The aim is clear – improving the risk-to-reward ratio and increasing efficiency in asset management.

For central banks, it is crucial to master these new paradigms so as to maximise the efficiency of public funds management. We have already taken steps in this direction – for instance, we have launched an automated trading project. The central aim of this project is to enhance and diversify the bank's investment decisions by employing cutting-edge automated quantitative strategies.

In light of changes, central banks – being the guardians of financial stability – must alter the way they operate and become more flexible. They must either opt for an unconventional path, which requires broader outlooks, openness to innovation, or risk lagging behind the markets.




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