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
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
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.