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Olli Rehn, Board Member of the Bank of Finland, Future Digital Finance Forum 2017, Helsinki
Where does Finland stand – and move – in digital finance?
Ladies and Gentlemen,
It is a great pleasure for me to address your conference which focuses on a very topical future issue, digital finance. I find your choice of venue particularly interesting. This building used to be a repair shop for trams. It's a beautiful place and, in a way, a cool setting for a conference about digital finance. We now live in a world where machines, such as trams, are like computers that are fixed, not by mechanical repairs, but by a reboot or a software update. The world around us is becoming digital, and run by software.
The financial industry is no different. In fact, the financial industry has all the hallmarks of becoming profoundly disrupted by digital technology. Why?
Because financial services are intangible, immaterial, and easily encoded into numbers. Finance is essentially a numbers business, and computers are made for crunching numbers.
As everyone here knows, of course, the disruption has already started and is well underway. That is why we are here today.
In this opening keynote, I want to say a few words on where Finland stands in digital finance, and where we should be moving, at least from the standpoint of Finland's central bank, the Bank of Finland.
This is a special year for us, since Finland, as an independent country, turns 100 years old.
But where does Finland stand in the world of digital finance?
Our country has long been at the forefront of digital banking. The first telephone banking service started here as early as 1982. Internet banking was launched already in 1997. Online banking has grown fast and is now used by almost 90% of the population, more than almost anywhere in the world.
We are among the digital world leaders not only in finance and banking, but in most sectors of society. The latest Digital Economy and Society Index, published by the EU, puts us in the top 2 in Europe, ahead of almost all other EU countries.
In one of the dimensions of the index, Digital Public Services or eGovernment, Finland was number one for many years in a row, but this year we were overtaken by our neighbours, Estonia. The best way to regain the top position is to learn from them, so we have started to work together on something called X-Road, which is a central data exchange platform for all eGovernment services.
Another example of innovative eGovernment in Finland is the National Income Register, which is under development, and which will go live in 2019. It's something unique in the whole world, a real time database of all wages and salaries in the country, with restricted access of course. This kind of database makes public services such as benefits and taxation much easier, and it opens up new possibilities for financial services.
So when it comes to digital readiness, innovation, and skills, we have every reason to believe the people in this country can create some of the best digital products and services for the financial industry.
We also have a long tradition in banking and finance. The first savings banks started operating in the 1820's and the first insurance companies in the 1870's. The Helsinki Stock Exchange was founded in 1912.The Finnish markka was issued in 1860 and was used until the turn of the millennium, when Finland joined the euro as a founding member.
But the oldest financial institution in Finland is the Bank of Finland, established in 1811. It is the fourth oldest central bank in the world.
A central bank is perhaps not always seen as an innovator, but there are actually grounds to say that a central bank also plays an important part in the world of FinTech and digital finance.
The traditional responsibilities of a central bank are monetary policy and the issuance of currency. Moreover, the central bank also plays an important role as part of the banking system.
First, we are a bank for banks and an operator of market infrastructure. As such, we are constantly participating in the development of faster and better systems that enable the settlement of payments and securities trades across Europe.
Second, we act as a catalyst for technological development in the financial industry. We work closely with all players in the industry to facilitate innovation, and support the development of new technologies and services.
Third, we are overseers. We have to make sure security requirements adapt to a changing industry, so that the financial market continues to operate reliably and efficiently, not least from the customers' point of view.
Fourth, we do macroeconomic research on the impact of digitalization on productivity. And we analyze what kind of new business models are brewing in the banking and financial industry.
What about innovations of our own?
The central bank has one consumer product: cash. We issue banknotes, which is still the only legal tender and the most familiar and most trusted form of money to many people. But the use of cash in Finland has been decreasing during the last 15 years.
Cash is the only remaining form of money today that is not digital, so many people are now asking: will cash become digital, too?
This is something that we at the Bank of Finland, along with many other central banks around the world, are now exploring. Physical cash will probably not completely disappear, but there may be a case for a new form of money, some kind of digital version of legal tender and cash. This question is far from simple, and for now, largely a theoretical one. But it is also a fascinating question, and we are always happy to hear your thoughts and ideas on it.
Cooperation is key also in financial and technological innovation. We think the best way to create state-of-the-art financial services is to bring together all players in the industry, as well as new startups, regulators and academics. Policymakers' task is to provide a level playing field and sound platform for fin-tech development.
One example of closer cooperation is the Innovation Help Desk by the Financial Supervisory Authority, Finanssivalvonta. Hopefully it will help small companies better understand regulation and to get started with their business. Don't hesitate to use it!
Ladies and Gentlemen, Dear Friends,
This conference is another great example and an excellent opportunity to share ideas and experiences. Many thanks to Hub13 for organizing this event.
Hopefully there will be more such occasions in the future. Perhaps there could even be room for a more permanent setting, maybe some type of FinTech centre, or digital finance institute, in Finland, who knows?
Let's keep the discussion going and the ideas flowing. Thank you!