Central banks may need to “embrace failure” if they are to get ahead of new developments in the technology space, says Dominik Weh, a partner at Oliver Wyman.
“You can only fulfill your mandate and be relevant if you adapt to what is happening outside, and that doesn’t exclude central banks,” he says.
During the pandemic, central banks were quick off the mark to introduce policies to keep the global financial system afloat. New payment mechanisms to ensure relief payments could be made quickly were launched, new sources of data were used to formulate policy, and working environments were successfully transitioned to virtual.
“Central banks have done tremendous work and delivered on tremendous challenges,” Weh says. “What I would argue, however, is that during a crisis… the tolerance for errors and for thinking outside the box increases.”
Historically, central banks have been slower to innovate and adopt new technology than private sector financial market participants. This is not surprising; central banks are traditionally risk averse given their role as guardians of monetary and financial stability.
“As soon as you are in a business-as-usual environment you see the tendency to be a little bit more conservative again with the risk-taking, and the willingness to embrace failure – something which fosters innovation – disappears,” Weh says.
A number of central banks have created “safe spaces”, as Weh calls them, to test new technologies and assess their use cases within live environments. The Bank of England’s fintech accelerator programme, for example, has already had success.
The BoE’s accelerator partnered with Anomali, a cyber security company, to test whether the ThreatStream platform would help it perform link analysis to identify patterns and context to threat information. Anomali’s collaboration was deemed a success by the BoE, which went on to form a permanent partnership with the company in February 2017.
00:40 A central banking shift
03:15 The pressure to change
04:43 Importance of leadership
07:15 Crisis mentality
10:40 Communication when things go wrong
14:14 Role of social media